Ways In Which Market Fluctuations Affect A Business

When comes to running a business, it is important to have an eye on all factors that would affect the performance of a business in all ways. It is important to know them in detail so that a businessman would be able to understand the market and change and modify his business operations as per the changes in the market. Now generally there are few things that go unnoticed and the business people tend to avoid such simple things having an eye on only the important and big factors. Here are those important four factors that need to be paid attention to.

Credit

in every single activity of ours, there is some sort of credit involved in one or the other way. When we wish to buy a car, most of us try to go in for financing from the banks or financial institutions and try to pay them in the form of regular EMI`s. This goes for anything big we buy. Similarly, grocery shops get finances to stock goods on their shelves and they are bound to pay the banks the interests. Now flexibility provided by the banks and financial institutions are directly affected and impacted by the changes in the market conditions. Now when the markets fail and start going low, there is uncertainty which increases the risks. Now, this risk factor increases the rates of interest paid by the customer irrespective of the purpose of the loan or the borrowing. This is because markets have a constant touch and watch on the market and hence it becomes important for those who have borrowed from banks too to have a constant touch with the market to note the changes happening there.

Consumer behavior

the demand for a product depends on how a customer reacts to it based on how a customer relates his needs to the products made available in the shops. Now the first things that he spends his money on are the ones that are quintessential for his day-to-day life. The next is on those he feels is a need but not a very important necessity to be spent on and the last and the final category is the one on which a person spends without any need to actually have them or buy them. Now when there is a change in the market conditions, the first category is the one that a person concentrates on leaving the next two optional. So this directly affects the business.

CSR Business Integration

In today`s world of growing and developing technology, it has become very important and essential for all companies to follow the concept of CSR. In fact, all the new ones have already started following this and one of the main things when following CSR is the transparency; this means that every single operation and process of the company needs to be made transparent to the end customers and everything has to be ethically done nothing against nature. This is the basic and the simple understanding of CSR. All the services offered by the company should not be harmful to the customers and the nature at the same time instead it should help in keeping the environment healthy.

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So, what benefits to the company?

Now you might ask as to what is it that would benefit the company from when this CSR is followed by it in each and every step of its actions? Of course, there are no direct benefits and there is nothing that the company is going to do for itself by following this. But there are definitely benefits indirectly.

How?

When a company is able to make the customers confident that it is following the core concepts of CSR, it would automatically make things all about it clear to them and this way it would be able to build in a confidence in them, trust in them. Now, this would slowly bring the customers close to the company and they would start preferring products from them slowly increasing their demand and position in the market. It`s not just this. It would also help the company in having new customers thereby helping them improve their financial stand in the society; improve and increase their profitability making it easier for them to contribute more towards the CSR initiatives. So it is a mutually benefiting cycle where one supports the other and without one the success of the other is at stake.

So this is the reason for companies to embrace this concept with high regards. There are also some competitive advantages and benefits that a company would enjoy when it takes to this concept in its business operations. Now there are pressures from even the financial companies on the companies and industries to follow CSR for this makes it easy for them to probe into and investigate their financial status easily. So the ones who are still not under the nectarine influence of CSR should take it up seriously now at least.

Hedging On Your Securities

When we make investments on any assets by hedging on it we can reduce the risk. Further, if the derivatives are used for hedging on the investment you have made, the risk calculation is done precisely. But if we are making use of derivatives for hedging there is a need for a lot of money and sophistication and one must know that to hedge the derivatives are not the only way.

Another basic way is diversification which is used for hedging that is done in a strategic manner on a portfolio that also helps in reducing the risks. One example we can consider to understand this is that suppose if one person does investment in a company that sells upmarket goods and its margins are constantly increasing. This person will be worried that if in case there is a recession that hits, it can completely wipe the market for consumption that has been spent lavishly. However, there is a way to handle this situation that is by buying the stocks of tobacco or the utility that is required for it that he can do.

Hedging The Assets By Diversification

The trade-off that this strategy has is that if the payment is high and there are a lot of jobs, this upmarket goods production companies will flourish. However there are chances that few people might want to invest in counter-cyclical stocks and as a result, this might not flourish since most people are attracted to invest in exciting things rather than these boring stocks.

One risk that these stocks of luxury goods have is that there is no telling for sure whether the hedge and the stock will move in the direction that is opposite. Sometimes there are chances that both the stock as well as hedge might drop drastically if there is the occurrence of any event that might cause catastrophe, similar to something that happens when there is a financial crisis.

