Monetary ValueExplained & Defined
Monetary Value Meaning
Monetary Value is the amount of a product or service measured against its relative value in terms of money.
Valuable objects can also be used as a medium of exchange when actual money is not available for a certain transaction.
Some factors like government intervention or supply and demand affect the monetary value of an object.
For example, the measure of a real property’s value will be determined by the amount of money paid by the buyer to the seller.
However, the price of the property is influenced by the property’s market price which moves in proportion to supply and demand.
Explanation
The concept of monetary value is to promote a swift exchange of goods or services between a buyer and a seller.
Price setting considers factors like the product’s uses, benefits, cost, etc.
Goods or services subject to sale transactions relatively hold both an economic and monetary value.
A theory of value was proposed by Adam Smith, an economist, and father of modern capitalism.
The labor theory of value describes the participation of labor in the market valuation of products and services.
While in the subjective theory of value, the input or labor cost is affected by the usefulness of the object, which ultimately affects the final price.
How to Calculate Monetary Value
There’s no certainty that the monetary value of one object is equal to its market value.
The relative monetary value of a product or service lies in how beneficial it is to the public.
But in general, the monetary value of an object may be equal to its market price if the same is manufactured perfectly.
The major influencer of a perfect market price is the law of supply and demand.
If there is a high in demand but the supply is low, it causes a price increase or vice versa.
Expected Monetary Value
The EMV calculation fundamental tenet is the consideration of the probability of all outcomes, scenarios, and occurrences from happening, including negative and positive impacts and the probability of that happening.
Adding all these results together equates to the EMV.
The formula for the EMV is:
EMV = Impact*Probability
Where:
Impact = Impact of dollar occurrence
Probability = Probability of the occurrence
Examples of Monetary Value
Proper valuation of the goods and services helps in the accounting and financial aspects of the whole economic system.
Also, it helps in monitoring the price setting to maintain a good business relationship between the buyer and seller.
Example #1 – Gold (Commodity)
The function of gold as a monetary asset is universal. It is also used as a reserve asset by Central Banks.
In terms of investments, investors lean more towards making investments in gold because it is considered a non-risky investment.
However, when inflation affects the price of gold in the market, investors tend to shy away from investing in it.
Gold has always been considered a valuable item due to its rare characteristics such as its density, durability, and luster which establishes its monetary value.
Example #2 – Non-Fungible Token (NFT)
Non-Fungible Token is a new digital investment option and it mainly focuses on the original digital ownership of documentation, digital, or ownership documentation that is stored in the blockchain such as games, codes, GIFs, images, tweets, etc.
Since it is an electronic-based transaction, the form of ownership can be called a digital certificate of ownership of assets.
Since digital works are convertible into NFT, the manner of collectibles is usually in digital form.
The formation of NFT is through collectibles or any tokenization of digital work.
For every digital work transaction, NFT will act as a certificate of ownership but in digital form.
Digital works of art can be worth millions like the digital artist Beeple who created NFT Images.
The investor paid him $69 million for his digital artwork.
Another example is the founder of Twitter Jack Dorsey who sold his first tweet for $3 million NFT.
What contributes to the monetary value of digital content is its artistic value, creativity, uniqueness, and the demand for the product.
FundsNet requires Contributors, Writers and Authors to use Primary Sources to source and cite their work. These Sources include White Papers, Government Information & Data, Original Reporting and Interviews from Industry Experts. Reputable Publishers are also sourced and cited where appropriate. Learn more about the standards we follow in producing Accurate, Unbiased and Researched Content in our editorial policy.
Cornell Law School "22 CFR § 123.23 - Monetary value of shipments." Page 1 . August 22, 2022