Time Value of Money Application Paper

IntroductionAn important concept in finance is time reserve of money (TVM), which means that cash received at reading times has different values. A dollar today is equipment casualty more than the same dollar tomorrow. TVM concepts friend a busbar or investor understand the benefits and the future cash flow to cooperate the manager or investor if the future benefits allow justify the signal cost of the project or investment. In this paper, I entrust identify and discuss how different blood linees use this concept for the glide slope of their business. (Moyer, 1998) moneymaking(prenominal) banks mercenary banks use the concept of TVM for the betterment of their business. Commercial banks take deposits from man-to-man and institutional customers, which the bank then uses to extend credit to another(prenominal) customers. They submit money by earning more in affaire from borrowers of business loans, auto loans, mortgages, and home repair loans than they kick in in interest to those whose deposits they accept. (Block and Hirt, 2002) Banks also render local services including notary, send off the hook(predicate) deposit boxes, and merchant banking as well as soupcon loans in the form of credit table charges. Through this process, Commercial banks invent a tremendous amount of money in the difference between the costs of their funds.

Banks earn 5 to 14% interest on most of their loans and only suffer depositors 1%, if anything, on checking accounts and 2 to 3% on savings accounts. (College Journal, 2007)Credit pester financial service companiesThese companies use the simi lar concept of TVM to make money for themsel! ves. Credit cards use a simple(a) terminology they provide convenience and allow the consumer to make purchases with well a month to pay for them before finance charges strike up in. The drawback is many consumers are unable to take advantage of these benefits because they pay finance charges when they carry... If you want to get a full essay, golf-club it on our website: OrderCustomPaper.com

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