2.1 - Raising Finance Flashcards
Business cycle
A cycle or series of cycles of economic expansion and contraction
Growth (business cycle)
A period of improving economic circumstances. Business profits are improving, consumer confidence is improving, jobs created
Boom
A period of rapid growth
- Wealth quickly increases
- Business profits leap upwards
- Living standards across the economy make rapid improvements
Recession
A period of slow/no economic growth
- Increased failure
- Interest rates reduced
- Lower spending
Interest rates
The cost of borrowing money or the return for investing money
Inflation
A sustainable increase in the general level of prices for goods/services. Measured as an annual % increase
2 ways government calculates inflation
- consumer price index (CPI)
- retail price index (RPI)
Causes of inflation
- Demand pull (buyers want more than sellers can produce, so prices rise)
- Cost push (business costs /wages rise so sellers increase prices to compensate)
Why is some inflation a good thing?
Shows that economy is growing, if there is little to no inflation, a sign the economy is weakening
Fiscal policy
The use of government mechanisms in revenue collection (taxes)
- Raise direct taxes, leading to a reduction in real disposable income
- The govt can reduce its own spending on public and merit goods or welfare payments
How is inflation controlled
- Fiscal policy
- Monetary policies
Monetary policies
The actions of bank of england to control size and rate of growth
Exchange rates
The value of one currency expressed in terms of another
How might changes in exchange rates affect a business
- Increase or lower the price of a product sold abroad
- Change the price of imported raw materials
- Change price of competitors’ products may change in the home market
Importers and exporters and how high inflation affects them
Importers - businesses that buy goods from overseas
Exporters - Businesses that sell goods overseas
(SPICED)
Strong currency - good for imports, bad for imports
Weak currency - bad for imports, good for exports
What causes exchange rate fluctuations
- Government finances (GDP etc)
- Interest rate differentials between countries
- Perceptions of currency traders in the market (political stability etc)
- Fluctuations in imports/exports
Direct tax
Collected by the inland revenue
- Income tax
- Business & corporation tax
- Council tax
- Inheritance tax
Indirect tax
Collected by the customs and excise
- VAT
- Fuel duties
- Tobacco duties
- Wine, spirit, beer duties
Consumer Protection Law
This protects the public by:
- prohibiting the manufacture and supply of unsafe goods
- making the manufacturer or seller of a defective
product responsible for damage it causes
- prohibiting misleading price indications
3 basic legal rights consumer has relating to the product
if the product is;
- given a misleading description
- of an unsatisfactory quality
- not fit for its intended purpose
Unfair Trading Regulations
Makes it an offence for a trader to make false or misleading statements about goods/services
If;
- Apply a false trade description to any goods
- Use aggressive door sales techniques
Data Protection Act
Law that controls use of consumers information
- Businesses must store data securely and avoid any theft or loss
- Prevents consumers details being sold
Consumer Rights Act
Designed to provide a modern framework for consumer protection.
Regulates that covers goods, services and digital content and protects consumers from unfair trading, even including some regulation on re-selling tickets
Statutory rights
Legal rights based on laws passed by parliament
Contract of employment
The agreement made between the employer and the employee
Employee legislation
Protection from exploitation, such as
- Employment rights act
- Working time regulations act
- national minimum wage act
Employee rights act
- Duties and rights of employer and employee
- Rights to maternity/paternity leave
- Details about termination of employment
- Right to written contract within 60 days of starting
- Details of sunday working
- Right to written pay slip
Working time regulations act
- Limit of av 48 hours
- Right to 11 hours rest daily
- Right to day off weekly
- If working 6+ hours, right to break
- Right to 4 weeks paid leave per year
National minimum wage act
Statutory right to be paid a certain amount of remuneration for work performed
Health & Safety at work act
- Aims to raise standard of safety and health for all individuals at work and to protect public whose safety may be put at risk by activities of people at work
- Places responsibility on employers and employees
Competition act
- Prevents collusion - price fixing
- Addresses anti-competitive agreements
- Addresses abuse of dominant market position
Environment protection act
- Introduced system of integrated control for disposal of waste to land water and air
- Duty to recycle and face criminal penalties if fail to co-operate
- Applies to waste and control of emissions
- Duty of care when dealing with waste, including IT
Uncertainty
A future that we have little to no knowledge of including potential outcomes or riskd.
How might uncertainty impact spending?
- Can affect spending decisions if uncertainty around economic conditions
- In takeover, staff uncertain about pay
- Households with uncertainty may save more
- Consumer may delay large purchase
How to combat uncertainty around exchange rate fluctuations
Foreign exchange can be bought and sold in advance (‘forward’ market)
How to combat uncertainty around interest rate fluctuations
May take out long term loan at fixed rate of interest
4 types of competition
- Perfect competition
- Monopolistic competition
- Oligopoly
- Monopoly
How to reduce uncertainty
- Research (provides info)
- Contracts (makes prices predictable for period of time)
- Diversification (spreads risk)
Perfect competition
Many competitors offering the same product
Intense competition and competitors have to accept the same price
Monopolistic competition
Many small firms offering differentiated products. Each firm has a small market share.
E.g. restaurants and small local businesses
Oligopoly
Dominated by small number of firms.
Often use non-price strategies to compete (branding etc)
Potentially anti competitive if collusion on price occurs
Monopoly
Only one provider for service/goods.
They control price and level of output in market.
Heavily regulated (usually) to protect customers
Difference between monopolistic competition and oligopoly
- Monopolistic = many sellers offer differentiated products (differ slightly but serve similar purpose). Due to this sellers exert some control of price
- Oligopoly = few sellers supply sizable portion of products in the market
Competition from other businesses will impact on decision making in terms of …?
- Nature of ownership
- Nature of product or service sold
- Product range offered
- Pricing policies
- Marketing methods
