Value of Money

There are two primary ways to measure the value of money:

Nominal Value: This is simply the face value of the currency. For example, N5 always has a nominal value of N5, regardless of its physical condition.

Real Value: This refers to the purchasing power of money, or what it can buy. It considers inflation, which is the general rise in prices over time.

While the nominal value of money remains constant over time, its real value can change. This means that although N5 today is still worth N5 tomorrow, it may buy less due to rising prices.

For businesses, the goal is to increase their nominal value faster than the real value of money decreases. In other words, they aim to generate more revenue while offsetting the effects of inflation.

Key Factors that Affect the Real Value:

Inflation: This is the sustained increase in the general price level of goods and services in an economy over time.

Interest Rates: These are the charges for borrowing money or the rewards for lending it. Interest rates can affect the purchasing power of money by influencing investment decisions and consumer spending.