Value of money- (value of money) – the amount of interest for which you can get a loan (credit) on the market. This value is largely influenced discount rate percent Central Bank, as well as the inflation rate. S.d. sometimes called the price of money and accordingly... ... Economic and mathematical dictionary

Purchasing power monetary unit, the number of goods and services that can be purchased per monetary unit at the current level market prices. Raizberg B.A., Lozovsky L.Sh., Starodubtseva E.B.. Modern economic dictionary. 2nd ed... Economic dictionary

VALUE OF MONEY Legal encyclopedia

VALUE OF MONEY- the amount of goods and services that can be exchanged for a unit of money; purchasing power monetary unit; the reciprocal of the price level... Large economic dictionary

Purchasing power of a monetary unit, the number of goods and services that can be purchased per monetary unit at the current level of market prices... Encyclopedic Dictionary of Economics and Law

value of money- purchasing power of a monetary unit, the number of goods and services that can be purchased per monetary unit at the current level of market prices... Dictionary of economic terms

This article lacks links to sources of information. Information must be verifiable, otherwise it may be questioned and deleted. You can... Wikipedia

Time value of money- (TIME VALUE OF MONEY) concept based on the fact that money should earn interest; The value of today's money is higher than the value of the same amount received in the future... Dictionary of investment and valuation terms

The value of money in modern conditions- the quantity of goods and services that can be exchanged for a unit of money, the purchasing power of a monetary unit ... Dictionary of economic terms and foreign words

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Books

Fundamentals of Financial Management, Van Horne James S., Wachowicz John M. Jr. The book “Fundamentals of Financial Management” is one of the most popular publications on financial management. It is distinguished from similar publications by its practical orientation, therefore...
Finance, Alexandra Brovkina. Wide range considered financial problems. The first part most fully presents discussions about the substantive potential of finance, its functions and role in national and global... eBook

Value of money

Money is a commodity that has its own intrinsic value at the stage of the emergence and formation of market relations. Thanks to this, money played the role of a general value equivalent in the world of goods. Being in the form of paper money redeemable for gold, they are considered as signs of the value of a monetary commodity. Exchangeable paper money, which did not have its own internal value, represented in circulation the value of the weight fraction of gold, officially determined on the basis of a fixed state scale of prices. Modern cash must have relative value. As a result, they function in circulation as legal tender in that they are money declared by the state; their value is formed spontaneously under the influence of market forces.

Signs of the economic usefulness of money:

Having absolute liquidity, money can be exchanged for other goods;

Money is a convenient form of accumulating wealth, and storing it in this form requires a minimum of costs;

Money has a unique property - providing a connection between the present and the future.

The value of money is determined by its purchasing power, and the price of a particular monetary unit is its exchange rate.

The relative value of money as a medium of exchange is determined indirectly as its purchasing power; its value is compared with the cost of goods and services that can be bought with it. The dynamics of the value of money is determined by the dynamics of prices:

The value of money can be determined by one of the following indicators:

Based on the retail price index;

Based on the wholesale price index;

Through the GDP deflator (comparison of the nominal and real values of GNP).

The relative value of money in the accumulation function, used in the form of financial assets (stocks, bonds, other securities), is determined by the interest rate, which is the fee for storing money in exactly one of the forms.

Functions of money

In the economic literature on the theory of monetary relations, the initial and central function in the system of monetary relations is the function of the measure of value, because it is this function that supplies the commodity mass with the necessary material to express its value. Cost, on the one hand, generates a measure function

value, on the other hand, manifests itself in the price of a product only on the basis of this function. A measure of value is a monetary unit "which is used to measure and compare the cost of goods and services. Based on the measure of value, a price is set, which is the monetary expression of the value of goods. The price depends, on the one hand, on the cost of goods, and on the other, on the value of the value itself monetary unit. The cost of goods may remain unchanged, however, in the case when the value of the monetary unit decreases, the prices of goods will rise, therefore, we are talking about an inversely proportional relationship between price and the value of the monetary unit. Money realizes its function as a measure of value through interaction with the scale of prices The price scale is a purely technical function, that is, a counting function of money, reflecting the value of the commodity mass in monetary units.The price scale is associated with devaluation (the official decrease in the exchange rate of the ruble relative to another currency) and revaluation (increase in the exchange rate) of monetary units.

