Macroeconomic Environment
Economic development and fall occur in cycles known as the boom and bust. The present low interest rate environment and the availability of credit may be directly influencing economic growth. This allows businesses to expand their operations and engage in activities such as growing their personnel. As a result, fewer individuals will be seeking for job, resulting in more money being re-invested in the economy. Easy access to financing may assist the economy during a boom cycle, but it may also have unexpected repercussions. Companies may overinvest owing to the availability of low-cost financing and interest rates, resulting in a market glut. This occurred in 2008, a year when the real estate industry was prospering and mortgages were easy to get (McArthur & Edelman, 2017). The firms would then invest in mortgage-backed securities. People overinvested in real estate because to the ease with which they could get mortgages, resulting in the foreclosure of many properties. Mortgage-backed securities lost value when borrowers were unable to satisfy their repayment requirements.
Social and Political Climates
The success of different markets may be influenced by the current social and political climate. The number of difficulties you confront while seeking to do business in a certain nation may vary depending on its political environment. As a consequence, doing business with certain areas may become easier or more difficult. Tariffs or other levies on imported or exported goods are one such element that boosts prices and makes conducting business more difficult. However, certain agreements may have the opposite effect, making doing business easier. Countries with tight cultural norms may be difficult to conduct business with, and this influence may also extend to the social climate. The Covid-19 outbreak, for example, has changed social climates due to the significant uncertainty it has created in the marketplace. Businesses are losing potential revenues as a consequence of Covid-19 because people are remaining at home rather than going out and spending money.
Interest Rates and Inflation
There are several implications of interest rates on the market. When interest rates are relatively low, a person’s willingness to take out a loan increase significantly. In times of economic distress, the Federal Reserve Banks may adjust interest rates to define monetary policy. Interest rates may be lowered by the Federal Reserve, making borrowing cheaper and savings less attractive. The availability of more capital may help firms grow or provide people with financial security. Increases in interest rates make borrowing money more difficult and may discourage some potential borrowers. Inflation is another factor that influences market activity. Inflation both makes items more costly and lowers their worth relative to the dollar. As a result, households will have to allocate a larger portion of their income toward meeting basic needs.
Financial Instruments
When consumer spending grows and unemployment declines, stock and mutual fund prices tend to rise. This is because individuals spend the most money during this particular period, and businesses do extremely well. When inflation is allowed to climb to unsustainable levels, the stock market suffers (Indriawan et al., 2019). When the economy is in turmoil, bond and commodity prices tend to climb as a safe haven. Because of the market’s strength, people are frequently less concerned about acquiring bonds when the economy is growing. Due to globalization’s increased emphasis on capital accumulation, the stock market is now the best tool for channeling money into the most productive areas of the economy (Oprișan & Tileagă, 2018). When both the broader economy and the sector in which the business works are doing well, investors are more likely to participate in freshly issued public offerings (IPOs). An excellent example would be a company going public at a time when the economy is rising and consumer spending is increasing. Certain commodities tend to outperform stocks during economic downturns because their value is more stable.
Oversight and Governance
Poshmark, the firm I was evaluating, had the option of listing on either the New York Stock Exchange or the NASDAQ. They made the decision to proceed with listing on the NASDAQ, which necessitates that they comply with a number of conditions in order to maintain their status as a publicly traded company (Poshmark, 2022). The number of publicly listed shares of a company’s stock must be at least 1,250,000, and the average price per share must be at least $4. In addition to this, the companies are obligated to fulfill, as well as adhere to, all laws and regulations imposed by the government.
U.S. Exchanges: Enforcement
The SEC, as well As National Organizations and Securities Dealers (NASD), are in responsible of preserving market order in the United States. The Securities and Exchange Commission, or SEC, is one of the most powerful and comprehensive bodies in the United States. It is in charge of enforcing federal securities regulations as well as regulating the bulk of the securities sector. Their objective is to enforce and interpret securities laws, establish industry standards, monitor financial institutions, and guarantee regulatory consistency among countries. Businesses must verify that they are following SEC and NASD requirements. Companies must establish additional policy measures to guarantee compliance with rules. It is often required to create new divisions and hire more personnel to ensure that all relevant processes are followed. It is also critical for companies to consider the possibility of legal action or fines if they do not follow the rules and regulations that have been established. In the long term, it is less costly for the business to hire employees and follow SEC requirements than it is to breach the law and pay the penalty. In addition to financial fines and legal action, if a corporation is discovered to have broken the code, its reputation may suffer, perhaps leading to a loss in sales.
