The past ten weeks has been fun and educational for me! On a personal front, not to be dramatic, but
the discussion from Module 2 may have changed the course of my life. After running the numbers for
the area and home value that my partner and I were looking to buy in a few years, we realized that it
may not make sense financially. We played around with the spreadsheet, variables, and knowledge
from that lesson (Time Value of Money and Interest Rates) and decided on an entirely new state that
we want to move to and a different financing approach!
The macroeconomic variable that I think corporate financial managers should be preparing for in the
next 5 to 10 years is the rising rate of inflation. However, since I did see some other class members
post about this already, another impactful macroeconomic variable that I would like to touch on is
fiscal policy. When the government wants to expand or control economic output, they can implement
policies (like increasing taxes or lowering government spending) to ramp-up demand and spending in
the economy (Hall, 2022). While there is no drastic fiscal policies currently implemented, it is critical
for corporate financial managers to proactively monitor this space. This way, if a future policy affects
parts of their business: like consumer demand, the cost of doing business, investment decisions, or
their ability to compete; they can respond and adjust in a timely manner (Brunot, 2016).
Corporate monetary managers, represented at the highest level by the Chief Financial Officer
(CFO), have many accountabilities around handling the company's finances in both the short term
and the long run. Eventually, the CFO's broadest mandate is to ensure that the business has access
to ample capital to fund operations, investments required for growth and guarantee returns to
monetary stakeholders. Hence, the corporation's cost of capital is the main concern of CFOs
(www.study.com, n.d.).
Discount rates not only influence the cost of borrowing for corporations, they also can drastically
influence investor perceptions of stock values and stock market risk, which in turn influences the
cost of equity capital for corporations. For instance, rising discount rates are often interpreted by
investors as a sign that the economy is growing too fast, that inflation is a risk, and growth will
soon slow. These situations make stocks appear to be riskier, and investors may demand higher
returns on share values to compensate for this risk. Conversely, a small decline in discount rates
can spur investors to buy stocks in anticipation of stronger growth ahead. One key discount rate
benchmark in the US is the federal funds rate. The federal funds rate is the discount rate at which
US banks and credit unions lend reserve balances to other depository institutions overnight on an
unsecured basis. Thus, the federal funds rate can influence short term discount rates for
consumers and companies. Investors also watch the federal funds rate, as rate changes can impact
stock values. Thus, the federal funds rate is seen as key indicator of financial conditions in the US
(www.study.com, n.d.).
References
(n.d.). www.study.com. https://homework.study.com/explanation/what-macroeconomic-variable-
do-you-think-corporate-financial-managers-should-be-preparing-for-in-the-next-5-to-10-
years.html
Brunot, T. (2016, October 26). How do fiscal policies impact the retail business? Small Business -
Chron.com. Retrieved January 19, 2023, from https://smallbusiness.chron.com/fiscal-policies-impact-
retail-business-73966.html
Hall, M. (2022, December 19). Explaining the world through macroeconomic analysis. Investopedia.
Retrieved January 19, 2023, from https://www.investopedia.com/insights/macroeconomic-analysis/