Money performs the function of circulation, therefore, it is a special commodity that can be exchanged for another commodity, and vice versa.

The amount of money needed in circulation (M) to perform the function of a medium of circulation is determined by the price of goods and services to be sold within a certain period of time:

Where r and- price of the i-th product; qi- quantity of the i-th product.

Each monetary unit is used more than once during the circulation process. Hence, the sum of the prices of goods must be divided by the value V - the average circulation number of each bill:

Consequently, the amount of money needed for circulation varies in direct proportion to the sum of the prices of goods and services sold and inversely proportional to the speed of circulation of money.

The features of the credit economy, that is, the realities of buying and selling goods on credit, with deferred payment, are reflected by the function of the means of payment. In this case, the means of circulation are not the money itself, but the obligations expressed in money. The following monetary payments are based on the use of the means of payment function:

Payments by bank transfer to enterprises, institutions, organizations for goods and services;

Salary;

Issuance and repayment of bank loans;

Settlements related to insurance, administrative and judicial obligations, etc.

Accumulation of value at the disposal of legal and individuals in the process of development of commodity production, the function of a means of accumulating money serves. The formation of savings accumulations causes certain expenses for their owners. During inflation cash turnover increases to 30 percent or more, and the function of the store of value is sharply reduced, because this leads to a loss from the depreciation of money. The structure changes accordingly money circulation, which is performed by various functions of money.

So, to determine the value of income-producing property, it is necessary to determine the current value of the money that will be received some time in the future.

It is known, and in conditions of inflation it is much more obvious, that money changes its value over time. The main operations that make it possible to compare money at different times are the operations of accumulation (increase) and discounting.

Accumulation is the process of bringing the current value of money to its future value, provided that the invested amount is held in the account for a certain time, earning interest that accrues periodically.

Discounting is the process of bringing cash receipts from investments to their current value.

In valuation, these financial calculations are based on a complex process in which each subsequent calculation of the interest rate is carried out both on the principal amount and on the accrued interest. previous periods unpaid interest.

A total of six functions of the monetary unit based on compound interest are considered. To simplify calculations, tables of six functions have been developed for known rates of income and the accumulation period (I and n); in addition, you can use a financial calculator to calculate the required value.

1 function: Future value of a monetary unit (accumulated amount of a monetary unit), (fvf, i, n).

If accruals are made more often than once a year, then the formula is converted to the following:

k– frequency of accumulations per year.

This function is used when the current value of money is known and it is necessary to determine the future value of a monetary unit at a known rate of income at the end of a certain period (n).

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Rule of 72x

To approximately determine the period for doubling capital (in years), it is necessary to divide 72 by the integer value of the annual rate of return on capital. The rule applies to rates from 3 to 18%.

A typical example for the future value of a monetary unit would be a problem.

Determine what amount will be accumulated in the account by the end of the 3rd

year, if today you put it into an account that brings 10% per annum, 10,000

FV=10000[(1+0.1) 3 ]=13310.

2 function : Current value of the unit (current value of reversion (resale)), (pvf, i, n).

The current value of a unit is the inverse of its future value.

If interest is calculated more often than once a year, then

An example of a problem is the following: How much should be invested today in order to get 8000 in the account by the end of the 5th year, if the annual rate of return 10%.

3 function : Present value of the annuity (pvaf, i, n).

An annuity is a series of equal payments (receipts) spaced from each other by the same period of time.

There are ordinary and advance annuities. If payments are made at the end of each period, then the annuity is ordinary; if at the beginning, it is an advance annuity.

The formula for the present value of an ordinary annuity is:

PMT – equal periodic payments. If the frequency of accruals exceeds 1 time per year, then

Formula for the present value of an advance annuity:

Typical example:

The rental agreement for the dacha is for 1 year. Payments are made monthly in the amount of 1000 rubles. Determine the current value of lease payments at a 12% discount rate if a) payments are made at the end of the month; b) payments are made at the beginning of each month.