An advanced type of strategy for investments is known as hedging. The principles involved in hedging are very simple to understand. Since the time the hedge fund has come into existence it has become very popular and with popularity comes criticism. Because of the constant popularity and criticism, people have started using hedging a lot.

Even though it is spread so widely, not many people understand this very well. Whether the people know what hedging is or not most of them would have done it at some point of time in their life because everyone buys life insurance these days in the hope that it will add support to the family if anything were to happen to you and this is known as a heading.

Understanding stock market fluctuations can actually be fruitful for your business

The stock market has always been unpredictable:

It is common knowledge that the stock market is extremely volatile and unpredictable in almost all its aspects. It is sometimes even unpredictable to a seasoned investor who may have put in years of experience trading at it and trying to understand it. Yet, an attempt to read between the lines and to try and figure out the future of a company’s stock is important in case you want to not be caught unawares.

Stocks are known for gaining and losing points so rapidly in one trading day itself that sometimes it feels like you wink and open your eyes and the situation has changed tremendously. Staying informed helps you stay abreast and not give you nasty surprises either.

Here are a few pointers that you may watch out for in case you want to understand the real case for such fluctuations so that it does not affect your individual enterprise

  1. Keeping an eye on macroeconomics:

Any change in the world events can point to a fluctuation in the market. If deciphering is your strong point, you can very well tell the effect of any socio-political changes that are happening anywhere in the world.

For example, if there is widespread unemployment in a place then the stocks of the company in the soil may take a beating. Another example is that when there is a credit boom in the market, there is a sales boost in industries such as holiday planning, automobiles, and construction.

  1. Looking out for news stories:

Any story on a particular industry or a company that is being reported can have a positive or a negative impact on the stock of that company as well as others. To cite an example, when the mobile phones came around, the fixed line companies suffered a loss because people were investing in the latest technology.

  1. Watching out for changes in laws and regulations:

Changes in law of the land can trigger fluctuations in the market. For instance, when the food and drugs association bans a drug, the pharmaceutical industry may suffer a bit due to fluctuations that can happen as a result.

  1. The public sentiment:

Theoretically it may sound right that the people invest rationally but in reality, people are investing because of the sentimental value of the company and this has been proven right time and again.

  1. Comparing financial statements of the company can yield a wealth of information:

The ratio of company’s debt to its earning can tell us a lot about why the company’s stocks are so valuable. A detailed study of the financial statements of a couple of years is a good way to gauge the performance of the company and to understand the impact of the fluctuations too.

Advantages Through Arbitrage

The arbitrage was established to increase the efficiency in trading by buying and selling of the assets simultaneously. Examples would be buying stocks from one exchange and simultaneously selling it on the other exchange that has a higher price for the same asset resulting in profit and eliminating any fluctuation in the price.

The above mentioned is a simple example of arbitrating. In Another example, we will see triangular arbitrage which is a little more complicated than the above example and how triangular arbitrage can be used to gain profits. In this type of arbitrage the trader will have one type of currency which he will be converting into another form of currency at the first bank, further he will be converting this currency again into another form of currency in the second bank and finally the third type of currency is converted back to the first type at another bank. The trader does so because once you convert currency in a particular bank they will have it in their records so that the rates of the currency are in alignment, therefore, to implement this type of strategy different types of financial establishment is required.

Arbitration can also have another form that is the risk arbitrage. The risk arbitrage is also known as strategic arbitrage which is the second form of arbitrage. As the name suggests risk arbitrage has risks involved in it unlike the pure type of arbitrage. In spite of all the speculations done on this type of arbitrage, it has still become one of the popular forms of arbitrating as it is retail friendly so people who trade in retail make use of it a lot.

Let us consider an example and see how it actually works:

Say that there are two companies by name company X and company Y. The first company that is company X is trading at $20 per share at present and the company Y wants to take over company X, therefore, it has decided to update on the bid to take over the company as $25 per share resulting in increasing the price of company X’s shares to $25 per share but still this company is trading at its old price that is $20 per share. At this point consider that early investors who want to trade make the bid of $24 per share, you will notice that there is a difference of $1 per share at present. Now you will ask the question where is the risk in this? The risk is that the procurement might fall all the way down and in this case, the price of the shares of the company will go back to its previous price that is $20 per share.