It’s “spooky season” once again. The time of year when children and the adults who celebrate,
dress up in costumes that represent ghosts, goblins, and other members of the underworld while they go out “trick or treating” in search of candy and other goodies.
While the kids are getting ready to go trick or treating, the grown-ups are having their own Scaries. In addition to global geopolitical issues such as the continued global COVID pandemic, the war in Ukraine that is also disrupting the world’s energy markets, and China’s new round of continued saber-rattling, there are several Business Acumen Scaries that should be top of mind this Halloween.
For your reading displeasure, here is a list of this Halloween’s top Business Acumen Scaries:
Inflation and the Impact on the Stock Market
One of the many things that keep business leaders up all night is inflation.
The word itself is almost enough to send most leaders into a panic. But what is really happening with inflation, how is it impacting the stock market, and why should we have the Business Acumen Scaries from it?
In simple terms, inflation is just prices going up. For example, remember when you could buy a bag of Snicker bars for $2.99? Well now, they cost like $8.99 a bag. That’s inflation. And you know how airfares were always reasonable, and you could fly from the east coast to the west coast for like $600? Well now, that ticket is about $1,800. That’s inflation.
It’s easy to see why this might upset the average customer. None of us wants to pay triple for their Reese’s Cups this year. But why should this scare the stock market? At the end of the day, if prices increase, companies should earn more, right? Yes, but inflation also causes a whole lot of unpleasant side effects for companies. First, inflation doesn’t only affect the products on our shelves; it also impacts the raw materials behind the scenes. So, companies might charge higher prices, but they’re spending more too on the Cost of Goods Sold (COGS), Salaries, Equipment, and other SG&A which could mean less profits.
The second problem is related to wages. If wages remain flat, the price increase impacts all consumers. When that happens, consumers buy less products and that starts a vicious cycle of slowdowns that could lead to a recession. Or worse…
The Scary is this; when inflation rises, people can no longer afford everything they used to buy. When consumers stop buying, company sales decline, and when sales decline, profits fall accordingly. Scary!
Foreign Exchange Fluctuations
As the world becomes increasingly interconnected through the forces of globalization and the acceleration of technology, the opportunities for businesses to experience rapid growth and expansion have also accelerated. Just 25 years ago, most businesses were essentially regional businesses, producing goods and services for, and acquiring supplies from, a network of customers and vendors that were located close to home, usually in the region and always in the same country.
While globalization has provided businesses with incredible opportunities, including an expanded marketplace into which to sell their products and the opportunity to comparison shop for goods from around the world, it has also presented a multitude of new challenges.
With all these things to worry about in today’s global environment, many may not have had the time to fully understand how foreign currency exchange rates, which are a truly global phenomenon touching all international transactions, affect your business.
Simply put, the exchange rate between two currencies is the rate at which one currency can be exchanged for the other. For example, if the U.S. dollar to Japanese yen exchange rate is 80, then 1 U.S. dollar will buy you 80 Japanese yen, and of course, it follows that it will take 80 Japanese yen to purchase 1 U.S. dollar.
The level of the exchange rate between any two currencies is determined by a host of factors including the pace of economic activity, the level of market interest rates, the gross domestic product, and the unemployment rate in each of the countries in question. Exchange rates are set in the global financial marketplace, where banks and other financial institutions trade currencies around the clock based on their views on the above-mentioned factors as well as their own financing needs and investing strategies.
Because of the 24/7 global nature of currency markets, exchange rates are constantly shifting from day to day and even from minute to minute, sometimes in small increments and sometimes quite dramatically.
For businesses, changes in exchange rates can be scary in two main ways: by changing the cost of supplies that are purchased from a different country, and by changing the attractiveness of their products to overseas customers. Scary!
