In the wake of the Brexit vote, you’ll have heard a lot of talk about the financial markets: about the value of sterling falling to a 31-year low; about the FTSE 100 going into freefall; about the country losing £250 billion in one day – the equivalent of 40 years’ worth of membership fees to the European Union.
However you voted, and whatever your personal views on the matter, these headlines are important because they impact our economy. The financial markets, far from being some abstract realm, are a mirror of what happens in the real world, a reflection of the state of our beleaguered nation.
It is for this reason that business owners should be able to understand them. Although you may never have tried your hand at share dealing, or taken the time to brush up on the value of the pound, the markets still affect you and your enterprise.
To help convince you, here are just three of the reasons why should you try to improve your understanding of the financial markets…
#1: The Financial Markets Reflect the Economy
The most important thing to realise about the financial markets is that they are a mirror of our economy, and when they start to show signs of struggle, you’re likely to feel the ripple effects in the near future. This is actually a very good thing. The markets act as a warning sign, giving entrepreneurs plenty of time to prepare themselves for the bumps in the road ahead. This means that whether you’re thinking of expansion, wondering whether to save your funds, or looking for the opportune time to start trading overseas, those who understand the markets will have some reliable indicators as to whether or not the perfect moment has arisen.
#2: The Financial Markets Affect Imports and Exports
If you’re a business that is reliant on either importing or exporting, the financial markets will be important in another major way; they’ll influence your earnings. Imports are at their most expensive when domestic currency values decrease, as this means that their relative worth is higher. Exports, on the other hand, thrive under such circumstances, as domestic produce becomes far more competitive even if its actual price remains the same. Thus, understanding the markets can help you to refocus your business to complement the economic situation.
#3: The Financial Markets Affect Lending
Thirdly and finally, you should be aware that the financial markets will often affect lending. When their performance is poor, it indicates that the economy is not doing very well, and in these circumstances loan providers become increasingly loath to extend funds to aspiring businesses. By understanding the markets, however, you can give yourself a heads up with regards to what’s coming, so that you know whether it’s time to tighten your belt, or whether you can rely on external providers to help you grow.
Learn to understand the financial markets today, and your business really will be better for it.