Transaction demand for money arises because money is required to conduct transactions. Since people need money for exchanges, the value of transactions determines the quantity of money people desire to hold. The larger the quantum of transactions to be made, the larger the quantity of money demanded.

This demand is related to the value of transactions through the equation $M^d_T = k.T$. Here, $M^d_T$ is the transaction demand for money, $T$ is the total value of (nominal) transactions in the economy over a unit period, and $k$ is a positive fraction. Thus, the transaction demand for money is a fraction of the total volume of transactions over a specified period.