Ans: The inverse relationship between speculative demand for money and the rate of interest is that when interest rates rise, speculative demand for money falls, and vice versa. As a result, the speculative demand for the money curve slopes downward to the right. There are two possibilities:
1. People will convert their money into bonds if the market rate of interest is very high and predicted to diminish in the future, i.e. the price of a bond rises, anticipating capital gain from bond-holding. As a result, there is little speculative demand for money.
2. People change their bonds into money in order to avoid future capital loss if interest rates are low and people anticipate that they will rise in the future, i.e. decreasing bond prices anticipating capital loss from bond ownership. They keep cash on hand because they believe that non-monetary assets such as bonds will generate little income, lowering the cost of money keeping.