Global Market Influences

Definition: 

Global financial markets are interconnected; investors are becoming more global in their outlook and in their investment portfolio. This usually means that movements in markets are similar; large crashes in share markets are contagious. This means that Australian businesses seeking to acquire equity or debt to fund their activities can be impacted by global economic outlook, availability of funds and changes in interest rates.

Economic Outlook:

Forecasts on economic activity can impact decisions by firms and individuals. A positive outlook has high levels of business and consumer confidence, a willingness to take risk and pursue growth, and an increasing demand for products and services. Finance is easier to obtain in positive economic conditions. Finance is harder to obtain (and might be unwise to obtain) in conditions with a negative economic outlook. 

Availability of funds:

The willingness of investors to take risks and invest their money changes depending upon current and projected market conditions. During times of crisis, even sound firms can find it hard to obtain finance. In times of higher perceived risk, interest rates for debentures increases, and the willingness of investors to buy into IPOs decreases significantly. Firms must be aware of current market conditions when obtaining finance.

Interest Rates:

The cost of borrowing money is different around the world. Interest rates are set by domestic central banks in the management of domestic inflation (mainly). The central bank in Australia is the Reserve Bank of Australia. They meet regularly to determine the threats facing the economy and deliberate as to how to utilise monetary policy (raising or lowering interest rates) to either support or slow down the economy. Firms can access global debt markets (lower costs) but increase their risk exposure to currency fluctuations.