4 function : Accumulation of a monetary unit for a period (fvfa, i, n).

As a result of using this function, the future value of a series of equal periodic payments (receipts) is determined.

Payments can also be made at the beginning and end of the period.

Ordinary annuity formula:

Typical example:

Determine the amount that will be accumulated in an account yielding 12% per annum by the end of the 5th year, if 10,000 rubles are annually deposited into the account a) at the end of each year; b) at the beginning of each year.

5 function : Contribution to depreciation of a monetary unit (iaof, i, n) The function is the inverse of the present value of an ordinary annuity. The contribution to the depreciation of a monetary unit is used to determine the amount of the annuity payment to repay a loan issued for a certain period at a given loan rate.

Amortization is a process defined by this function that includes interest on the loan and payment of the principal amount.

For payments made more often than once a year, the following formula is used:

An example is the following task: Determine what payments should be in order to repay a loan of 100,000 rubles issued at 15% per annum by the end of the 7th year.

6 function : Compensation fund factor (sff, i, n)

This function is the inverse of the function of accumulating a unit over a period. The compensation fund factor shows annuity payment, which must be deposited at a given percentage at the end of each period in order to receive the required amount after a given number of periods.

To determine the amount of payment, the formula is used:

For payments (receipts) made more often than once a year:

An example would be a task.

Determine what payments should be in order to have 100,000 rubles in an account earning 12% per annum by the end of the 5th year. Payments are made at the end of each year.

The annuity payment defined by this function includes payment of the principal amount without payment of interest.

To determine the value of an investment project or property, it is necessary to determine the current value of money that will be received some time in the future. Under inflation, money changes its value over time. The main operations that make it possible to compare money at different times are the operations of accumulation (increase) and discounting.

Accumulation – This is the process of reducing the current value of money to its future value, provided that the invested amount will remain in the account for a certain time, earning periodically compounded interest.

Discounting – the process of reducing the cash flows from an investment to its current value.

1 function. Let's determine the future value of a monetary unit (the accumulated amount of monetary units)

FV - future value of a monetary unit,

PV – current value of the monetary unit,

i – income rate,

n – number of accumulation periods in years.

Task. Determine what amount will be accumulated in the account by the end of 3 years, if today you deposit 10 thousand rubles into the account at 10% per annum.

2 function. Current value of a monetary unit (current resale reversion value)

Task. How much should you invest in today? investment project in order to receive 8 thousand rubles by the end of 5 years. Income rate is 10%.

3 function. Determining the current value of an annuity.

Annuity is a series of equal payments (receipts) spaced from each other by the same period of time.

There are ordinary and advance annuities. If payments are made at the end of each period, then the annuity is ordinary; if at first - advance.

The formula for the present value of an ordinary annuity is:

PMT – equal periodic payments.

Task. The rental agreement for the dacha is for 1 year. Payments are made monthly in the amount of 1 thousand rubles. Determine current value rental payments at a 12% discount rate. n = 12 (number of periods – months).

4 function. Accumulation of a monetary unit over a period. As a result of using this function, the future value of a series of equal periodic payments or receipts is determined.

Task. Determine the amount that will be accumulated in an account yielding 12% per annum by the end of the 5th year, if 10 thousand rubles are annually deposited into the account.

5 function. Contribution for depreciation of a monetary unit.

This function is the reciprocal of the present value of an ordinary annuity.

Depreciation is a process defined by this function and includes interest on the loan and payment of the principal amount.

Task. Determine what annual payments should be in order to repay a loan of 100,000 rubles issued at 15% per annum by the end of the 7th year.

An annuity can be either a receipt (incoming cash flow), and payment (outgoing cash flow), in relation to the investor. Therefore, this function can be used in the case of calculating the amount of an equal contribution to repay a loan with a known number of contributions and a given interest rate. This loan is called self-amortizing loan.

6 function. Considers the allocation fund factor and is the inverse of the unit accumulation function for the period.

To determine the amount of payment, the following formula is used:

Task. Determine what payments should be in order to have 100,000 rubles in the account at an annual rate of 12% by the end of 5 years.

