Monetary Value Meaning
Monetary value refers to the value of a product or service measured in terms of money. Objects having monetary worth can replace money in specific circumstances and act as a medium of exchange.
An object’s monetary worth is associated with several factors like government intervention, supply & demand. For example, the value of a house is the amount of money paid to the seller to obtain it. Generally, the money spent will be directly proportional to the market priceMarket PriceMarket price refers to the current price prevailing in the market at which goods, services, or assets are purchased or sold. The price point at which the supply of a commodity matches its demand in the market becomes its market price. influenced by supply and demand.
Table of contents
- The monetary value of a product or service is the amount of money or currency paid to obtain it. Many of the products or services we use every day hold value from a financial perspective.
- It is also a medium of exchange; not necessary it should be redeemable in money.
- The value of our asset is how much money it is worth, resulting in monetary valuation. In a well-functioning market, monetary worth is comparable to market value.
- Examples of objects priced in monetary terms include gold, silver as well as NFT, and bitcoinBitcoinBitcoin is a digital currency that came into existence in January 2009, speculated to be created by Satoshi Nakamato, whose true identity is yet to be authenticated. It provides lower transaction fees than the traditional online payment systems, is controlled by the decentralized authority, and is not like government-issued currencies..
In an economyEconomyAn economy comprises individuals, commercial entities, and the government involved in the production, distribution, exchange, and consumption of products and services in a society., the notion of monetary value allows buyers and sellers to exchange goods and services. It necessitates a price calculation based on benefits, uses, input cost, and durability to substantiate monetary worth.
In modern economies, most products and services exchanged between buyers and sellers hold an economic value. Essentially anything that can be bought or sold in an exchange can have monetary worth. Hence, the term may describe the price or cost of the product and services.
Adam Smith, the father of modern capitalismCapitalismCapitalism is an economic system consisting of businesses, resources, capital goods, and labour. Private entities own it, and the income is derived by the level of production of these factors. Because of the private hands, these entities can be operated efficiently and maximize their production activity also. and one of the most prominent economists, proposed a theory on value. The labor theory of value describes how labor affects the economic worth of products and services. In contrast, the subjective theory of value states that the usefulness characteristic of a product or service affects the input cost or labor, and hence the ultimate price.
Financial Modeling & Valuation Course (25+ Hours of Video Tutorials)
How to Calculate Monetary Value?
The monetary valuation process involves the gauging of benefits exhibited by the object in terms of currency. It is not certain that monetary value is equal to market value. However, generally, we can say that it is comparable to the market price if it is perfect or well-functioning.
The law of supplyLaw Of SupplyThe law of supply in economics suggests that with other factors remaining constant, if the price of a commodity increases, its market supply also goes up and vice-versa. and demand majorly influences a well-functioning or perfect market price. If supply is stable or low, an increase in demand causes a price rise, and if demand is stable or down, the price drops if the supply increases.
Expected Monetary Value
The basic idea of paving the base of EMV calculation is that it considers all probable outcomes/events/occurrences, including their positive and negative impact and probability. Subsequently, adding resultants together gives EMV.
The expected monetary value calculator uses the following formula:
- Impact: The impact of occurrence in dollar
- Probability: Probability of the occurrence
Monetary Value Examples
Having a value in financial terms for goods and services allows the economy and economic systemsEconomic SystemsThere are four prominent types of economic systems in the world based on their characteristics. It includes traditional economy, command economy, market economy and mixed economy. to function correctly. In addition, it helps keep prices in check, allowing for a healthy relationship between buyers and sellers. Here are a few examples explaining the concept and what it entails.
Example #1 – Gold (Commodity)
Gold is a prime example of an item priced in monetary terms. The notion of gold as a monetary asset is universal, central banks use it as reserve assets, and investors perceive it as a non-risky choice. However, the price of gold has fluctuated drastically over time due to factors like inflation or economic crisis that have either intrigued or scared away investors.
Throughout history, gold represents a valuable item that is worth exchanging. The rare characteristics of gold, like durability, density, and luster, substantiate its worth in monetary terms.
Example #2 – Non-Fungible Token (NFT)
Non-fungible tokens or NFTsNon-fungible Tokens Or NFTsAn NFT (non-fungible token) is a disparate crypto-asset utilizing blockchain to record the exclusive ownership of unique artworks. This facilitates an unmediated art representation to gain more revenue and connect with a global audience. are a relatively new type of investment optionType Of Investment OptionStocks, bonds, and cash equivalents are the three main forms of investments. Investment, in general, refers to the purchase of anything for future use with the goal of generating a regular cash flow or increasing the value of something over time so that it can be sold for a higher price than it was purchased for, i.e. capital gains. . They take the form of digital content, documentation of ownership stored on the blockchain. It authenticates the original version of any digital piece of work like GIFs, images, games, code, artwork, and tweets. Hence, we can call it a digital certificate of ownership of assets.
NFTs are usually associated with the digital form of collectibles. This is because people can convert their digital work into an NFT. In simple words, we can say that the tokenization of digital work or collectibles takes place to form NFT. It acts as a digital certificate of ownership of digital work or collectibles. Thus, NFTs are essentially digital collectible items that people can buy, sell and trade.
An investor paid $69 million for an NFT of images by digital artist, Beeple. Jack Dorsey, the founder of Twitter, reportedly sold an NFT of his first tweet for over $3 million. The uniqueness, creativity, artistic value, and the level of demand for the product attribute to its monetary worth. It helps creators or investors to earn money and control ownership rights.
Frequently Asked Questions (FAQs)
The monetary value of a product or service is the price expensed or needed in financial terms to acquire it. Many real-world applications, such as GDP and the EMV approach in project evaluation, demonstrate the concept’s importance. For example, GDP denotes the monetary worth of completed products and services generated in a nation over a given period.
The monetary value definition of an object indicates the cash amount obtained in exchange for its sale. Also, from a legal standpoint, it can be a medium of trade and does not have to be redeemed in money.
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. In addition, the financial value of an object may differ depending on the country or scenario. For example, consider fuel and gold prices.
This article has been a guide to Monetary Value & its Meaning. Here we discuss how to calculate monetary value along with examples and key takeaways. You can learn more about from the following articles –