Macroeconomic Variables Affecting a Business Environment

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CHAPTER 1

QUESTION: IDENTIFY AND EXPLAIN TEN (10) MACROECONOMIC VARIABLES AFFECTING A NAMED BUSINESS ENVIRONMENT.

HOW CAN THESE BE REGULATED?
INTRODUCTION
In today's world, no business operates in isolation without interacting with the environment where it operates. Irrespective of the nature of business whether public or private organization; manufacturing; service industry; local or international firm, its operations are inhibited by the environment in which it operates.
During 2003-2007, Nigeria attempted to implement an Economic Empowerment Development Strategy (NEEDS). The purpose of NEEDS is to raise the country’s standard of living through a variety of reforms, including macroeconomic stability, deregulation,
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✓ Economic Growth

✓ Balance of Payments

✓ Reserves and External Debt

Inflation

✓ Interest and Exchange Rates

Economic Growth

Aggregate Growth Rates. Low or declining aggregate growth rates often weaken the debt-servicing capacity of domestic borrowers and contribute to increasing credit risk. Recessions have preceded many episodes of systemic financial distress. Sectoral Slumps. A slump in the sectors where financial institutions’ loans and investments are concentrated could have an immediate impact on financial system soundness. It deteriorates the quality of financial institutions’ portfolios and profitability margins, and lowers their cash flow and reserves. In transition economies, these problems may also arise due to lack of progress in the restructuring of state-owned enterprises.

Balance of Payments

Current Account Deficit. A rise in the ratio of the current account deficit to GDP is generally associated with large external capital inflows that are intermediated by the domestic financial system and could facilitate asset price and credit booms. A large external current account deficit could signal vulnerability to a currency crisis with negative implications for the liquidity of the financial system, especially if the deficit is financed by short-term portfolio capital inflows. Financial crises that have

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