Explore
For Enterprise
Join for Free
Log In

artes y humanidades
Negocios
Ciencias de la Computación
Ciencia de Datos
Tecnología de información
salud
Matemáticas y Lógica
Desarrollo Personal
Ciencias Físicas e Ingeniería
Ciencias sociales
Aprendizaje de un idioma
Grados
Certificados

Explorar todo lo que Coursera tiene para ofrecer

Explorar
Buscar
For Enterprise
Inicia Sesión
Únete de forma gratuita

Monetary Policy and Strategic Business and Money Management

Loading...

Strategic Business Management - Macroeconomics

Universidad de California en Irvine

4.9 (29 calificaciones) | 4K estudiantes inscritos

This course weds business strategy with the principles of macroeconomics. It offers valuable a powerful toolbox together with cases and lessons across all major functions of business, management, from finance, operations management, and marketing to human resource management, organizational behavior, statistics, and, of course, business strategy.

Revisiones

4.9 (29 calificaciones)

5 stars
26 ratings
4 stars
2 ratings
3 stars
1 ratings

De la lección

Monetary Policy and Business Strategy

What is Monetary Policy?7:23

All About Interest Rates7:49

The Kinds and Functions of Money4:19

Determinants of Money Demand5:41

How Paper Money is Created and the Money Multiplier8:03

The Money Supply Multiplier and Where Money Comes From6:53

The Nuts and Bolts of Monetary Policy8:00

Using Monetary Policy to Close Recessionary and Inflationary Gaps6:00

Monetary Versus Fiscal Policy4:03

Monetary Policy and Strategic Business and Money Management12:55

Impartido por:

Dr. Peter Navarro
Professor

Transcripción

[MUSIC]

To end this lesson, let's flip things around and look at discretionary monetary

policy from the perspective of both business executives and money managers.

[MUSIC]

The underlying key concept here is this.

[MUSIC]

When a central bank engages in monetary policy,

it is by definition seeking to influence two of the most important parameters for

doing business and investing in a global economy.

[MUSIC]

Level of interest rates and currency exchange rates.

It follows from this observation that both business executives and

money managers can profit by keeping a close watch

on how central banks around the world are responding to changing macro

economic conditions with their discretionary monetary policies.

To give this abstraction a bit of real world flavor,

consider these scenarios and examples that illustrate in

more detail how to strategically manage movements of the business cycle.

[MUSIC]

Suppose now you are the chief financial officer of a company operating in a bricks

and mortar, highly capital-intensive industry, such as steel production.

And suppose further, that in an era of low interest rates,

you have chosen to finance much of your company's new capital construction

programs with relatively cheap short term debt, rather than long term debt.

So your ratio of short-to-long term debt is relatively high by industry standards.

[MUSIC]

Now looking at the macroeconomic chessboard,

you see both the Consumer Price Index and Producer Price Index trending up.

That's indicating that inflation may now be accelerating.

You've also read in the newspaper that the Central Bank has begun to debate

whether it should start hiking interest rates to control that inflation.

At this point, here's the question.

Should you load up on even more short-term debt, at an interest rate of 5%,

before the party is over when the central bank starts hiking interest rates,

or should you begin to roll your short-term debt into

longer-term debt with a fixed interest rate of 7%?

Take a minute now to think about this, and

then jot down your answer and its rationale.

[MUSIC]

The answer here is you should definitely begin to roll over your short-term debt

into longer term debt instruments.

Just why is this so?

Well even though you may pay a bit more in higher interest rates, for

the longer term debt, you will nonetheless be able to lock in a lower rate over time

should inflation continue to accelerate and interest rates significantly rise.

For example, if inflation does spike, short-term interest rates could

quickly rise to 8% or 10% or higher, but you've already locked in

that long term rate of 7% in anticipation of that interest rate spike.

Your company will therefore be more profitable.

[MUSIC]

Suppose now you are the Chief Executive Officer of a chain of automobile

dealerships in your country.

You specialize in selling luxury foreign imports including BMWs from Germany and

the Lexus line from Japan.

Suppose further that over the next year, you believe the economy

is going to slowdown dramatically and put downward pressure on the inflation rate.

How do you think the central bank in your country might react to this

recessionary and deflationary trend?

And what kinds of risk might the Central Bank's actions pose to your bottom line?

More importantly, what strategic steps might you take to ensure

continued profitability in what looks to be a rough year ahead?

Take a minute now to jot down some

ideas before moving on.

[MUSIC]

Okay this is a pretty complicated question, it's also a fun one.

Basically the most obvious risk you face is the possibility that slow growth in

recession will lead to reduced demand for

the cars you're selling to customers at your dealerships.

In fact, the automobile industry is one of the most highly cyclical industries in any

nation and the first to feel the effects of a recession.

To deal with this particular risk, one key step you can certainly take is to

reduce your inventories so you don't wind up with too many cars stuck on the lot,

too few customers to sell the cars to.

There is, however, a far less obvious,

but equally troublesome risk you face as a seller of imported cars.

Reform of what's called exchange rate risk.

The problem here is that if your government's central bank responds to

the onset of slow growth or recession with a significant cut in interest rates,

such a fall in interest rates will likely weaken the domestic currency,

as we've learned.

