Internal and external value of money

The cash balances approach emphasises the importance of holding cash balances rather than the supply of money which is given at a point of time. Applicable under All Circumstances: On the other hand, the concept of demand for money plays the major role in determining the value of money. According to Patinkin, Fisher gives undue importance to the quantity of money and neglects the role of real money balances.

Net Present Value and the Internal Rate of Return

Further, the omission of the influence of the rate of interest in the cash balances approach led to the failure of neoclassical economists to recognise the interdependence between the commodity and money markets. The transformation process required the implementation of both a guiding principles framework as VFM is in many instance a subjective matter as well as an effective communication program in the statutory boards to obtain consensus on how VFM is to be measured.

An Alternative Method The US does not have exchange rate policy, but some countries do and purposely manipulates excahnge rates by changing the pegs.


The other equations fail to point how the price level p can be regulated. Further, the cash balances equation does not tell about changes in the price level due to changes in the proportions in which deposits are held for income, business and savings purposes.

This implies that the demand curve for money has a uniform unitary elasticity.

Internal financing

In this case, the real balance effect will not cause a proportionate but non-proportionate change in the demand for money. Thus the cash balances approach considers the demand for money not as a medium of exchange but as a store of value.

The external value of money refers to the purchasing power of money over foreign goods and services. However, the only difference is between the two symbols V and k which are reciprocal to each other. Thus it neglects the short run factors which influence this relationship. If the appropriate IRR if such can be found correctly is greater than the required rate of return, then using the required rate of return to discount cash flows to their present value, the NPV of that project will be positive, and vice versa.

In order words, it neglects the store-of-value function of money and considers only the medium-of-exchange function of money. Patinkin has criticised the Cambridge economists for their failure to integrate the goods market and the money market.

The former relates to a period of time and the latter to a point of time. Halm criticises Fisher for multiplying M and V because M relates to a point of time and V to a period of time. This shows that the value of money is related to the price level because goods and services are purchased with a money unit at given prices.

But the relation between the value of money and price level is an inverse one. The value of money is categorized into the internal and external value of money.

The internal value of money refers to the purchasing power of money over domestic goods and services or otherwise the buying capacity of money.

Changes in the Value of Money: The Quantity Theory of Money and its Variants

Value For Money (VFM) audits can be defined as an objective, professional and systematic examination of systems and procedures that management has established to ensure: financial, human and physical resources are managed with due regard to economy, efficiency and effectiveness; and.

The value of a currency expressed in terms of another currency. For example, if an analyst says one pound is worth two dollars at a given time, he/she is expressing an external value of the pound.

Changes in the Value of Money: The Quantity Theory of Money and its Variants

This contrasts with expressing a currency in terms of itself (which is especially relevant because of inflation).See also: Purchasing power parity. In this example, the internal value of the dollar is greater than its external value.

Let’s say the dollar depreciate in value. As a result, there is a divergence between the internal and external value of the dollar. Search internal external value of currency and thousands of other words in English definition and synonym dictionary from Reverso.

You can complete the definition of internal external value of currency given by the English Definition dictionary with other English dictionaries: Wikipedia, Lexilogos, Oxford, Cambridge, Chambers Harrap.

Internal and external value of money
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Internal rate of return - Wikipedia