Opportunity cost and Opportunity loss: Difference between pages

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The expected return that is foregone by investing in a project, rather than in the next best use of capital or other resources.
The worsening of a financial position when effectively 'locked in' to a course of action or to a particular fixed price or rate, compared with the alternative which could have been followed without the lock-in.


It is the opportunity cost of capital and other resources that is the relevant economic measure for financial decision making purposes.
For example, there is always a risk of opportunity losses when we use a fixing instrument to effectively lock in a (committed) market price.


 
We are effectively locked in to the predetermined and committed market price, instead of being free to take advantage of actual market rates (if they turn out to be more favourable).
Opportunity cost is an important and powerful concept in cash management.
 
Examples of opportunity costs include leaving cash in a non-interest bearing bank account.
 
The organisation loses the opportunity to pay down debt (and save interest) or to invest the cash elsewhere (and earn interest).




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The same as 'opportunity loss'.
Any loss resulting from a failure to take advantage of an opportunity.  




== See also ==
== See also ==
* [[Cost]]
* [[Fixing instrument]]
* [[Cost of capital]]
* [[Opportunity risk]]
* [[Float]]
* [[Regret risk]]
* [[Opportunity cost of capital]]
* [[Opportunity loss]]
* [[Production possibility curves]]
* [[Supernormal profit]]
* [[Value dating]]

Revision as of 06:46, 2 May 2016

1.

The worsening of a financial position when effectively 'locked in' to a course of action or to a particular fixed price or rate, compared with the alternative which could have been followed without the lock-in.

For example, there is always a risk of opportunity losses when we use a fixing instrument to effectively lock in a (committed) market price.

We are effectively locked in to the predetermined and committed market price, instead of being free to take advantage of actual market rates (if they turn out to be more favourable).


2.

Any loss resulting from a failure to take advantage of an opportunity.


See also

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