BABM1003

Accounting and Budget management

Student Name: Gabriela Chroma-H2210787

Eva Kotulakova-H2210771
Student ID: Aksana Griscuka-H2210346
Jan Gabor

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Table of Contents
Introduction .................................................................................................................... 3

Impact on entity financial objective if a change in economic variable ......................... 4

Impact of shifting in interest rate ............................................................................... 4

Effect of moderated exchange rate ........................................................................... 6

Effect of inflation rates ............................................................................................... 9

Conclusion ................................................................................................................... 11

Reference .................................................................................................................... 12

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Introduction
The report will evaluate the moderation in economic attributes on the firms and
economy. The attribute includes the interest rate, moderation in exchange rates and
inflation, etc. Any modification in the economy may have a direct effect on the
profitability, and income or might increase the debt of an entity. The report’s key focus
is to determine the effect of economic changes on achieving the objectives such as
the profitability of the entity as well as the economy.

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Impact on entity financial objective if a change in economic variable
Business objectives should always be increasing their profitability, regardless of the
state of the economy. Typically, individuals are more optimistic, have more
discretionary spending, and lower unemployment rates when the economy is booming.
As a result of these factors, more customers will choose to purchase from companies
just like JustPej Co. Job losses are common, individuals are more prone to put money
away, and companies may feel the pinch during a recession. The capacity of
enterprises to fulfil their financial goals, as well as the economy as a whole, may be
significantly influenced by shifts in economic factors such as interest rates, inflation
rates, and currency values. These factors have the potential to influence the income,
expenses, profitability, and overall financial health of an organisation. This study will
investigate the effect that changes in economic and business factors have on the
financial goals of JustPej Company as well as the economy as a whole (Xiao and Tao,
2021).

Impact of shifting in interest rate

Businesses are significantly impacted by changes in interest rates since this economic
variable plays an essential role in the overall operation of the economy. Alterations in
interest rates have the potential to have both beneficial and negative effects on
companies, depending on a wide range of criteria including the kind of firm, its size,
and the sector in which it operates (Ratnawati, 2020). The following is a list of some
of the beneficial and bad effects that fluctuating interest rates have on companies:

Example: -

Long-term borrowing or financing will be expensive if the interest rate of the loan of
JustPej. It would impact business in several ways. First of all, it would increase the
financing cost and reduce the profit of the business. Further, this would result in return
on shareholder’s investment. This also might place business in a shaky situation as it
will have to pay increased finance cost. But as the situation tells that along with 2%
increase in finance cost there also will be an increment in gross profit. That would be
around Z£ 5M due to strengthening of the currency in the export market of the
company. This increased amount of gross profit would be 25% of current gross profit.
Hence, the business would be able to pay its increased cost. Even after paying the

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finance cost, there would be increased profit available which would result in higher
EPS for shareholders.

Table 1: Effect of change in interest rate in JustPej

Previous Year Current Year Difference

Interest Rate 10% 12% 2%

Interest amount £ 800,000.00 £ 960,000.00 £ 160,000.00

Basis Positive Effect Negative effect

Borrowing costs A reduction in interest Increased expenses
rates may bring down the associated with
cost of borrowing money, borrowing money An rise
making it easier for in interest rates may
companies like JustPej make it more costly to
Co to have access to borrow money, which can
capital at a price that is result in an increased
more favourable to their cost of capital for firms.
bottom line. This may This may result in fewer
provide companies investments being made,
access to more funds, smaller profitability, and
which can then be less overall activity in the
invested in chances for commercial world (Xiao
growth such as research and Tao, 2021).
& development, new
projects, and
expansions.
Spending by customers A decrease in interest Higher interest rates may
rates might encourage cause customers to be
customers to take out less inclined to take out
loans for significant loans, which in turn will
purchases such as have the effect of
houses, vehicles, and lowering their overall

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 other items, which can buying power. Because
lead to an increase in of this, there may be less
consumer expenditure. demand for products and
This higher spending has services, which might
the potential to generate result in fewer sales and
demand for products and lower income for
services, which might companies like JustPej
ultimately lead to greater Co (Bilan, et. al., 2019).
sales for companies (Le,
Chuc and Taghizadeh-
Hesary, 2019).
Confidence of the investor Investors' confidence in A rise in interest rates
the economy and may result in diminished
companies may be confidence among
boosted by a decline in investors in the economy
interest rates, which can, and companies, which
in turn, lead to an can lead to a fall in
increase in investment investment and a
and a rise in stock prices. decrease in stock prices
(Bilan, et. al., 2019).

Effect of moderated exchange rate

The value of one currency expressed concerning another currency is referred to as
the exchange rate. Exchange rates are an extremely important aspect of running a
company in today's globalized world, especially in international commerce. These
shifts may have both beneficial and bad effects on the companies that are affected by
them (Huy, Loan and Pham, 2020). Changes in exchange rates may have several
beneficial or negative effects on the company such as JustPej Co discussed below.

Example:-

If the currency of export market country gets strengthen, then it will reduce the cost for
that country’s market. While the Just Peg’s sales prices will be same and will receive
in Z£ currency, which already fixed by the Justpeg. In this way, goods send by the

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JustPeg in export market will be available at cheaper rates. This will reduce price
increase the demand in the export market and increased demand will increase the
profit of the Justpeg. So, overall, there will be an increase in the available profit for the
shareholders.

On economic level, there also will be in import and export of both companies. This will
increase the GDP of both the economies. This also would impact both country’s
exchange rate. As justpeg is the member of Z country, so this trade will benefit the Z’s
economy. This will help in improving its currency’s strength and also would increase
its GDP.

