Discounted Cash Flow (DCF) Valuation is a method of valuing a company or asset based on its projected future cash flows. This method has become increasingly popular among foreign exchange (forex) investors, as it allows for projecting potential profitability based on pragmatic assumptions about the future of the currency market. By forecasting future cash flows, investors can assess the fair value of a currency in a more accurate fashion, ultimately helping to limit the risk associated with investing in the currency market.
Cumulative cash flow and discounted cash flow are two of the most popular methods of assessing the value of a company in the Forex market. Cumulative cash flow takes into account all cash flows from the current period to eternity, whereas discounted cash flow considers only the present value of future cash flows. The use of either one will depend on the individual investor, as both have their advantages and disadvantages. When the present value of future cash flows is considered, investors will take into account the expected rate of return on the asset, as well as inflation and taxes. Both cumulative cash flow and discounted cash flow will allow investors to determine how well an asset will perform in the future and whether or not it is a worthy investment.