Financial Markets – How Do They Play An Important Role In Your Business?

While listening to a news channel on the television, you may come to know that a crisis or surge in the financial markets in a particular country affects various sectors of the global economy. Even local businesses that carry out their activities in the place you are presently staying are not immune to such disturbances or bullish conditions. In many ways, financial markets can have a substantial impact on their operating activities in the marketplace that affect their growth. In the worst-case scenario, these establishments may be no alternative but downsize their operations in a bit to curtail costs, but in favorable conditions the reverse is true.Experts who specialize in the field of business, trade, and commerce say financial markets influence businesses of all sizes in the following ways:

Financial Markets - How Do They Play An Important Role In Your Business? 

Availability of Credit and its consequences

Credit is a critical tool all business establishments need to finance their activities regardless of their size and scale of operations in the marketplace. In simple terms, it refers to the loans and advances the entrepreneurs of such organizations can avail from financial institutions to conduct their activities in such an environment. Such modes of finance bridge the gap between the money these proprietors have at the present moment and what they likely receive when their customers pay for the products they offer to the public for sale. The question which arises in the minds of these businesspeople is how are going to pay their suppliers and creditors when the people who owe them money become bankrupt in a financial crisis. However, when there are bullish sentiments in the financial markets, such owners are always looking out for ways to expand their operations.

Getting access to suitable modes of credit is a major source of concern for all businesses especially during a crisis in the financial markets. Even large corporate enterprises with a good reputation in the market face difficulties in obtaining the finances these establishments need to carry out their operations in the marketplace. Small business organizations find it even harder to find a reliable lender. Banks and other financial institutions become very reluctant to lend money to businesses because they are very wary that many of these organizations may default in repaying their dues. This is why most banks impose stringent eligibility criteria when it comes to lending money to such organizations.However, when there are favorable conditions in the financial markets banks ease such restrictions and credit becomes cheap for such businesses

In a bid to remain competitive in the marketplace and avoid bankruptcy, companies start to lay off employees that consider as unproductive times of crisis in the financial markets. These organizations carry out such an exercise in an attempt to reduce operating costs and remain efficient. When people start losing their jobs, they have no alternative but to curtail their spending habits. This implies that they are only buying necessities they need and not wasting money on luxury goods. If the products and services such businesses are offering to the public for sale do not fall under this category, these organizations are not earning any revenue and profits. When consumers become reluctant to spend money, it not only affects businesses of all sizes but other sectors of the economy. However, when there are bullish conditions in the financial markets, businesses employ more people in a bid to increase the scale of their operations. As consumers have more disposable income, there is a surge in their spending habits.

Interest rates 

Even if businesses do get the money they need to finance their operations in the marketplace in times of a crisis in the financial markets, they have to deal with other issues relating to it. If you browse through the database of reliable government agencies that monitor the economy, you find that banks charge higher rates of interest in such situations. The rationale of the people managing such financial institutions is that they have to incur higher risks when they lend out their money to such organizations. They say it is the most prudent way to ensure they get their money back and minimize their losses in the event such establishment do unfortunately become bankrupt. Therefore, if businesses can obtain the credit they need to finance their operations, it is usually costly. However, when the financial markets experience favorable conditions, most these organizations lend to lower their interest rates to attract more loans from businesses.

The high-interest rates imply that these firms have to incur higher costs for carrying out their activities in the marketplace. When entrepreneurs find that capital they need to conduct their business in such an environment is becoming very expensive, they have no option but to increase their operating costs. This automatically raises the prices of the products and services these businesspersons are offering to the public for sale because they have to maintain their profit margins. If the consumers find that such prices exceed their budget, they avoid buying such goods and services. This puts such organizations in a tight situation, which may even result in bankruptcy. However, when interest rates are low because favorable conditions in the financial market these businesses try to find ways where they do not have to pass on this burden to their customers. They do this in attempt to generate more revenues as they endeavor to expand their operations in the marketplace.

Prudent entrepreneurs operating small business establishments and the large corporate enterprises understand the need to keep a close watch on the conditions in the financial markets. The developments that take place in such environments influence the way they carry out their operations and ultimately affects their growth. It offers them a clue on the direction these organizations need to take to thrive, enhance their customer base and stay ahead of their competitors. These businesses are part of the interconnected global economy where financial markets are the centers of trade and commerce. It is important for people manages these organizations to take advantage of the opportunities that arise in such places while overcoming various obstacles.

Can't get enough of Your Life After 25? Keep up with latest posts & events by subscribing to our newsletter, and never miss a thing!

Related Posts