Table 2: Effect of increase in Exchange rate on JustPej

Previous Year Current Year Difference

Gross Profit £ 20,000,000.00 £ 25,000,000.00 £ 5,000,000.00

Basis Positive Effect Negative effect

Competitiveness Increased levels of Decreased levels of

competitiveness may result competitiveness may result
from a decline in the value of when the value of a nation's
a nation's currency, which in currency rises since this can
turn can cause a price make the country's exports
reduction for exported more costly and, as a result,
goods. The company such less competitive in
as JustPej Co have the international markets. This
potential to achieve a may lead to decreased
competitive advantage over levels of income and
their rivals and to expand profitability for enterprises,
their market share. This may which in turn might result in
lead to increased revenues the elimination of jobs in the
and profits for the company economy.
(Le, Chuc and Taghizadeh-
Hesary, 2019).

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Cost Companies that acquire their A fall in the value of a
raw materials or labour from nation's currency may result
nations with weaker in a rise in the price of
currencies might profit from a imported products and raw
decline in the value of those materials. This can lead to
nations' currencies since it an increase in the cost of
lowers the cost of their goods doing business in that
and services. This might nation. This may result in
result in cheaper expenses increased expenses for
for the company, which, in enterprises, which can lead
turn, could translate into to decreased profits or
larger profits or lower pricing higher pricing for customers
for customers. (Padhan and Prabheesh,
2021).

Income or expenses Higher revenue is one way in Confusion may arise for
which a company might profit companies when exchange
from an increase in the value rates undergo rapid shifts
of a currency, particularly if because of the impact this
the company generates has on the value of
revenue denominated in a currencies. When currency
foreign currency. This has exchange rates are in a
the potential to lead to a rise state of perpetual flux, it may
in the company's revenues be difficult to make plans for
and earnings (Tobing, et. al., the future. Companies may
2019). be required to engage in
currency risk hedging, which
may add to their operating
expenses (Padhan and
Prabheesh, 2021).

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Effect of inflation rates
Inflation rates measure how fast an economy's prices are rising. Businesses might
benefit or suffer from inflation (Prohorovs, 2020). Shifting in inflation rates affects
companies positively or negatively discussed below.

Basis Positive Effect Negative effect

Prices Inflation raises prices, which Inflation raises the cost of

boosts corporate income. raw materials, labour, and
This is especially true for other economic inputs.
firms that may charge Businesses may have to
clients more. If a company raise prices to maintain
makes popular items, it may profits. The business's
raise pricing without losing goods and services may
customers. suffer (Prohorovs, 2020).

Debts Inflation lowers corporate Rising inflation makes it hard

debt's actual worth. Inflation for firms to plan. Due to
devalues money. Inflation pricing uncertainty,
might make it simpler for a companies may postpone
firm to repay a fixed-interest investment choices.
loan. Business productivity and
competitiveness may suffer.

Effects on consumer Inflation boosts economic Inflation reduces consumer

development and buying power. Businesses'
employment. Consumer goods and services may
spending may rise, suffer. To retain customers,
benefiting consumer- businesses may have to
dependent industries lower prices, lowering sales
(Tobing, et. al., 2019). and profits.

Businesses may better cater to their current clientele and expand into new markets by
taking advantage of the upturn in the economy to increase their workforce. When they

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buy a bigger location, they have more capacity to expand and provide more options to
their customers (Tobing, et. al., 2019). In the instance of JustPej Company,
developments in technology may affect the organization's capacity to accomplish its
financial goals. If the business is sluggish to adopt new technology, it may be forced
to deal with higher expenses and decreased efficiency, both of which may affect the
company's profitability. In addition, the possibility exists that JustPej Company may
face increasing rivalry as well as a decline in revenue if its rivals are quicker and more
capable of developing and launching new goods or services. Yet, if JustPej Co. is
capable of adopting new technologies in a timely and efficient manner, it may be able
to boost income while simultaneously lowering expenses and improving efficiency.

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Conclusion
Expected corporate profitability is correlated with the economy's predicted rate of
growth, and this is reflected in stock prices. So, even if there is no direct relationship
between financial markets and growth, there may be a correlation between depressed
financial markets now and poor growth shortly due to the forward-looking character of
financial markets. The report covered all the considered effects of changing economic
attributes on the economy or business.

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Reference
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Huy, D.T.N., Loan, B.T.T. and Pham, T.A. (2020). ‘Impact of selected factors on
stock price: a case study of Vietcombank in Vietnam’, Entrepreneurship and
Sustainability Issues, 7(4), p.2715. http://doi.org/10.9770/jesi.2020.7.4(10)

Le, T.H., Chuc, A.T. and Taghizadeh-Hesary, F. (2019). ‘Financial inclusion and its
impact on financial efficiency and sustainability: Empirical evidence from Asia’, Borsa
Istanbul Review, 19(4), pp.310-322. https://doi.org/10.1016/j.bir.2019.07.002

Padhan, R. and Prabheesh, K.P. (2021). ‘The economics of COVID-19 pandemic: A

survey,’ Economic analysis and policy, 70, pp.220-
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Prohorovs, A. (2022). ‘Russia’s war in Ukraine: Consequences for European

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Ratnawati, K. (2020). ‘The impact of financial inclusion on economic growth, poverty,

income inequality, and financial stability in Asia’, The Journal of Asian Finance,
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(2019). ‘An Analysis on the Factors Which Influence the Earnings of Micro and Small
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Xiao, J.J. and Tao, C. (2021). ‘Consumer finance/household finance: the definition
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