Economy of the Federal Reserve Bank - Research Paper Example

INDIVIDUAL REPORT al Affiliation) Table of Contents Page………………….. Table of Content…………...2 ………………….3 Introduction………………..4 Background………………...6 Conclusion………………….10 Bibliography………………11 Abstract Both Multinational companies and SME’s are affected by the general economic performances of their countries/regions they operate (Mohr, 2011). In order to determine whether a business environment is appropriate for an SME or a multinational company, there are several economic indicators that are usually taken into consideration, subjected to analysis to provide statistical data that exhibit the nature of a nation’s economic status thus leading to decision making. However, in relation to multinational companies, there are three major economic components that are usually given a high sense of priority, when analyzing the economic status of a country in relation to its fitness for business activity (Mohr, 2011). In this research, the discussion will be based on an analysis of three major economic indicators; the currency value against the US Dollar, inflation and economic growth rate measured in Gross Domestic Product and how they will affect the multinational company that intends to expand the provision of its services and products to other parts of the global business environment. Key Words: Inflation, Gross Domestic Product, Currency Value. Introduction Economists have asserted that a nation’s economic indicators are usually voluminous statistical information that are provided by governments, non-governmental organizations as well as the economic agencies charged with the responsibility of undertaking economic analyses (Mohr, 2011). This information has proved beneficial to not only local companies, but also multinational companies that aspire to expand their services to these countries. According to the Federal Reserve Bank of the United States, information regarding the country’s Gross Domestic Product has been crucial for the government owing to the fact that it assists in making adjustments of the existing economic policies (Berlatsky, 2013). In this regard, multinational and SME’s are usually subjected to scenario where they have to keep up to date with the existing economic policies in order to adjust their operations. The Federal Reserve Bank of the United States indicates that Gross Domestic Product of a nation is basically the value of services and products within its markets, generated within a specific period of time (Berlatsky, 2013). This information is usually released to the general public on a quarterly basis together with some revisions that may be provided within a period of ten weeks after the real of GDP information. Information regarding this data is usually accompanied with explanatory data that provides reasons for an increase in GDP or the reasons why the GDP has decreased (Berlatsky, 2013). There are various reasons why multi-national company policy makers have to keep a watch on nation’s GDP, thus making this economic indicator a crucial aspect of their success (www.bbc.com). To begin with, economists have provided claims that the GDP an indicator of various economic facets that are crucial to the success of any multi-national company. The facet economic facet indicated by the GDP is the Consumer’s Purchasing Power (CPP); when the Gross Domestic Product of a country is high, it simply means that the total value of goods and services within its market within a specific period of time was high, due to enhanced market activities i.e. high level of productivity and consumption (www.bbc.com). In this regard, economists can rely on this information taking into consideration anticipated country’s GDP. Another economic indicator that is usually given a keen interest is the national inflation rate (www.focus-economics.com). According to economic reports, inflation is a crucial for both multi-nationals SME’s owing to the fact that it determines their success in this dimension; inflation has direct relationship to the consumer’s purchasing power (www.focus-economics.com). This information can be accessed by evaluating consumer price index of the nations. Specifically, consumer price index basically involves the variations of the pricing levels of a market basket composed of consumer goods and services acquired by the consumers (Marshall, 2013). Research has indicated that inflation, which is a sustained increase in the prices of services and products in market within a specific market, is a determinant of the level of CPI, thus should be given a high sense of priority (Marshall, 2013). This is because it determines, whether goods and services produced by the company will be purchased on a sustained high level. Consequently, the exchange rate of currencies used by the multi-national companies is another key indicator for the both the positive economic performance of a nation and the overall success of multi-national companies, specifically those that export their products to other countries for instance: When the US currency weakens against the British Pounds, it basically means that countries the profit margins accrued by exporting companies may be relatively low as compared to a scenario where the currency of the US currency strengthens against the British Pounds, where the profit margin is usually relatively higher (www.bbc.com). In this regard, the company has to keep up to date with the exchange rates owing to the fact that this information also changes from time to time. Background Information The company offers its products and services to the local markets and is currently considering provision of services and products to other external markets in Croatia; however it has been providing its services to the United Kingdom and China, an overview of the economic indicators of these countries will also be reviewed. In this regard it is crucial that it takes into consideration the three economic indicators of the target markets. In a recent article, published by the US Inflation Calculator, it is indicated that the annual inflation rate of the United States has been sustained at 1.7% over the last 12 months of the economic year ended September, 2014 (www.bbc.com). The article also indicated through charts that the inflation rate of the United States have been varying from time to time with a major reduction exhibited in 2014, which has the least inflation rate (www.bbc.com). Over the last ten years, the highest inflation rate in the United States was experienced in 2007 with a 4% rate; currently the inflation rate is at 