The oil price increase may affect the economy activity, especially in the increase in the cost of production of goods and services, which in turn may influence the inflation rate, consumer confidence, and financial markets. Inflation happen will be transposed to consumer which eventually reduce their purchasing power and investment. During oil crisis in 1973-1974, a decline of stock prices is interpreted by the increase in oil prices and it indicate that oil price change may lead to stock market returns volatility (Bina & Vo, 2007). Crude oil price is the primary fuel of industrial activities and plays a significant role in shaping the economic and political development of the countries, not only by directly influencing the aggregate indicator but also by affecting the companies’ operational costs and its revenue. When the stock market is efficient, positive crude oil price shocks would adversely impact the companies’ cash flows and market values, lead to immediate decline in the overall stock market returns (Hamilton, 1983).
Yes, I agree that the cost of capital is a vital factor in determining a company’s like Petrobrás’ competitiveness and strategy. If a company’s cost of capital is high, the required rate of return by investors also increase and will lead to fewer projects that can be undertaken. However, the factors such as corporate strategy, nature of industry and some external environments also will affect a company’s competitive
As demand decreases, the price would decrease and less money flow would be moving into the Treasury’s pocket. But this is not the real case at the moment, as the US Government is offering higher returns for USA bonds compared to other countries, especially those in the EU, such as Germany. The US dollar is seen as more stable than the Euro and many countries would rather buy US bonds. This in turn, increases price for bonds. Even with the recent sales of Chinese owned US bonds to stimulate the Chinese economy, economists are not worries demand for US bonds will decrease.
How the Exchange Rate Affects Inflation If there is a depreciation in the exchange rate, this depreciation should cause inflation to increase. A depreciation means the currency buys less foreign exchange, therefore, imports are more expensive and exports are cheaper. Therefore, we get: • Imported inflation. The price of imported goods will go up because they are more expensive to buy from abroad • Higher domestic demand. Cheaper exports increases demand for UK exports.
People invest their money in assets that have a good chance of keeping their value during inflation. Inflation also discourages saving money through fixed deposits and pension funds. One of the most serious economics impacts is that it increases the cost of exports and import-competing industries. If inflation is higher in South Africa than other trading partners and internation competitors, South Africa wil suffer a loss of international competitiveness and must be compensated for by a depreciation of the rand against foreign currencies, however, this will increase inflation by raising the cost of imported
This shows that the workers are better off because of increased employment in the market. Also, an increase in producer surplus is observed in both the scenarios. On the contrary, the government budget is always hassled due to these policies. It is because, they need to have an opportunity cost of excess supply and reduce their expenditure to either maintain the price floor or pay the subsidy to the other stakeholders. Nevertheless, both these income support policies carry their own difference.
The positive outlook toward this is that it creates a better relationship among different countries but because of the different countries being able to do business it causes high levels of competition between local and foreign businesses. Foreign competitors are able to sell goods and services at cheaper costs which leave local competitors at a disadvantage. Some local producers are focused on being more efficient in order to compete with foreign industries while other local producers have opted to default production resulting in a decline in production levels hence a fall in the country’s GDP. The lower production level of the country, leads to a reduction in exports and an increase in imports which are costly to the country because it our depreciating the country currency. Inflation is then used to compensate for costly imported goods and services.
Petrol in South Africa is a controlled product and the government is responsible for setting its final price. This is why the petrol price does not rise and fall every time there is a change in the price of the crude oil. The increased petrol price affects those who can afford to travel by cars, but also impacts all consumers through the increase in the cost public transport and the transportation of goods. Which will cause businesses to increase their products and services prices, it will inevitably lead to an upward pressure on
For example, revenue of Shell will decrease and might lead to less profitable when the crude oil price is low. In contrast, high crude oil price will decrease the demand of the crude oil. So, Shell is trying to minimize the effect of fluctuating price on their company. Next, the risk factor of Shell is to balance between the environment and development of their business. The environment is the global risk to Shell.
Although the government claims that the GST would not hurt business but in fact it will hurt the businesses too. The low demand in the market may cause decrease of supply the product. When the shortage of supply the businesses have to cut down the expenses such as labor cost due to the lower output needed and it will increases the rate of