IFM - global market influences

Question 1

Global market influences

Answer 1

Given the global market has an influence on Australian businesses, we should not be surprised It impacts the financial management of businesses too. Financial managers are most impacted by

1. Global economic outlook
2. Availability of funds
3. Interest rates

Question 2

global economic outlook

Answer 2

refers to the anticipated changes to the level of economic growth throughout the world.

The expectations and confidence of consumers and businesses are regularly surveyed to gauge their outlook

Equally, global institutions such as the IMF measure the health of the global economy and individuals, businesses and governments respond to this outlook

Question 3

the impact of global economic outlook (positive)

Answer 3

(that is, world economic growth is to increase) then this will impact on the financial decisions of businesses by:

Increasing demand for products and services

Decreasing the interest rates in funds borrowed internationally

Question 4

the impact of global economic outlook (negative)

Answer 4

(that is, world economic growth decreases) then this will impact on the financial decisions of the business:

Reducing demand for products and services

Increasing the risk and in turn the rate of interest rates on funds borrowed internationally

Question 5

availability of funds

Answer 5

refers to the ease with chich a business can acess funds (for borrowing) on international financial markets

These markets are made up of a range of institutions, companies and government that are prepared to lend money to businesses

Various conditions and rates apply and these will be based primarily on
o The level of perceived risk
o Demand and supply
o Domestic economic conditions.

Question 6

interest rates

Answer 6

The cost of borrowing and reflect the cost of financial institution in sourcing these funds, the risk of the potential recipient and the health of the economy in that given country

A business that plans to either relocate offshore or expand domestic production facilities will normally need to raise finance to undertake these activities

They will need to consider where they borrow money and a what rate

The cash rate is set by the central bank of a given country and its recent movement will give a strong indication as to the level and direction of other interest rates

These rates are variable and can increase/decrease at least once per month, meaning the business should constantly be aware of the true cost of their borrowing

Question 7

something to note

Answer 7

Australian businesses could be tempted to borrow the necessary finance from an overseas source to gain the advantage of lower interest rates. However the real risk here is exchange rate movements

Any adverse currency fluctuation could see the advantage of cheaper overseeds interest rates quickly eliminated.

In the long term the ‘cheap’ interest rates may end up costing more

Question 8

what has Woolworths said

Answer 8

The availability of funding and management of capital and liquidity are more important requirements to fund our business operations and growth

In addition, we are exposed to material adverse fluctuations in interest rates and foreign exchange rates which could impact business profitability.

Question 9

Businesses will also be influenced by:

Answer 9

Overseas legislation which impacts their financial processes that differ from Australian laws

Unique taxation in the country of overseas operations which adds a further expense to the processes of the business