International Exchanges: Determine
Using the London Stock Exchange, businesses and governments from all over the globe may raise money via the sale of stocks and bonds. In addition, it is accountable for providing accurate pricing, news, and other data to the business sector in the UK and beyond (LSE, 2022). The rules of a foreign stock exchange may be found on the exchange’s official website. Both the LSE manual and the LSE website include all of the restrictions and the agencies responsible for enforcing them.
International Exchanges: Regulations
The London Stock Exchange Rules regulate the operation of the London Stock Exchange. It is supervised by the Financial Conduct Authority and governed by the Financial Services and Markets Act of 2000 (FSMA) (FCA). Among the most important criteria are the involvement of independent directors, the convening of an annual shareholder meeting, and the disclosure of crucial information. All relevant laws and regulations will be enforced by the Securities and Futures Commission, and enterprises must follow them (SFC). These guidelines may impact listing selections in a variety of ways. While some firms may consider these requirements as impediments to listing, others may see them as opportunities to boost the exchange’s value.
Multiple Markets
Companies who seek to dual-list may then trade on any of the two exchanges where they are listed. In order for the business to be listed on the exchange, it must first meet all of the listing rules and then pay any expenses associated with being listed. One benefit of listing a company’s stock on several exchanges is that it increases the stock’s liquidity. The degree to which there is a sufficient supply of shares to meet consumer demand is referred to as liquidity. When an investor wants to buy or sell shares of a company, having the option of dual listing offers them access to several markets.
The upfront and continuing listing fees associated with a dual listing are a substantial disadvantage for the practice. To cope with the likelihood of contradictory regulatory and accounting standards, more legal and financial experts may be required. Poshmark should have considered a dual listing, given that the company was not a start-up when it was initially listed. The fact that the expenditures associated with listing on the Nasdaq are far lower than those associated with listing on the NYSE was a crucial factor in the company’s decision to seek a Nasdaq listing rather than a NYSE listing.
Interest
In the United States, interest rates are determined by the Federal Reserve (FED), which adjusts them up or down based on the status of the economy. In the United Kingdom the interest rates are determined by the Bank of England’s Monetary Policy Committee (MPC). Its objective is comparable to that of the FED of the United States in that it seeks to maintain low and steady levels of inflation. The greater the amount of money spent, the better off the economy will be. When borrowing interest rates are cut, consumers are encouraged to invest their newly acquired buying power in long-term assets such as stocks and bonds. Raising interest rates inhibits firms from borrowing money for expansion and growth, which may harm a company’s bottom line. This decreases the stock’s attraction to purchasers in the long term. Furthermore, when interest rates increase, bonds and other government assets become more tempting investments, outperforming the stock market during this period due to the higher risk-free rate. This is shown by the Federal Reserve’s plan to cut interest rates to zero in 2020, after the conclusion of the COVID-19 outbreak. A shift in the Fed’s strategy of increasing or reducing interest rates may prevent inflation spikes and minimize the severity of a recession.
If interest rates increase, both businesses and consumers will cut down on spending, resulting in lost earnings and a drop in stock prices. Instead, when prices are low, the Fed will lower interest rates to entice investors to purchase stocks at a discount. Investors will benefit since their original investment will provide a higher return if stock prices rebound and become profitable. Consumer spending will increase as long as interest rates stay low. Interest rate reduction allow firms to recover since the increased spending compensates for prior losses. Furthermore, a fall in interest rates increases stock purchases by investors due to the lower cost and risk associated. Return on investment (ROI) gains will be amplified if stock prices rebound and rise beyond their historical average.
References
Indriawan, I., Jiao, F., & Tse, Y. (2019). The impact of the US stock market opening on price discovery of government bond futures. Journal of Futures Markets, 39(7), 779–802.
LSE. (2020). An overview of London Stock Exchange. London Stock Exchange. Web.
McArthur, C., & Edelman, S. (2017). The 2008 Housing Crisis. Center for American Progress. Web.
Oprișan, O., & Tileagă, C. (2018). International Exchanges in a Globalized World. In Emerging Issues in the Global Economy (pp. 289-293). Springer, Cham.
Poshmark. (2022). Poshmark, Inc. (POSH) Company Profile & Overview. Stock Analysis. Web.