Stock and Currency Exchange Markets’ Volatility Effect on Companies’ Returns Essay

Volatility has a high potential to influence companies’ returns due to a number of reasons. Stock and currency exchange markets have always played an important role in the stability of returns and investments. Hence, the lack of stability in prices, or, in other words, volatility, is likely to undermine the returns of many organizations. Volatility involves not only the movement of prices but also the range at which they swing. The major problem is that one cannot predict volatility, as well as the time when it will subdue.

Volatility is the method of assessing dispersion around the security’s return. By measuring volatility with a standard deviation, it is possible to predict how steadily the stock price or currency exchange is clustered around the mean or moving average (Wagner). Most commonly, volatility has a strong adverse effect on the returns. Some experts argue that it is also possible to gain profit in conditions of high volatility. Still, one has to be extremely proficient in order to benefit during high volatility (Wagner). Hence, companies should be cautious with their investments during unstable times so as to save their returns.

Within the past few weeks, volatility in stock and currency exchange markets has increased rapidly. The reason for such drastic changes is COVID-19, the pandemic that has quickly spread throughout the world. Due to growing unpredictability, the markets experience large drops (Funakoshi and Hartman). Furthermore, markets are very “oversold” and experience the same difficulties as crises in the past, such as 2008, 1987, or even 1930 ones (Tan). Therefore, it is viable to conclude that companies’ returns are contingent on the negative changes driven by volatility. Only the most experienced firms can benefit during volatility, but the risks of losses are still rather high.

Works Cited

Funakoshi, Minami, and Travis Hartman. “Mad March: How the Stock Market Is Being Hit by COVID-19.” World Economic Forum. 2020. Web.

Tan, Weizhen. “Markets Are ‘Very Oversold,’ Analyst Says Volatility will Peak Before Investors See the Bottom.” CNBS. 2020. Web.

Wagner, Hans. “Why Volatility Is Important for Investors.” Investopedia. 2020. Web.