Question

Why is it important to understand the concepts of inflation, present value, and future value of money as Saudi Arabia moves towards Saudi Vision 2030? What are some of the important terms and concepts that managers must understand in making decisions in today’s global environment? How will these factors affect Saudi Vision 2030?d

Answer 1

It is important to understand the concept of present value and future value along with inflation because when we are investing for the longer period of time, it is the utmost need to understand upon this time value of money concept as these will be providing us with an additional edge for making higher rate of return because these will be magnifying our rate of return and this will also lead to reduction of the rate of return due to time value of money concept and hence the managers should be trying to understand about these financial concept while investing for Saudi vision 2030.

Time value of money concept will be advocating that similar amount of money present today will be having a higher amount of worth than similar money tomorrow so they need to be our understanding of depreciation of money and fund managers with trying to compensate for depreciation of money because when the investment is made for the longer period of time, the value of money will be getting lower and it will mean that there should be a higher rate of return in order to compensate for depreciation of money due to time value of money concept and hence fund managers should be trying to adopt the concept of compounding which will be providing for a higher rate of return and which will be able to beat the overall depreciation in the value of money

This will be helping the fund manager in order to make a higher rate of return by using the concept of compounding and beating the rate of depreciation of time value of money concept and he will also be selecting various alternative after discounting the present value in order to find out the best alternative available for the investment so it can be said that these fundamental financial concept will be helping the fund manager in making best decision.

he should also have important understanding of volatility and sensitivity along with systematic risk present in the environment in order to make himself aware about various risk of the investment about the Global markets so that he will be properly understanding the macro environment of investment into the longer period of time.

These factors may affect the fund positively or negatively based upon the nature of Return and approach of fund manager but inflation will always been negatively impacting the overall rate of return.