Executive Summary
The global economic environment has changed significantly in just the last 8 years. Central banks have become more assertive in the market places, inflation measured by CPI has risen, the dollar index has dropped, political rhetoric is highly inflammatory with a focus on tariffs, trade wars, currency wars, protectionism, nationalism, and interventionism all being heard more and more in recent months and years. For a finance manager all of these variables must be considered when focusing on how to plan for risk, how to guide the firm’s financial decisions, and how to protect cash flow. This paper identifies some of the main challenges that a financial manager will face in the light of changing economic conditions—namely, how rising interest rates, exchange rates and inflation rates will impact cash flow, and how the flow of information must be managed in order to balance strategic aims with economic uncertainties and economic realities. This paper recommends that financial managers focus specifically on cultivating a clear picture of how the macroeconomic picture is evolving, where markets are being led and why, and how the next ten years is likely to turn out. With this picture in mind, the financial manager will be better positioned to guide his various departments in making the right choices.
The macroeconomic environment has changed substantially since 2008 as a result of central banks partaking of loose monetary policy known as quantitative easing (QE), in which trillions of dollars, yen, Euros, renminbi and pounds were printed to prop up markets—and the result has been creeping inflation (as Friedman points out, a sharp increase in the quantity of money is always what leads to inflation) coupled with a slowing economy and high unemployment—aka stagflation (Corsi & Sornette, 2014; Heller, 2017). While 2017 saw nothing but green for equities, volatility has returned with a vengeance in 2018. Now that the Fed is tightening and raising the federal funds rate, all eyes are on bond yields as the price of risk assets lingers on the brink of a potential precipice. Moreover, with the threat of trade wars looming, nationalism and protectionism rising financial managers find themselves...
References
Corsi, F. & Sornette, D., (2014). Follow the money: The monetary roots of bubbles and crashes. International Review of Financial Analysis, 32, 47-59.
Heller, R. (2017). Monetary mischief and the debt trap. Cato Journal, 37(2), 247-261
Ilie, L. (2015). Challenges for financial managers in a changing economic environment. Procedia Economics and Finance, 27, 726-730.
Oxelheim, L., Wihlborg, C., & Thorsheim, M. (2011). The CFO’s Information Challenge in Managing Macroeconomic Risk. In The Strategic CFO (pp. 189-208). Springer, Berlin, Heidelberg.
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