Essay on Macro-Economic Factors that Affect a Business

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Macro-Economic Factors that Affect a Business

There are macro-economic factors which affect a business and there implications need to be considered when planning ahead.

The interest rate is the basically the cost of borrowing, the price of money. If money is borrowed it is the percentage over and above the original loan that has to be paid back. The interest rate is a vital tool of economic management for the government. Adjusting the interest rate is a key part of the government’s monetary policy. Interest rates are set by the Bank of England's Monetary Policy Committee. They will set the rate according to the prevailing economic conditions and the inflation target they have been set. If
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Further more Potarts is a highly geared company with loans representing 60% of their capital. Such a company has to pay interest on its borrowings; Maria should therefore pay off these loans before interest rates exist.

Potarts is regularly importing materials from Spain and exporting goods to the US so they would find fluctuations in exchange rates a source of considerable uncertainty. It has been forecasted that the pound will strengthen and you will be able to get more euros for a pound. This will benefit Potarts as with the appreciation of the pound imports will be cheaper. There is less fluctuation in the £/$ rate as it stays around 1.65-1.70 however there is still a small amount of appreciation. This would make exports harder to sell abroad as export prices appear to rise because foreign traders have to give up more of their currency to get the same amount of £s.

Inflation is usually defined as a sustained increase in the general price level. It is best understood as a fall in the value of money. Inflation can also create uncertainty within a firm as forecasting expected sales revenue can be made very difficult. This is partly because of the price changes and partly because the presence of inflation makes it likely that the government will make changes to its economic policy. This will make it hard
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