Block & Hirt (2005) refer to the decision to invest in new plant and equipment or the introduction of a new product in the market requires using capital allocating, capital budgeting techniques, and determining whether future benefits are large enough to justify current spending. To make those decisions, managers should fully understand the various financial applications of the time value of money and the components of discount/interest rate.
International Capital Markets
The International Capital market provides the opportunity for investment and raising capital using worldwide resources. According to Block and Hirt (2005), the European Monetary Union (EMU) consisting of 12 countries have created a new economic order for Europe. The time value of money emphasizes that one dollar today is worth more than one dollar obtained latter and provides a way to calculate the future value of any investment in order to compare any two investment options.
“A major benefit of the internationalization of capital markets is the diversification of risk” (Woepking, 2008). According to Woepking, Eurobond is one such example which allows investors to invest with Euros in spite of their local currency, which makes the investment free of local currency fluctuations, allows the investors to gain from the rising value of Euro, increases the liquidity of the funds and gives the ability to convert the funds in any of the currencies in order to achieve maximum future value. Eurobonds uses the present value and future value of money concept knowing that the value of investing one Euro today is higher than investing the corresponding U.S dollar amount in a dollar based investment.
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