Although corporate firms are not immune from the effects of macroeconomic variables, a
basic understanding of these can help financial managers make informed decisions. One of
the most important factors that will influence the decisions that a corporate financial manager
should make is the interest rate. Interest is a type of macroeconomic variable that affects the
price that a company pays for its use. It is determined by the supply and demand curves for
money.
In March of 2022, the Federal Reserve started to raise interest rates. Since then, they have
gradually increased the rates. This has been a significant change from the policies of the past
few years. Some investors are concerned that the economy may get hit by a recession due to
the increasing interest rates.
After the pandemic, many of the problems that emerged were considered temporary and
would eventually be resolved. However, the Federal Reserve noted that the shortages of
various products, such as cars, were still persisting.
Macroeconomic variables refer to the factors and elements that exist in the external
economic environment. Some of the most common macroeconomic variables are the rate
of inflation, rate of unemployment, Gross Domestic Product (GDP) growth, government
deficit in a nation and volatility in the stock market. Such variables have the potential to
have a direct and significant impact on the performance of companies that operate in the
market, such as business entities and global financial centres (Karabulut, 2018). Corporate
finance managers need to keep a tab on these variables so that suitable financial decisions
and strategies can be adopted in place that can help businesses to adapt to the evolving
macroeconomic landscape and make strategically-sound decisions. In the next five to ten
years, it is imperative for corporate finance managers to consider vital macroeconomic
factors such as national income, unemployment level, GDP rate and inflation. It has been
identified that factors that exist in the macroeconomic context of a nation have the
potential to influence the financial performance of companies, banks and other entities
(Soliman, 2021).
Managers that function in corporate finance need to keep track of the variables so that
appropriate decisions can be made that can strengthen the financial viability of businesses.
For example, when the government deficit is high, and there is a limited possibility of
receiving any financial support from it, corporate financial managers need to make
decisions so that the available financial resources can be optimally utilized by the entity.
In the course, a broad range of concepts has been covered that can prepare the learners to
effectively handle the impact of the identified macroeconomic variables in their personal
or professional life. One of the main concepts is risk assessment. It can be applied in order
to evaluate the risk pertaining to inflation that the business is likely to face. Similarly, the
concept pertaining to strategies can be adopted so that effective strategic decisions can be
taken to safeguard the profit margin and financial performance of the business. Some of
the key skills that can be used by learners to effectively handle the uncertainties that arise
as a result of an unpredictable macroeconomic landscape are critical thinking skills,
problem-solving skills and decision-making skills. Such skills can be applied in the
practical setting in order to assess the external situation at a comprehensive level and help
a corporation make viable financial decisions. Critical thinking has been identified as a
vital decision-making tool that can be used in the contemporary business landscape to
tackle unpredictable and changing situations and make strategic decisions and action plans
(Turan, 2019). The skills and concepts that have been learned from the course can also be
applied in the personal setting. For example, while making important investment
decisions, the concept of risk management can be applied to make careful and safe
decisions. Similarly, the skills relating to critical thinking can be used in the real-life
setting to assess the employment landscape and look for relevant job opportunities.
This is a very difficult discussion for me. I am working toward a master's degree in
forensic accounting. Corporate financial management is not something that interests me at
all. While I can see myself potentially working for a large corporate company, it would be
in the capacity of forensic accounting, not investment or corporate management.
The macroeconomic variable that I expect to be the most impactful in the future is
inflation. There are three indicators that investors can watch for to try and predict and
incoming inflation: federal interest rates, oil (and other energy) prices, regionalization
(lowest cost producer). Fixed income investments like CDs or bonds present and future
values are impacted by raising inflation. Stocks have responded well to inflation in the
past, but the larger the company the lower the impact on the stock value. Real assets, like
real estate, do well with inflation. Looking at recent years, we can see how high house
prices got resulting in huge gains for sellers during that time (Effects of inflation on
investments, 2022).
Overall, inflation will have a huge impact on my personal life. Currently, my family rents
our home. Inflation in the real estate market makes it even more enticing for our landlord
to sell the home or even simply raise our rent.
Reference
Effects of inflation on investments. Effects of Inflation on Investments | U.S. Bank. (2022,
September 16). Retrieved January 15, 2023, from
https://www.usbank.com/financialiq/invest-your-money/investment-strategies/effects-of-
inflation-on-investments.html
A. Soliman, H., Elhalaby, S., & M. Elbolok, R. (2021). The effect of macroeconomic
variables on corporate financial development: International evidence from the banking
sector. https://doi.org/10.21608/jsec.2021.175877
Karabulut, T., & Sen, G. (2018). Analysis of macroeconomic factors which affect
performance of Global Finance Centers. Asian Economic and Financial Review, 8(1), 63–
70. https://doi.org/10.18488/journal.aefr.2018.81.63.70
Turan, U., Fidan, Y., & Yıldıran, C. (2019). Critical thinking as a qualified decision-
making tool. Journal of History Culture and Art Research, 8(4), 1.
https://doi.org/10.7596/taksad.v8i4.2316
