There are a number of varied external influences which affect decision making and a firms ability to meet their objectives. Some implications prove to be positive, whilst others are negative. How would a business react to such influences?
Interest Rates - The price of borrowed money The Monetary Policy Committe regularly alter these rates. What impact would these alterations have on a business?
A Rise in Interest Rates
- Reduce Spending
- Increase saving
- Prices of credit goods would rise
- Mortgage repayments would be higher
- Consumers would have a lower disposable income
- Businesses will face higher overheads
- Investments would be unviable
- There will be a higher demand for the pound, therefore more foreign investment
Interest Rates Continued...
A Fall in Interest Rates
- Increase demand
- More expenditure
- The value of the pound will fall against other major currencies
- Basically the reverse to 'a rise in interest rates'
Exchange Rates - The price of one currency expressed in terms of another
Internation foreign exchange market. An increase in supply and demand of currency, will increase its value
(2) 'Dirty' Floating
A short term tactic, used by the Government by intervening in the market, to influence the value of a currency
(3) Fixed Exchange Rates
Exchanging single currency e.g Euro
THE EFFECTS ON A BUSINESS:-
- Difficulty forecasting overseas earnings
- Costs of imports?
- Prices charged overseas
Inflation is the rise in the level of prices and the corressponding fall in the value of money - measured using the Retail Price Index
There are 2 main causes
(1) Demand-pull (2) Cost-Push