Introduction
Stock exchange is the standard model aimed at providing amenities to the stock brokers and any other interested party in any trade. It provides them with information concerning the emancipation of securities, and any other pertinent business need like income rose from payments and dividends.
Recession, on the other hand, is the reduction in the economic activities, in any business cycle. During such times, the economic indicators such as the GDP, households’ incomes, rate of employment and unemployment, investments, assets and inflation adjustment either upward or downwards (Cohen, 2011 pp.34).
Such situations arise when there is a rarity in stock or when a valuable economic factor busted leading to a decrease in the amount of spending, in a country. In the United Kingdom recession occurred in 2008. It has different effects on the stock exchange market.
Aims/ purpose of the research
The Main objectives of the study are to
1. Identify effective strategies used in identifying the effects of depression on the stock exchange
2. Establish a convenient way of getting the information in the process of obtaining the information
3. Investigate the main effects of depression on the London stock exchange
Aims
1. To identify the most effective way of obtaining the information required with respect to effects of recession
2. To evaluate the role of the recession in the trends in the, London stock exchange market
Questionnaires
- What is recession?
- What are the effects of recession on GDP?
- Does recession affect the process of the stock in the market?
- Does recession affect the market volatility of the stock exchange?
- What are the effects of recession on small businesses?
- Does recession affect the credit valuation?
- Is recession the cause of the layoffs and reduction in the benefits of the workers?
Contextual context
The recession affected the income stock exchange market in London, but the households did not think this case as the government shielded them. This is evident through the household income of the households two to three years after the economic regression in UK (Peterson, 2009 pp. 98).
The UK government cut down on the amount that it usually allocated to the public for spending and end at raising the amount of taxes collected in a financial year. However, this might have an impact on the household incomes and will depend on the economic growth returns. This is because its fiscal balances are quite complex. It lies between those countries where they might be affected by the regression strongly.
This is as they try to increase their tax collection and those that support a healthy financial stability. The advantage that the UK has is that it had recorded an increase of 8% in its GDP from 2007 to 2009.
The recession affects the stock market transactions in different ways. The most profitable stocks are the ones that seem not affected by the recession. However, as the economy begins to stabilize the growth stocks recover faster than the most productive stock. It is in this effect that this study has to be done to evaluate the effects of depression on the stock market analysis (LaBonte, 2011.pp 94).
People who earn low wages are at more threat of losing their jobs compared to those who earn more wages because the average amount of income a person goes up. The elderly were the luckiest ones because they certainly cushioned by the individual insurance companies. This takes long before it realizes it, and it might take 5 to ten years before it discovered.
Methodology
The most effective way to evaluate the effects of depression on the stock exchange market will be the use of questionnaires and doing a study to examine the effect it has on the stock exchange by focusing attention to banks, GDP, and the impact on the income of individuals (Schwartz, 2005 pp. 21).
Plan of action
The research study approximately one year from may 2009 to may 2010. It will involve research on the ways that the recession affects the exchange market. The next step is the formulation of questionnaires, and distributing them to the research stations.
Findings
The productivity in the United Kingdom reduced as the recession was in its early stages. This was because of completion for the limited supply of resources that was not enough for the competing parties. After a short term, the presentation began rising again. This is because partners who are not financially stable give up leading to a decrease in the competitiveness of different resources needed for the production of goods and services (Townsend, 2010.pp.45).
The main effect recession is the dropping of weaker partners is the variability in the amounts of profits gained by each of the remaining companies. This means that there will be no difference in the profits gained. Therefore, one of the companies will be on the receiving end while the other one will be gaining fewer profits remarkably.
Recessions paves way to the creation of merges with the goal of reducing the competition from a tougher competitor. These mergers not formed with the aim of improving the production or service delivery, but with the goal of reducing the amount of profit gained by one of the competitors.
This will have a tremendous impact on the economy because mergers tend to collaborate and end up with ways of making more profit without putting into consideration other economic factors. This means that the ones to benefit from the mergers are the partners while the people are the ones at the most receiving end where they pay for the cost of production and any other expenses (Truman,2006 pp.35).
Stock prices
The stock prices usually subside when there is a recession. This is because those who are holding shares and who have made investments in any stock will sell their shares. This is because they are afraid of the investments that are highly volatile. They will fly to the other investments like treasury bonds.
The result of all this is a reduction, in the stock market. This, in turn, reduces the efficiency and profits raised by the businesses. The company then forced to lay off some of its workers enough to the low number of profits gained. As a result, the recession grows even worse as most of the people rendered jobless (Geert, 2009 pp. 56).
Decreased dividends
The fall in the stock prices of any company will undoubtedly lead to lower income for the shareholders and any other party involved in with the company. The shareholders will receive lesser amount of money because earnings that the company gets in the form of profits. The shareholders confidence and trust in the company will unquestionably reduce, and some might even stop and sell their shares. As a result, this further lowers the stock market into other recession.
Market volatility
The stock market seriously affected by the prevailing economic situations in any country. It either moves up or down making the investors exceptionally keen on the future trend of the stock market. When a recession is still ongoing the investor’s position is extremely suspicious and, instability in the stock market analysis is even lower that the normal volatility.
