For Investors or people in finance, understanding macroeconomics and its factor is very important because each of the major macroeconomic factors such as growth, inflation, business cycles etc.., have strong impact on the financial markets. They also have strong impact on the financial sector.
For example, when the economy gets into downturn, many firms find it difficult to repay their loans and as a result, the financial health of banks gets affected. Furthermore, changes in macroeconomic policies influence key variables of financial markets such as interest rates, liquidity and capital flows.
On the other hand, what is happening in the financial market can have a strong impact on the rest of the economy. Some examples of such transmission can be observed during the financial crises. In the United States, weaknesses in the financial sector stemming from a sudden and substantial decline in the prices of real estate, led to a downturn for the entire economy. In fact, almost all the countries of the world were affected because of this problem in the United States. In many countries across the world, this crisis hit not only the financial markets but also the entire economy, causing major recession and unemployment. The governments of these countries had to undertake serious coordinated policy measures to pull their economies out from recession.
As finance and macroeconomics are intimately interlinked, it becomes imperative for a finance professional to have at least a working knowledge of macroeconomics, so that they can better predict how firms and individuals behave in different situations, what risks and opportunities arise in what macroeconomic situation, how changes in policy changes can affect different macroeconomic variables and so on.
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