MONETARY VALUE: ER. AVINASH KULKARNI

Saturday Brain Storming Thought (215) 23/03/2024

MONETARY VALUE

Monetary Value is the value of something measured in currency

Almost everything relevant to the modern economy can be measured by its monetary value

The price or monetary value of something is determined in the market place and is based upon the law of supply and demand

Legal meaning and definition of Monetary

That which relates to money

The mechanisms supplying it, circulating it and running an economy

Key Takeaways of Monetary Value

1) The monetary value of a product or service is the amount of money or currency paid to obtain it

2) Many of the products or services we use every day hold value from a financial perspective

3) It is also a medium of exchange, not necessary it should be redeemable in money

4) The value of our asset is how much money it is worth, resulting in monetary valuation

5) In a well-functioning market, monetary worth is comparable to market value

6) Examples of objects priced in monetary terms include gold, silver as well as NFT and Bitcoin

No Monetary Value

If an object has little monetary worth, it suggests that it will not attract customers or bring money if sold

Demonetization, for example, leaves old currency worthless

Monetary Cost

Monetary cost refers to the financial expenditure or outlay required to obtain a particular good, service or resource

In the realm of economics and business, it represents the actual amount of money that an individual, business or entity must spend to acquire something of value

Expected Monetary Value (EMV)

Expected Monetary Value (EMV) is a concept used in decision-making to evaluate the potential outcomes of a decision and assign a monetary value to each result

Probability in EMV

Probability represents the likelihood or chance that a particular outcome will occur

It is expressed as a percentage ranging from 0% to 100%

Monetary Value in EMV

It represents the financial value of each potential outcome of a decision

Monetary Value can be positive or negative, depending on whether the outcome is beneficial or detrimental

Calculation of Expected Monetary Value (EMV)

1) Identify the possible outcomes

Identify the possible outcomes of the decision or investment

2) Determine the value of each outcome

This can be expressed in terms of monetary value, such as dollars or euros, such as points or satisfaction

3) Multiply the probability of each outcome by its value

Multiply these two quantities to obtain the expected value of each result

4) Sum the expected values of all outcomes

Sum the expected values of all outcomes to obtain the total predicted value of the decision or investment

Benefits of Expected Monetary Value analysis

1) EMV allows decision-makers to quantify the potential outcomes of a decision of their financial impact

2) Through EMV, the decision-makers can see which opinion will likely have the most significant positive or negative effect

3) EMV, helps decision-makers to identify and account for potential risks and uncertainties

4) By assigning probabilities to different outcomes and estimating their potential financial impact, decision-makers can better understand the potential downside of a decision and take steps to mitigate those risks

5) EMV can also be helpful in situations where there are multiple decision points or complex interdependencies between different options

6) By quantifying the potential outcomes of each decision point, decision-makers can see how other choices at different points in time may impact expected value of a project or decision

7) This can help them to identify optimal decision paths and make more informed choices

Limitations of Expected Monetary Value analysis

1) EMV assumes that all outcomes are equally likely, which may only sometimes be the case of real-world situations

2) This can lead to inaccurate estimates of the expected value of a decision, mainly if the likelihood of specific outcomes to be properly accounted for

3) EMV takes into account the financial impact of a decision and does not consider other factors such as the ethical or social implications of a decision

4) This can lead to financially optimal decisions that may not be socially or ethically responsible

5) The availability and accuracy of data can also limit EMV

6) if data is unavailable or inaccurate, the EMV calculation may be flawed

7) EMV may also be pron to bias if the probabilities and values assigned to different outcomes are not based on objective data

Examples of Monetary Value

1) Goods

Price of good

2) Services

Cost of services

3) Real Estate

Current value of property

4) Stocks

Total value of shares as on today

5) Wages

Salary of a labour

6) Currencies

Current exchange rate

Reasons of Monetary Valuation

1) Business language and integration in today’s accounting system

2) Materiality, trade-offs and integration in corporate strategy, decision-making and monitoring

Cash – Monetary Value

Monetary assets include cash and cash equivalents, such as cash on hands, bank deposits, investment accounts, accounts receivable, Notes receivable, all of which can readily be converted into a fixed or precisely determinable amount of money

Monetary Profit

Monetary Profit refers to the amount available for circulation after the operation expenses for a business or service have been deducted from the total earnings

Monetary Value of resources

Economic value is the monetary value of resources, like material, labour and overheads, used in the making of a product or delivery of a service

Importance of Monetary Value

1) Movement of an investment’s monetary value indicates how well an asset is performing

2) It allows businesses to set the right price for their goods and services, by understanding their worth in the current market

3) It’s useful when we need to attach a value to something that has no market price, such as when an item is very rare

Compiled by