Analysis of political, economic, technological and market

Camilo Andrés Alfonso (5800)

Cesar Gabriel Garzón Real (5800)
Lizeth Carolina Suárez Hernández (5800904)

Universidad Militar Nueva Granada

Facultad de ingeniería

Ingeniería industrial

Cajicá
2020
To achieve our material goals, sometimes we are faced with making financing decisions,
something that involves a lot of analysis and transcendence in the management of our
personal finances, given the implications of assuming financial obligations for many
months, inescapable. Sometimes people agree to borrow money, either because of a lack of
resources to buy goods or services, or because we are offered credits that allow us to invest
or because of tax regulations that help us lower taxes when we have housing debts.
When interest rates in the economy are favorable, it is conducive to borrowing and the
demand for credit grows. In Colombia, rates decreased from 1999 to April 2006 and credit
grew at rates of more than 40% in that period. But rates change for multiple reasons, so we
must be informed about what is happening in the economy, both nationally and
internationally, and have a clear understanding of how macroeconomic variables affect the
results of the people or institutions that are financed.
In the Colombian economic environment, there has been an accelerated growth of the Gross
Domestic Product, 4.72% for 2005, 6.9% in 2006 and 7.52% in 2007, which has caused
increases in the inflation index, already bordering on 6% per year at the beginning of 2008,
versus a “Republican banc” goal of 4.5%, a phenomenon in which other factors, such as the
increases in the economy, intervene as well as the accelerated growth of the economy. food
prices, the price of oil and also of all the prices of the products that use it as raw material.
[ CITATION Raú08 \l 9226 ]

Politic: Among the main functions of any finance department at the corporate level, it is in
charge of seeking traditional and alternative financing for the group, as well as advising on
M&A processes and controlling debt levels and WACCs, among other tasks. Within the
PEST analysis, I would like to focus on the interesting and important effect that the
political and legal environment has on the role of the financial department. The legal
environment and legal security are an essential element for any society, but it must be
emphasized that absolutely every financial operation has behind it an intense legal study
and a repercussion in terms of price of a hypothetical insecurity of the legal framework
from which it is possible damages for the lender.
The legal environment conditions the banks through which the bank finances itself, the
suppliers it buys from, the customers it sells to and a host of additional elements. For this
reason, the financial department is deeply influenced by the legal environment of the
geography in which it operates. The political environment is, if possible, even more
exciting and, without a doubt, dynamic. We have witnessed events such as Brexit or the
victory of Donald Trump in recent months that have undoubtedly made more than one
financier tremble. The risk-return binomial present in every investment and decision with
an economic background, is clearly affected in its two components when events of the
magnitude of those mentioned above occur.
Therefore, the economic environment has a brutal influence on any financing, whether
traditional or alternative, as well as in any M&A operation, etc. Also, the WACCs that
determine the profitability of each project that the company develops, are largely based on
what is known as CRP (Country Risk Premium). This variable is highly conditioned by the
country's political environment. The WACC of an oil well in Nigeria, due to its political
and legal environment, we could place it at around 7%. This implies that the cash flows
derived from the project will be discounted at that rate (more than what the shareholder
requires) and that, therefore, either a huge deposit is discovered, or Copse will not carry out
any project in that country.[ CITATION IMO16 \l 9226 ]
Economic: Economic expansion showed again in 2016 a remarkable resistance, surpassing
without great shocks strong political shocks, like Brexit, Trump's victory in the US
presidential elections and the increased instability in Italy after the victory of "NO" in the
referendum for the constitutional reform that led to the resignation of the prime minister.
Despite all these circumstances unfavorable and weakening the US economy during the
first semester, world growth was similar to that of 2015 (2.5% estimated).
In the case of EMU, growth was above potential, although moderate (1.7%) and with
significant differences between the main countries: 1.8% in Germany, against rates close to
1.0% in France and Italy. Also, the sentiment towards inflation changed substantially
throughout the year. Deflation fears persisted for good part of the first semester but the
inflation was consolidating, little by little, a smooth uptrend thanks to the oil price
recovery, which closed the year above $ 50 a barrel, after reaching a minimum of $ 27 in
January. In November, Trump's victory gave an additional boost to expectations inflation,
by discounting the markets that will launch a strong fiscal stimulus in the US to act as a
shock to the global demand.
When it comes to monetary policy, most notable was that the ECB reacted to low inflation
in EMU, cutting in March its reference rates (the repo from 0.05% to 0% and the Ease of
Deposit from -0.30% to -0.40%), expanding the volume of your purchase program assets
and incorporating corporate bonds private non-financial. In addition, he announced a new
liquidity program for banks conditioned to the fulfillment of some growth objectives of
credit to the sector private.
Proper interpretation of the evolution of the economy is a useful tool to improve business
decision making. The objective of the article is to explain, with examples applied to the
current economic reality, how an analysis of the economic environment is made and how it
serves for strategic business planning. For this, after conceptual explanation of the general
framework, gross domestic product, inflation and the external gap are defined as indicators
of results, key in the «language» used by analysts. These are interrelated economic
indicators that depend on internal economic policy and exogenous shocks, the latter defined
as events that are out of the hands of the designers of economic policy, but that influence
the three variables mentioned, such as, for example, the international financial crisis. Then
formalization through macroeconomic identities follows, to finish explaining "how the
economy is doing" through them; as well as the relationship between the internal and
external economic environment. Bringing the economy closer to the company must be a
priority in an increasingly integrated context, characterized by the fact that the positive and
the negative of what happens in the world economy is transmitted, through various
channels, to companies located in different countries. Hence, companies must broaden their
vision, since the economic environment not only includes what happens within the country,
but, increasingly, the future of the world economy.
Conclusion
In conclusion, the political and legal environment determines, radically, the convenience or
not of taking economic actions anywhere. The impact it has, therefore, on the financial
department of any corporate is essential, assuming a factor to be taken into account at all
times.
The economic environment is made up of all those factors external to the company that
have a significant influence on it and that cannot be controlled. These factors are variables
that are not related to the specific activity carried out by the company. The primary
objective of this analysis is to adopt strategies that allow the company to adapt to the
environment. "Strategies should not come out of nowhere, they should respond to the
business environment, hence the importance of conducting an analysis of the current
situation in the general environment of society. "
In this environment, both inflation, unemployment rate and monetary policy are taken into
account. Valuable ideas, comparative advantage, and the principle of incremental benefits
are of great importance in the financial environment.