Fungibility refers to the interchangeability of components without diminishing value. Highly fungible products are standardized and easily replaceable, while non-fungible products are rare and specific. Fungibility affects market value and job security, and evaluating it can save time and resources for investors and corporations.
Fungibility refers to the degree to which components of an operation or product can be interchanged with similar components without diminishing the value of the operation or product. Often used as a term to describe products, fungibility can also be used in a sociological context to contrast it with mental accounting patterns seen in behavioral finance studies. In a practical sense, this term can be used to describe the monetary value of a single dollar of US currency. Exchangeable in a variety of ways, this dollar can be replaced by four quarters, 20 nickles, or 100 cents without losing value.
An important concept in commerce, the fungibility of goods or services can be classified by a company to make it easier to replace it in the event that it is not available. Highly fungible products are therefore relatively standardized. Examples of highly consumable products can be found in many of the products sold at an auto parts store. For example, if a car windshield wiper fails, another similar product can be purchased to replace the defective product. By contrast, a non-fungible product is rare and specific in nature. An example of a non-expendable product is a letter genuinely autographed by the English novelist Charles Dickens. If this card is burned in a fire, it is irreplaceable.
Arbitrage practitioners may be interested in identifying the degree to which a range of securities is fungible. Highly fungible products generally have a low degree of volatility. Less fungible items, on the other hand, are likely to express a less stable market value.
Even people can be treated as expendable components of an organization. For example, employees who can be reassigned from one department of a company to another may be viewed as highly fungible, while an employee whose position cannot be filled by anyone else within a company is considered non-expendable. In this way, a person’s job security is closely related to their fungibility. If it’s easily replaceable, it’s probably pretty expendable as well, but if it’s not very easy to replace, your employer may offer attractive incentives to keep you on board.
By evaluating the fungibility of goods or services, an investor or corporation can save considerable time, resources, or even money. Thus, the degree to which a corporation’s investments are fungible may determine the degree to which the corporation itself can be profitable.
Smart Asset.
Protect your devices with Threat Protection by NordVPN