This means that there are more risks for the investors as they have to be optimistic, but not sure of gaining anything from their investments. The instability in the market reduces the average returns from the investments (Rhodes, 2011.pp.45).
Investors are likely to run away from investments that are risky and rush to investments that are more likely to generate profits. As a result, there is a reduction in the investment, in any stock market, that seems to be riskier than the others. Therefore, this follows a decrease in the overall value in the stock market trading.
As the revenues and profits fall in the stock market, the business owners and manufacturers will want to reduce workers to be hired. Some might even cut off hiring of new employees. Lack of enough money may force the company to reduce the money set aside for further investments.
Research and advertising may be reduced or stopped carefully to reduce the amount the method used in the expenses. This will certainly have an impact on the other businesses, small or large, which used to satisfy the company or organization with different materials (Winfrey, 2008 pp90).
Credit impairment and failure
Account receivable also affected during recession. This occurs when the people who owe the company pay debts in small amounts, parts and others might not even pay any of the money. This will have a significant effect on the company as it might also not be able to pay its bills on time.
It may pass it on smaller figures or might not even be able to pay it at all. A decrease in the amount of money paid to the companies’ debtors is the violation of the credit agreements that they had signed. This leads to a decrease in the company in the position or conviction of the corporate debt and would not possibly receive credit from them in the future. The company will also find it difficult to maintain servicing the moment that will amount from the bill it has to pay (King,2009. Pp. 109).
This continues to destroy the credibility of the company further. The company might be forced to go to the table to renegotiate the terms that need to be used in the repayment of the charges that borrowed earlier.
In case of a failure to renegotiate new terms with the debtors, the company might be in the possibility of going bankrupt. This might push it to go into reorganization or even stock parts of its shares to new partners in an effort to make it out of the crisis. In other cases, the enterprise or enterprises might be forced out of the business totally (Majmundar,2006.pp. 34).
Lay offs and reduction in benefits
People will have to be laid off by the business enterprises in order to be able to pay them. This will drive the workers to do more work than normally done. The productivity per worker will acquire, but they might be demoralized due to a lot of straining as they work overtime, work harder and all this not compensated as there are no additional funds to increase their wages.
The companies directors and shareholders and the workers unions might be forced reduce the wages of their workers or decrease in the remunerations to its workers. Plants may be shut down, and others that are not performing up to the required standards might be discontinued (Dunnan,2008 pp.48).
Quality of products
A decrease in the funds available for the company to maintain its operations smoothly may force the company to produce sub-standard goods. This might lead to a decrease in the desire of consumers to continue using the companies’ services or products. This will also affect the company negatively as it will display few sales. The most common form of this approach is the reduction in size while its price remains constant or even increase. This forces the consumers to look for other better alternatives.
Effect on consumers
Recession forces the companies or businesses to cut down on the money to set aside for the advertisements and marketing. As a result, of the decrease in the advertising and marketing by the company the confidence that consumers have in the company will decrease as they might need it as a sign of a drop in the company’s production of quality products.
The consumption of the products reduces according to the company’s earnings, and not according to its productivity. This is because consumers view marketing and advertising as a measuring order to determine how a company or organization is doing. Therefore, lack of advertising by a company leads to the negative view from the consumers (Gregg, 2010 pp. 29).
Access of products to consumers
The recession has a profound impact on the small enterprises. This is because the small companies or businesses do not have enough money in reserves to protect themselves from the economic Impact during times of recession. They are at a higher risk of bankruptcies and termination of the businesses due to the little assets at their disposal.
This further worsens when their limited resources assets required getting loans from banks. This does not only affect the performance itself, but also the residents of the hood located. Bankruptcies and business dissolutions kill the spirit of entrepreneurship and no one can risk venturing into a company or organization that is at the risk of failure or termination. The entrepreneurs cannot afford to risk borrowing loans to fund (Geroski, 2010 pp. 45)..
The stock exchange market in London suffered a lot during and after the recession period. The number of people interested in the business investments reduced significantly due to the risk of losing the money they invested into the businesses. Even, though, London was not baldy affected by the recession like the other cities in the world, it is yet to be seen whether the situation will change. However, the situation expected to increase in the coming years as the recession time comes to an end.
Conclusion
The effects of depression can take many years before it can be fully overcome. This is because the consumers and many other employees have either lost faith in the exchange. Unemployment rises as the companies try to alleviate it selves from the effects of the recession. The loss of jobs and low sales and profits by the companies and consumers leads to a decrease in the GDP.
The situation can be remedied by the increase in the collection of tax and reducing the privileges of some people. As the United Kingdom government strives to ensure that the recession does not affect the households, banks are because people are not paying the money borrowed.
This has forced foreign investor to leave and left banks faced with the threat of liquidity. The banks, on the other hand, are the sole lending institution and most of the companies depend to make the necessary capital for investment. This meant that the London stock exchange market was recording negative sales. This was because most of the investors lacked the necessary capital and the possibility of losing all their investments in case they put in money into any business ventures.
List of references
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