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Time Value Of Money

Introduction
“Time Value of Money (TMV) is used to compare investment alternatives, and, to solve problems involving loans, mortgages, leases, savings, and annuities” (GetObjects.com, 1998-2002). The basic concept of TMV is that a dollar today is worth more than in the future. That is true because today’s money can be invested and have interest added to it. This will be the compensation for not spending it right now.
For that to happen, some basic concepts of applications will be used. These concepts will be covered at here and also, the components of a discount/interest rates.
Applications of Time Value of Money
To better understand the applications for TVM, first it is important to know the concept for capital market, which is the market where people, companies, and governments with excess of funds, that was saved from regular income, transfer those funds to people, companies or governments with shortage of funds, because they spent more than they expected, promoting economic efficiency, directing capital to productive uses. They are divided into primary and secondary market.

Primary and Secondary Market
The primary market is where new securities, such as stocks and bonds, are issued. Since this market is limited to issuing new securities only, the secondary market is more important than this one. The secondary market includes stock exchanges, bonds markets, and future and options markets, among others, that deal in the trade of securities.
Capital Market
One of the applications of the TVM is the international capital markets, which started to develop during the 1970s. International capital markets include any transactions with an international dimension, which includes a number of closely integrated markets with some international components. Among others, great examples are foreign exchange market during late 1990s, as well traded stocks and bonds. During the 1990s, many sophisticated communications systems have allowed people from different parts...