Financial Stability Board and Net present value: Difference between pages

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''Financial markets supervision''.
(NPV).
1.
The total present value of all of the cash flows of a proposal - both positive and negative.
For example the expected future cash inflows from an investment project LESS the initial capital investment outflow at Time 0.


(FSB).  
For example a project requires an investment today of $100m, with $120m being receivable one year from now.


The Financial Stability Board was established by the G20 to coordinate, at the international level, the work of national financial authorities and international standard setting bodies (SSBs).  
The cost of capital (r) is 10% per annum.
The NPV of the project is calculated as follows:


PV of Time 0 outflow $100m = $(100m)
PV of Time 1 inflow $120m = $120m x 1.1<sup>-1</sup> = $109.09m
NPV = -$100m +$109.09m = +$9.09m


The Board is established to:
2.
 
In simple ''Net Present Value analysis'' the decision rule would be that all positive NPV opportunities should be accepted, and all negative NPV opportunities should be rejected.
# Develop and promote the implementation of effective regulatory, supervisory and other financial sector policies, and
So the project in the example above would be accepted because its NPV is positive, namely +$9.09m.
# Thereby promote international financial stability.  
 
 
The FSB consists chiefly of central banks, government departments and other national financial and monetary authorities, international standard setting bodies and other groupings.
 
 
In the event of future crises, the FSB stands ready to coordinate cross-border crisis management.


However this assumes the unlimited availability of further capital with no increase in the cost of capital.
A more refined decision rule is that all negative NPV opportunities should still be rejected while all positive NPV opportunities remain eligible for further consideration (rather than automatically being accepted).


== See also ==
== See also ==
* [[Basel Committee on Banking Supervision]]
* [[Capital rationing]]
* [[Basel III]]
* [[Discounted cash flow]]
* [[EDTF]]
* [[Internal rate of return]]
* [[G20]]
* [[Investment appraisal]]
* [[LIBOR]]
* [[Present value]]
* [[MCT]]
* [[Residual theory]]
* [[Moral hazard]]
* [[Risk-free rates]]
* [[Standard Setting Body]]


[[Category:Ethics_and_corporate_governance]]

Revision as of 14:20, 23 October 2012

(NPV). 1. The total present value of all of the cash flows of a proposal - both positive and negative. For example the expected future cash inflows from an investment project LESS the initial capital investment outflow at Time 0.

For example a project requires an investment today of $100m, with $120m being receivable one year from now.

The cost of capital (r) is 10% per annum. The NPV of the project is calculated as follows:

PV of Time 0 outflow $100m = $(100m) PV of Time 1 inflow $120m = $120m x 1.1-1 = $109.09m NPV = -$100m +$109.09m = +$9.09m

2. In simple Net Present Value analysis the decision rule would be that all positive NPV opportunities should be accepted, and all negative NPV opportunities should be rejected. So the project in the example above would be accepted because its NPV is positive, namely +$9.09m.

However this assumes the unlimited availability of further capital with no increase in the cost of capital. A more refined decision rule is that all negative NPV opportunities should still be rejected while all positive NPV opportunities remain eligible for further consideration (rather than automatically being accepted).

See also


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