Time Value of a Dollar Essay Example | Topics and Well Written Essays - 750 words

Time Value of a Dollar - strive ExampleCritics are already arguing that the dollar can no longer be the reservation currency especially after the collapse of the U.S mortgage market, which set off the most awful ball-shaped recession recently. There are a couple of cogitates people prefer the present honor of a dollar. If they can invest the money to earn interest over a period of time that is greater than a future payment, they will invest it in the present. Inflation is also a key constituent in time care for evaluations since it reduces the spending power of a dollar. Inflation is the persistent increase of prices and a dollar today may buy less quantities of a similar commodity in the future. victorious this into consideration one would rather invest now in a project that would earn them endless cash flows rather than save that money to use it at a future date. Another reason is the default risk, which is the threat of not receiving the promised dollar in future. To unde rstand time value of money we particularize the terms Net Present value, Future present value and present value. The net present value is the value of future streams of cash flows into the cash at hand in the present date. The future value is the value of the money an individual has now at a later day. ... Different scholars explain that at that place is need to create strong fundamentals of the U.S economy, build investor sanction and diversify out of the dollar in order to protect it from depreciating with time. The U.S economy has weak fundamentals such as huge discipline debt, high unemployment rates, and international military operations. In a highly publicized vote the senate recently elevated the debt ceiling to $14.3 trillion to avoid defaulting debt obligations which would be a catastrophe by itself. This could create a debt operate crisis that could strain standards of living by being detrimental to economic growth, dampen wages and restrict the governing body from investing or providing a safety net. It is necessary that the debt ceiling is not exceeded so as to nix this debt driven crisis as it would accelerate the depreciation of the dollar. Military expenses are not productive and are a nonmonetary reason for inflation, an opinion that most economists share. There is the need to show creditors that the government is serious about change federal debt. Spending cuts are necessary to protect against the decreased value of money in future. construct investor confidence is a key to protecting the future value of money, and the government must ensure that it restores investor confidence for most believe that printing excess money for bailouts and stimuli will eventually weaken the dollar (Steverman). plus prices should be watched carefully so that they await in line with their underlying values and also do all it can to ensure economic growth. So far, the low dollar policy has helped as it has ensured that exports remain higher than imports . And if this keeps up there is hope that in the future the value of the dollar will be