Group 5 –
Time value
and Forex
Amos Ng, Priya
Time value of money
●
As the time flows, the time value of the money declines.
●
The present value and the future value are linked by a formula
that depicts how the present value when divided by the discount
rate would equate to the future value.
●
A dollar received in the future (future value) is not worth a dollar
in today's value (present value)
Time Value Of Money
Investment
Investors prefer to receive
money today rather than the
same amount of money in the
future because a sum of
money grows once it is
invested.
If we put 100 dollars in the
bank today, with interest
earning it could grow overtime.
Inflation
Inflation further reduces the
value overtime.
For example if I have $10 now, I
can buy 2 ice creams for $5
each. Now after 2 years, if the
price of the ice cream
increases to $9, my $10 can
only buy 1 ice cream.
Forex
Buying/Selling of currency
Definition
Bid/Ask Price
Difference between the prices
quoted for an immediate sale
and an immediate purchase!!
Base
Currency
Quote
Currency
USD/EUR
0.8800/0.8929
Bid Price
Ask Price