1.7%, however, the least inflation rate was experienced in 2008, with less than 1% (www.bbc.com). This information is indicated in the excel file below: The excel file indicates inflation rates by months beginning the year 2004 to 2014. Year Jan Feb March April May June July August Sept Oct Nov Dec Avge 2004 1.9 1.7 1.7 2.3 3.1 3.3 3 2.7 2.5 3.2 3.5 3.3 2.7 2005 3 3 3.1 3.5 2.8 2.5 3.2 3.6 4.7 4.3 3.5 3.4 3.4 2006 4 3.6 3.4 3.5 4.2 4.3 4.1 3.8 2.1 1.3 2 2.5 3.2 2007 2.1 2.4 2.8 2.6 2.7 2.7 2.4 2 2.8 3.5 4.3 4.1 2.8 2008 4.3 4 4 3.9 4.2 5 5.6 5.4 4.9 3.7 1.1 0.1 3.8 2009 0 0.2 -0.4 -0.7 -1.3 -1.4 -2.1 -1.5 -1.3 -0.2 1.8 2.7 -0.4 2010 2.6 2.1 2.3 2.2 2 1.1 1.2 1.1 1.1 1.2 1.1 1.5 1.6 2011 1.6 2.1 2.7 3.2 3.6 3.6 3.6 3.8 3.9 3.5 3.4 3 3.2 2012 2.9 2.9 2.7 2.3 1.7 1.7 1.4 1.7 2 2.2 1.8 1.7 2.1 2013 1.6 2 1.5 1.1 1.4 1.8 2 1.5 1.2 1 1.2 1.5 1.5 2014 1.6 1.1 1.5 2 2.1 2.1 2 1.7 1.7         Fig 1. This table represents inflation rates by month in the United States over the last 10 years. From the table, is evident that the inflation rate has been decreasing in the overall United States’, this is a crucial source of information; the company could rely on this information to anticipate future inflation rate thus determining whether to increase its productivity locally. Croatian Economic Overview The Company seeks to expand its services to the Croatian Republic as a new market. However, it is imperative to take into consideration the inflation rates, GDP and the currency exchange rate between US and Croatia. Croatia is comprised of several counties with varying economic performance, meaning that the each county experiences a unique rate of inflation. Despite the existence of the difference between the economic performances of the counties within Croatia, its economy is structured in a centralized manner with an annual average GDP of 38%. This GDP is majorly generated within its capital City, Zagreb from various economic activities (www.indexmundi.com). According to an information published by the World Economic Outlook, Croatian GDP exhibited significant improvement from the year 1992 to the year 2010; an indication that was influenced by the high level of purchasing power parity (PPP). However, from 2000, the country has been experiencing variations in relation to its GDP, majorly indicating high contractions at some points with significant increase at some points. Over the last ten months, the Croatian economy has experienced a contraction in relation to its GDP growth leading to a negative percentage change of -0.05% (www.indexmundi.com). In a forecast undertaken on the future GDP of Croatia by the World Trade Economics, it is anticipated that the country could experience a positive change in relation to its Gross Domestic Product by the end of the first quarter of 2015 (www.tradingeconomics.com). This is an opportunity that could be taken by the company to explore this new market. The currency exchange rate between Croatia and the United States has also remained at 1 US dollar to 6.04 Croatian Kuna, indicating that exporting companies from the US could have a relatively lower profit margin. In relation to inflation, the country has experienced significant increase on its inflation rising from a negative inflation rate to a positive inflation; that is, from -0.18% to the current 0.37%. This has been accompanied by reduced consumer purchasing power, majorly due to the increased prices of goods and services. According to the Croatian Bureau of Statistics, the country has experienced significant improvement in relation to its Consumer Pricing Index. The CPI has recorded an increased to 108.40 from the previous 108.30 in the second quarter of 2014. The highest CPI was recorded in the first quarter of 2013, at 108.60 (www.tradingeconomics.com). The following data retrieved from (tradingeconomics.com) indicates the inflation rate in the Croatian Republic over the last four quarters of 2014: Important Information to Note in Relation to the Economic Indicators of the Company’s Target Market in UK and China The Company has also been providing its services in the UK and the Chinese market; however, in order to ensure that it does not experience losses, a consideration of information ascribed to the inflation rates of these countries would be pertinent as they are a great determinant of the purchasing power of the target market. In a recent article concerning the inflation rate of the United Kingdom, it is indicated that the inflation rates has indicated a significant reduction over the last fourteen years. The highest inflation rate was experienced in 2011 with a 4.5% percentage, while the inflation rate in the economic year 2014 still stands at an average of 1.3% (www.bbc.com). This is a good indicator for the company, taking into consideration the fact that the inflation rate has been reducing despite the fact that there are significant incidences of variations (www.tradingeconomics.com). In October 2014, the inflation rate that was recorded in the Chinese market stood at 1.6%. The average inflation rate recorded in the Chinese market since 1986 is 5.6% (www.bbc.com). Economic data indicate that the Chinese inflation rate has dropped from 2.6% percent in 2013, thus in the case the economic conditions of the Chinese market remains the same, and the inflation rate could reduce significantly, creating a conducive business environment for multi-national companies. Additionally, over the last ten years, Chinese Gross Domestic product has increased significantly with the highest GDP recorded in 2014, standing at $9240.27 Billion. This is a positive indication owing to the fact that the previous GDP in the economic year ending December, 2013 was $ 8230.00 billion; thus China could be a potential market for the company (www.bbc.com). Conclusion The Croatian market seems unpredictable owing to the fact that there have been variations in relation to its economic performance over the last 10 years. However, taking into consideration the economic forecast that has been undertaken by the economic stakeholders concerned, it is crucial that that company applies strategic measures that would ensure it maximises its profit in this unpredictable market. In relation to the markets in the United Kingdom and China, there is a relative indication of market stability and slight improvements in regard to consumers’ purchasing power as well as inflation rates; thus, the company could focus on maximising its profits in these markets, while strategically exploring the fragile Croatian market. 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