Initial Public Offering

Nominal Gross Domestic Product (NGDP) is the total income before the deduction of the inflation. When the economy of a country is in a desperate state, the government must take strict measures to curb the situation. The nominal aggregate income is not adjusted to the inflation and usually deployed to achieve a stable economy. The stable economy is characterized by maximum employment, moderate long-term interest rate, and stable prices (Dambra Schonberger & Wasley, 2018). The government does not adjust the inflation in an economy with a high level of unemployment. While launching a new product in the market, the economy with the high level of unemployment is likely to make resources idle, thus, reducing the market value of the item. The economists deploy the NGDP to measure the economic status of the country. Therefore, NGDP has great effects on the stock market returns (Dambra Schonberger & Wasley, 2018). The investors can launch a product when the NGDP is high because the profit margin improves.

A consumer price index (CPI) is a statistical method that the economists use to measure the changes in the price levels for a basket of consumer goods and services. The CPI is used in determining the standards of living for the households in the economy (Liu, Uchida & Gao, 2014). The CPI reflects the spending patterns of a specific group of people at a different time of the year such as the urban workers and rural dwellers. During the initial public offering of the products, the marketers must study the CPI to determine the consumer buying behavior. Also, the CPI is useful in predicting the future sales of the products (Liu, Uchida & Gao, 2014). The economists use the CPI to measure the inflation and as an indicator of the effectiveness of the state’s economic policy. The government uses the CPI to adjust the value of the dollar, thus, influencing the price of the new commodities.

The discount rate is the interest charges to the commercial banks or other financial institutions on the loans they take from the Federal Reserves (Dambra Schonberger & Wasley, 2018). Furthermore, the discount rate can represent the discounted cash flow analysis to determine the current value of the cash flows. Since the economists deploy discounted rate to calculate the future cash flow of the products, they can use the future discounted value of the items and set the current prices. The entrepreneurs forecast the earnings out in the future of a particular product in the market and deploy the discounted cash flow technique to estimate the product valuation in the current time. Furthermore, the discounted future cash flow can help the entrepreneurs to compensate for the risk associated with the current prices (Dambra Schonberger & Wasley, 2018). If the Federal Reserve set a high discount rate to the commercial bank, the people will pay high-interest rate on loan they obtain from the bank. Consequently, the prices of the commodity will improve, thus, an increase in inflation.

The unemployment rate is recorded in an economy if the factors of production such as labor and capital are not completely employed in the production process. In an economy where the labor is idle, the quantity produced per unit reduces causing low-profit margin (Liu, Uchida & Gao, 2014). The investors must analyze the potential drop or increase in the unemployment rate. The economy with 80% employment level performs best in a stock exchange. To elaborate, an economy with a high number of people working in a particular sector records an improvement in the stock markets (Liu, Uchida & Gao, 2014). Therefore, an entrepreneur launches a public offering when the unemployment is low and NGDP is high.

About the Author: Russell White