The value of a Certificate of Deposit (CD or GIC) with a fixed term will be determined assuming it is reinvested at its maturity."
3. Financial implications of TVM
Based on approximate calculi of future values of the money, the population will regulate their investments in order to achieve significant profits. Their actions will have numerous influences upon various work domains and industries suck as banking, insurance industry, governmental actions or retirement plans.
The activities of commercial banks are directly influenced by the value of money in the sense of increase or decrease of the realized transactions with the customers, both private individuals as well as corporate bodies.
When the foreseen future value of the money is expected to increase, so will the deposits made by clients to the banks. Bank customers will deposit more money into their saving accounts in the hope that they will register higher profits due to a favorable interest rate. On the other hand, the individuals will tend to avoid requesting credits, as at maturity, they might have to pay a larger amount of money than they currently need to finance their activities.
In the case of a foreseen reduced future value of the money, the population will require more credits from the bank and other financing companies in the hope that at maturity, the rates they have to pay will be significantly reduced. However, with deposits, the population will tend to avoid them as they will not bring future profits.
In a nutshell, the future value of the money influences commercial banks and credit card financial institutions as follows: a high FVM generates an increased demand for saving opportunities from the population and a decreased demand for crediting opportunities, as such an increased supply of crediting and a decreased supply of saving programs. A low FVM generates an increased demand for crediting from the population (therefore a decreased supply from banks and credit companies) and a decreased demand for saving opportunities from the customers (and an increase supply from the bank).
Insurance companies and retirement plan financial providers are also directly influenced...
Given the unique nature of their activity, these institutions need to analyze the financial market and take measures in order to protect themselves from any risks associated with changes in the value of money. For instance, if the value of money seems to grow, the money that these institutions have to pay back to the public will be considerably increased, leading the companies into bankruptcy. On the other hand, if the future value of the money is low, the two institutions will only have to pay little amounts above the initially charged financial resources, in which case they will register high profits.
What is interesting about the TVM is that the general population and the financial institutions have opposite desires and register profits from opposite situations. Therefore, the TVM needs to be constantly analyzed and regulated by a higher financial authority.
Bibliography
Wikipedia, The Free Online Encyclopedia, Time Value of Money, December 3, 2006 http://en.wikipedia.org/wiki/Time_value_of_money,last accessed on December 9, 2006
Gallager, T; Andrew, Jr. J., Financial Management: Principals and Practices, Upper Saddle River, NJ: Prentice Hall, 1996
http://www.getobjects.com/Components/Finance/TVM/concepts.html, last accessed on December 9, 2006
Kieso, D; Weygandt, Jerry, Intermediate Accounting, 9th Ed., New York, NY:John Wiley & Sons, Inc., 1993, http://www.getobjects.com/Components/Finance/TVM/concepts.html, last accessed on December 9, 2006
McCracken, Mark, The time value of money, 16 July 2005. http://www.teachmefinance.com/timevalueofmoney.html, last accessed on December 9, 2006
Wikipedia, The Free Online Encyclopedia, Time Value of Money, December 3, 2006
Gallager, T; Andrew, Jr. J., Financial Management: Principals and Practices, Upper Saddle River, NJ: Prentice Hall, 1996
Kieso, D; Weygandt, Jerry, Intermediate Accounting, 9th Ed., New York, NY: John Wiley & Sons, Inc., 1993
McCracken, Mark, The time value of money, 16 July 2005
Wikipedia, The Free Online Encyclopedia, Time Value of Money, December 3, 2006
