Importance of Inflation, Future, and Present Value

Posted: August 26th, 2021

Importance of Inflation, Future, and Present Value

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Importance of Inflation, Future, and Present Value

Inflation is an indicator of the unfavorable increase in commodity prices and the present value represents the current value of an economy’s currency. The future value refers to the anticipated increase in the money value of an investment. Hence, the three concepts are key economic aspects in making investment decisions. Primarily, future value determines whether an investment is worth. For instance, an increasing future value indicates a promising investment return and otherwise when the value is showing negative returns. Additionally, inflation determines the value of money. Increasing inflation rates implies that the investment value is likely to increase faster; hence, it is a healthy period for an investment. Equally, the present value helps in determining the present worth of the proposed investment.

            In making decisions within the current economic environment, there are some concepts and terms that managers should understand. These are recession, present value, inflation, and future value as defined below:

1. Recession – this refers to a temporal decline in the economic performance often characterized by low industrial production.
2. Present value – it is the current value of an asset or assets.
3. Inflation – it is the rate of increase in commodity prices.
4. Future value – it is the anticipated increases in the investment value of an asset.

            These concepts are critically important to business managers and leaders in Saudi Arabia since it helps them have knowledge about the appropriate time and preferred areas of investment. The concepts are important to Saudi Arabia’s vision 2030 as they affect economic plan and investment. Thus, inflationary pressures affect any project that the country plans to make an investment. As such, adequate measurements in terms of present and future value should be made.