Introduction to the Situation
This paper entails addressing the economic effect of the American based firm on an investment decision from Cousin Edgar. The idea entails buying four gas stations on the anticipation of an increase in the prices of fuel, increased demand for gasoline in the emerging markets and speculations of unavailability of factors of production in future. In addition to gasoline, Edgar intends to stock convenient items in each station in order to increase the profit margin of the organization.
However, Edgar has to consider various macroeconomic factors that are likely to affect the operations of his business and alter the profit earning ability of the firm in future. According to Wilcox and Fabozzi (2013), the timing and financing of this investment has to be based on favorable economic factors such as GDP growth rate, favorable employment rate, business cycle, interest rates, international and monetary policies.
Strength of the Economy
There are various factors that are used to determine the strength of economic growth. These include an increased lending from the banks caused by surplus amount of money in circulation and lower interest rates. In this case, there is more availability of capital since more banks are willing to lend at the existing interest rates (Krishna, 2002). As the Federal Reserve employs the fiscal policies to balance the demand and supply of money, the capitalists are able to maximize on their potential to access capital.
Since the 2008 economic slump, there has been an increase in the flow of capital and increased willingness of commercial banks to lend and borrowers to receive capital. This is an important signal to indicate a favorable fiscal time to start a business because chances of risks are lower both on interest rates and on depression. Since small and middle level firms accounts to more than half of the job opportunities available in the United States, the increase indicates that the potential for economic growth is high. Unlike the large corporations that have wider scope of accessing funds, small and middle level companies highly depends on banks and their operations are directly affected by the interest rates (Cooper, 2012)..
In terms of foreign policies, the American government has had a strong relationship with China and India based on mutual trade agreements (Hook, 2002). The American government has always sought to sustain democracy and enhance a secure and prosperous world for the benefit of its citizens and the international community at large. These foreign trades help the American business community to make optimum use of the natural resources and reduction of wastage. The trade between corporations in America, China and India can also help US to generate additional employments opportunities through enabling the growth and expansion of industrial activities. Direct employment can also be provided for through intermediaries in the export and import sector. In addition, American firms in foreign countries are able to produce similar commodities in a lower cost compared to domestic production, thus increasing trade and economic growth (Davison, 2008).
Therefore, Cousin Edgar should consider seizing this opportunity and complete the purchase of the four gas stations. The funding can be facilitated through the financial institutions at the relatively lower interest rates. This prospect is easily achievable by as the monetary policies are more focused on increasing the level of capitalization to allow for the growth of GDP through increased employment. The existence of strong foreign policies is a major boost to the future prospects of Edgar's gas company as he can export and import gasoline and other accessories to and from India and China. This strategy is very important in reducing the level of risk posed by exchange of currencies and unfavorable business cycles.
- Krishna, A. (2002). Active social capital: Tracing the roots of development and democracy. New York: Columbia University Press.
- Hook, S. W. (2002). Comparative foreign policy: Adaptation strategies of the great and emerging powers. Upper Saddle River, N.J: Prentice Hall.
- Davison, R. (2008). Foreign policies of the great and emerging powers. French's Forest, N.S.W: Pearson Education.
- Cooper. J. C. (August, 2012). Bank Lending Signals a Strengthening Economy. Fiscal Times
- Wilcox, J. W., & Fabozzi, F. J. (2013). Financial Advice and Investment Decisions: A Manifesto for Change. Hoboken: Wiley.