An Assessment on Inflation Risk and Its Effects on Business Operations

An Assessment on Inflation Risk and Its Effects on Business Operations

Ümit Hacıoğlu (Istanbul Medipol University, Turkey), Hasan Dinçer (Istanbul Medipol University, Turkey) and Burcu Parlak (Beykent University, Turkey)
DOI: 10.4018/978-1-5225-3932-2.ch004
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Abstract

The latest economic crisis in the world affected business operations and decision making process at management rank. One of the major components of financial system is business organizations within the financial environment, which injects cash to the system and individuals. Therefore, fluctuations in financial system regarding inflationary trends should be evaluated and risk management functions for banking operations should be facilitated. In this chapter, operating mechanism of financial system, risks, ınflation and the effects of inflation on business operations have been outlined from a theoretical perspective.
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Operating Mechanism Of Financial System And Financial Risks

According to Hacioglu & Dincer (2009), a financial system is the environment that provides cash flow in order for a country’s economy to systematically maintain its continuity. Persons that derive profit may choose not to spend in certain circumstances, which enables them have the opportunity to achieve savings. Apart from this, there are also debtors who are bound to spend; these are, in other words, those who demand funds. The aim of the system is to help transfer funds from those who have fund surplus to those with funding gaps. During this exchange process, one party lends money while the other borrows it. The borrower demands a bill of debt which specifies under which conditions it will be borrowed and when the debt will be paid. In the event that the funds change hands, financial assets will change hands as well.

As per the research done by Sener (2012), while the foundation of the financial system of some countries is comprised of banks, this foundation is constituted by direct finance resources. Solutions should be sought by taking into consideration how the financial system should be. Therefore, growth is supported by increasing investment instruments and capital accumulation, allocating resources equally and providing economic stability via carrying out various comparisons among the economic indicators of countries.

According to Agayev (2013), economists conduct research for many years in order to identify the position of financial systems in the economy world. It is observed that the functions of markets and intermediaries have influence on developing a financial system and providing economic growth. Information, along with technological developments, lowers costs and secures economic progress and development. In accordance with the aforementioned research, there are five known basic functions of financial systems in economy.

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