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What Is Value Conversion?

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  • Written By: M. McGee
  • Edited By: Lauren Fritsky
  • Last Modified Date: 01 April 2018
  • Copyright Protected:
    2003-2018
    Conjecture Corporation
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Value conversion is any process where an item of value is effectively transformed into a different item of value. The most common method of transformation involves a secondary system, usually money. A person sells one asset for money and uses that money to buy a new asset. From an economic standpoint, this process basically makes the first asset into the second asset. Originally, this term applied only to items of real value, but in recent years, the types of assets covered have grown to cover intangibles such as reputation or talent. Lastly, when dealing with the securities market, value conversion has a different meaning that only relates to securities.

The initial meaning of value conversion is still the most common form. This economic definition is often used as a method of comparing the approximate values of two dissimilar items in order to find differences in overall worth. One item is converted into another, and then overall net worth is examined for change. While in some cases this comparison is easy, like trading a luxury car for an egg salad sandwich, other times, it is very tricky, such as trading a combination of money, options and material goods for a different set of securities.

With the strict meaning of value conversion, the compared objects need to have value and must have physical existence. In some cases, such as securities, the physical existence is usually represented through a stock certificate, bond note or similar receipt of purchase. In addition, the assets must be traded directly or liquidated into a monetary asset and then directly purchased.

This strict definition was the common meaning used for many years. In recent years, the term has taken on new identity. In an increasingly information-based and specialized world, certain skills have become much more valuable than they were in the past. In addition, intangibles such as artistic talent, leadership ability or corporate reputation are using value conversion to give them a set monetary amount. This allows the owners of these intangibles to market them effectively to people that can use them.

When dealing only with the securities market, the definition takes on a very different meaning. In this case, value conversion is based on the conversion price of asset. If a security is split using the conversion price, then the value is how much money is made through the split rather than selling the security outright. In order to make money, the conversion price must be below the market price for the asset.

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