Future Business Leaders of America (FBLA) Business Calculations Practice Test

The concept that money now is more valuable than the same amount in the future is:

1. Time value of money

2. Inflation

3. Cash is king

4. Deflation

The correct answer is: Time value of money

The time value of money is a fundamental financial principle that states that a specific amount of money has a different value depending on when it is received. This concept hinges on the idea that money can earn interest over time, meaning that a dollar today can grow to be worth more in the future simply by being invested or saved. When you have money now, you can invest it and generate returns, thus increasing its overall value. Conversely, receiving the same amount of money in the future does not offer the same potential for growth because you miss out on the opportunity to earn interest during the intervening period. This principle highlights the importance of considering the timing of cash flows in financial decision-making, influencing how investments, savings, and loans are evaluated. Inflation, on the other hand, refers to the rise in prices over time, which diminishes the purchasing power of money, but it does not encapsulate the broader concept of the time value of money. Cash is king indicates the importance of liquidity in business, emphasizing immediate availability rather than timing value. Deflation involves the decrease in general price levels, which again does not address the comparative value of money over time.