Paper Topic:
Time value of money
The international capital markets and how this relates to the time value of money Just like an ordinary market , a capital market is a place where two (or more ) parties meet to offer something the other does not have . In the capital market , people , institutions , organizations , and even government who have extra income or more funds than they need currently offer these extra income to another set of people or group who is in need or has shortage of funds because they are spending more than what they are earning or what
they currently have . Example of capital markets are the bond and stock market , or the equities market . It is through capital markets that economic efficiency is somehow ensured because extra funds (supposedly just stagnating in banks or somewhere else ) or being put into a use by those who need but do not have them in other words , these types of markets bring out the desired economic function of re-directing sleeping capital , so to speak , to productive uses
A simple example of how capital markets work is in case where Citizens X and Y have extra 1 million . In another part of the world , there are companies who have brilliant concept and investment ideas but do not have enough capital to execute them . The capital markets link these two parties , and allow the company to have additional capital to put their ideas into implementation and for citizens X and Y to have a larger interest to their stagnant extra income instead of putting them into low-yielding regular savings bank account
How are these capital markets related to the time value of money Because money is never an asset but merely a medium of buying power , its power does not appreciate nor depreciate . What happens is that inflation increases and thus , the buying power of these money decreases This means that Z amount of money will have an absolute value of Z in any given time , but if the inflation would be factored in , this might have a value of (Z - 3 ) after A years . In capital markets , for government bonds for example , an investment of Z amount is guaranteed 8 (just an estimate ) yield compounded annually if the investor /s promise to retain the investment for a certain number of years
Reference
Woepking , J . 2007 . International Capital Markets Their Importance . The University of Iowa Center for International Finance and Development Available at HYPERLINK "http /www .uiowa .edu /ifdebook /ebook2 /contents /part3-II .shtml http /www .uiowa .edu /ifdebook /ebook2 /contents /part3-II .shtml . Date accessed : October 29 , 2007
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