Corporate Finance For Dummies
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Your company is careful. It chooses only the best customers, only the best investments, uses derivatives only to mitigate potential losses, diversifies clients and investments, and does everything right to reduce the risk associated with every single penny. You have the safest and most stable company in the entire nation . . . and then the entire national economy collapses.

No matter how successful you are at managing the risk of your company, there’s always the risk that the nation in which you’re operating will experience total economic meltdown.

The vast majority of people really have no idea how to recognize the warning signs of a very large recession in the near future; not that it would help them to know it’s coming, mind you, because there’s nothing a single company can do to stop it from happening.

But a company can take steps to mitigate the amount of loss associated with market risk, such as international diversification or the use of derivatives.

The best way to decrease the amount of market risk your company experiences is to diversify internationally. That may sound like a much more problematic strategy than it really is. The big problem with market risk isn’t necessarily the loss of value, but rather the loss of customers.

Even simply exporting your goods or services internationally to nations not experiencing the same recession may help to stabilize your company’s revenue streams to an extent, at least minimizing the damage, although not eliminating it altogether.

An advantage of these recessionary periods is that the pool of potential employees all competing for a limited number of jobs increases. This competition allows your company to acquire labor at lower prices, helping to decrease costs during an otherwise difficult period.

Don’t think for a single moment that your company is immune from market risk. National recessions are common and inevitable under the current methods of economic management. They can also be highly devastating for the companies in the nation experiencing the recession; many companies lose customers, file bankruptcy, or even go out of business entirely.

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About the book author:

Kenneth W. Boyd has 30 years of experience in accounting and financial services. He is a four-time Dummies book author, a blogger, and a video host on accounting and finance topics.

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