This cheaper currency will, in turn, make it more expensive for

your company to import the cars it buys at wholesale from Germany and

Japan for selling at retail for your customer.

And even if you continue to sell your cars at a brisk pace,

an unlikely outcome if a recession comes,

your profit margin is likely to be squeezed by the higher import costs.

[MUSIC]

As for what you can strategically do here, one possible step would be

to hedge your exchange rate risk in the currency futures market.

In fact, you could buy currency futures that will allow you to

offset any depreciation in the domestic currency.

And note, such a hedging strategy is not just for.

It maybe useful for any business that relies

on the importation of foreign goods for resell in the domestic economy.

And also note that 'm just throwing some very big ideas at you

by talking about concepts like hedging, currency futures.

If you get a little extra time,

you may want to cruise the internet to explore these ideas more fully.

For now, here's another example.

[MUSIC]

Now what about the opposite situation,

where your car dealership is not selling any foreign imports at all.

It nearly sells domestic brands.

If you see a recession coming and around of interest rates cuts by the central

banks, along with a weakening of the domestic currency, what might you do

strategically in the realm of advertising, marketing and inventory management.

Think about that for a minute, and maybe jot down some ideas before moving on.

[MUSIC]

Well, in this case, you will likely do the same thing as your foreign import

competitor and start cutting inventories in anticipation of the slow.

However, you may also want to shift the product mix

of cars that you will be selling on your lot.

The idea here is that you're in a recession.

People are going to be more price sensitive.

Or, as they say in micro economics, the man will become more elastic.

That means you will be better off selling lower priced cars, and

fewer features at value, oriented prices.

But here's something else you will also be able to do.

You can run an aggressive marketing campaign to try and

grab market share from the foreign import segment of the market.

The key idea here is that your foreign car competitor should

be under rising price pressures from the weakening domestic currency.

In such an environment, you should be able to much more aggressively compete

on prices against these foreign import dealers.

That's a great example of strategic business cycle management

driven by your knowledge of monetary policy and its effects.

[MUSIC]

Now, what if you are an investment advisor or money manager?

Why is it important to keep your eye on monetary policy?

Well suppose as a money manager you have a client with $10,000,000

who has instructed you to always keep part of her money in the stock market and

part of the money in the bond market.

However, a client also allows you to change the allocation between stocks and

bonds in response to changing market and macroeconomic conditions.

Now, further suppose you've been watching the economy closely.

You've noticed a deterioration in a number of economic indicators.

And you think that a recession is on the horizon that will lead to

the Central Banks in both the United States and Europe to start cutting

interest rates soon as part of an expansionary monetary policy stimulus.

Your view of the chessboard.

What will be your asset allocation strategy?

Specifically, will you increase the weight of stocks in your clients portfolio, and

decrease the weight of bonds, or do just the opposite,

buy more bonds and reduce your client's stock holdings.

Take a minute now to think this asset allocation problem through and

jot down your answer.

And with your answer also explain

just why you're favoring stocks over bonds or

bonds over stocks in this scenario.

[MUSIC]

So what do you do if you're anticipating a recession, and a round of interest rate

cuts by the US Federal Reserve and the European Central Bank?

Well, you will definitely weight your client's portfolio significantly more

towards bonds, by buying more bonds and

selling some of the stocks in that portfolio.

So why will you do that?

Well, all stock prices reflect as an expectation

of a future stream of earnings by a company.

And if recession is coming, that will reduce business activity, revenues and

the earnings in most companies.

This in turn means that stock prices are likely to fall

as more investors sell their stocks in expectation of these reduced earnings.

Let's rewind and load up on bonds, this is a bit trickier.

The key thing you have to remember here is that bond prices and

bond yields are inversely related.

That means as interest rates fall, say in a recession, when the central bank is

cutting interest rates, bond yields will also fall while bond prices will go up.

So, if you buy bonds with the expectations of a recession and

a recession comes, pricing your bonds will rise and you will make a profit.

And by the way, when you do this, what you are essentially

doing is locking in a higher yield on your bond portfolio

before the recession comes and yields fall.

[MUSIC]

Okay, those last examples were a bit complicated.

But, hey, he's trying to get you ready for the real world of business and finance.

And also get you thinking really hard

about how macroeconomics really affects much of what you do.

So take a breather now and get some rest.

You have certainly earned it and I'll see you again soon.

The Merage School of Business at

the University of California,

Irvine, I'm Peter Navarro.

[MUSIC]

Explora nuestro catálogo

Inscríbete de manera gratuita y obtén recomendaciones personalizadas, actualizaciones y ofertas.

Coursera brinda acceso universal a la mejor educación del mundo, al asociarse con las mejores universidades y organizaciones, para ofrecer cursos en línea.

© 2019 Coursera Inc. Todos los derechos reservados.

Descargar en la App Store

Consíguelo en Google Play

Coursera
Acerca de
Liderazgo
Empleo
Catálogo
Certificados
Certificados MasterTrack™
Grados
For Enterprise
For Government

Comunidad
Learners
Partners
Developers
Beta Testers
Translators

Conectar
Blog
Facebook
LinkedIn
Twitter
Instagram
Youtube
Blog de Tecnología

Más
Términos
Privacidad
Ayuda
Accesibilidad
Prensa
Contacto
Directorio
Afiliados