The essence of assessing the value of a profit-generating enterprise is that the current value of the profit that will be received in the forecast period is determined. The value of the current value of profit does not correspond to the value of future profit, since a hryvnia received tomorrow is worth less than a hryvnia received today. This is due mainly to two reasons. First, money generates income over time; secondly, inflationary processes depreciate the ruble. In this regard, in order to determine the current value of tomorrow's hryvnia, it is necessary to carry out appropriate calculations.

To determine the value of a property that will generate income, it is necessary to determine the present value of the money that will be received at some time in the future.

Saving is the process of bringing the present value of money to its future value, provided that the invested amount is held in an account for a certain time, earning periodically compounded interest.

Discounting is the process of reducing cash flows from an investment to their current value.

In valuation, these financial calculations are based on a complex process in which each subsequent calculation of the interest rate is carried out on both the principal amount and the unpaid interest accrued for previous periods.

1 function: Future value of a monetary unit (accumulated amount of a monetary unit), (fvf, i, n).

If accruals are made more often than once a year, then the formula is converted to the following:

k is the frequency of accumulations per year.

This function is used when the current value of money is known and it is necessary to determine the future value of a monetary unit at a known rate of income at the end of a certain period (n).

Rule of 72x

A typical example for the future value of a monetary unit would be a problem.

Determine what amount will be accumulated in the account by the end of the 3rd year if today you put 10,000 rubles into an account that brings 10% per annum.

FV=10000[(1+0.1)3]=13310.

Function 2: Current value of the unit (current value of reversion (resale)), (pvf, i, n).

The current value of a unit is the inverse of its future value.

If interest is calculated more often than once a year, then

Function 3: Current value of the annuity (pvaf, i, n).

An annuity is a series of equal payments (receipts) spaced from each other by the same period of time.

There are ordinary and advance annuities. If payments are made at the end of each period, then the annuity is ordinary; if at the beginning, it is an advance annuity.

The formula for the present value of an ordinary annuity is:

PMT - equal periodic payments. If the frequency of accruals exceeds 1 time per year, then

Formula for the present value of an advance annuity:

5 function: Contribution to depreciation of the monetary unit (iaof, r, n)

The function is the reciprocal of the present value of an ordinary annuity (function 3). The contribution to the depreciation of a monetary unit is used to determine the amount of the annuity payment to repay a loan issued for a certain period at a given loan rate.

Amortization is a process defined by this function that includes interest on the loan and payment of the principal amount.

For payments made more often than once a year, the following formula is used:

6 function: Compensation fund factor (sff, i, n)

This function is the inverse of the function of accumulating a unit over a period. The recovery fund factor shows the annuity payment that must be deposited at a given percentage at the end of each period in order to receive the required amount after a given number of periods.

To determine the amount of payment, the formula is used:

For payments (receipts) made more often than once a year:

basic formula compound interest(1 + i)t, characterizing the accumulated sum of the unit. All five compound interest functions are derivatives of the first (direct) compound interest function: the accumulated unit function (the future value of the unit). Each of these functions assumes that the money deposited will earn interest as long as it remains there. Each factor is based on the effect of compound interest, in which the interest received is transferred to the principal amount.

An important relationship between the functions of compound interest is the following: the sum of the compensation fund factor (column 3) and periodic interest (i) is equal to the depreciation contribution of one dollar. This relationship shows that the depreciation contribution per unit is the sum of the two elements, as noted above. One element is interest (return on investment); second - compensation capital investments(return investment funds). By calculating loan payments based on a dollar amortization fee, the borrower pays back the loan principal plus interest over the life of the loan. If only interest is paid, the borrower accumulates the principal amount in a separate account based on the values of the recovery factor. Given that the recovery fund earns interest at the same rate as the loan, at the end of the loan term, the remainder of the recovery fund is used to pay off the outstanding principal amount of the loan.

Thus, the depreciation contribution of one dollar (column 6) always exceeds the periodic interest rate, regardless of the term of the loan.

Likewise, the present value of an ordinary annuity (Column 5) never exceeds the factor equal to the quotient of $1 divided by the periodic interest rate.