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Which of the below isn’t an external factor that can influence the share price?Corporate takeovers1Foreign financial markets2Government policies3Interest rates

Question

Which of the below isn’t an external factor that can influence the share price?

  1. Corporate takeovers
  2. Foreign financial markets
  3. Government policies
  4. Interest rates
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Solution

To determine which of the options listed isn't an external factor influencing share price, we need to analyze each option in the context of how they typically impact stock prices.

  1. Corporate Takeovers: This is an external factor. A corporate takeover can significantly impact the share price of the companies involved. For instance, if a well-performing company decides to acquire another, it might drive its share price up, whereas the takeover target's price might rise or fall based on the offer.

  2. Foreign Financial Markets: This is also an external factor. Global financial markets affect share prices as they reflect international investor sentiment, economic conditions, and market performance, which can lead to fluctuations in domestic stock prices.

  3. Government Policies: This is an external factor. Changes in regulations, taxation, and other government policies can greatly influence business operations and, consequently, their stock prices.

  4. Interest Rates: This is an external factor. Changes in interest rates impact borrowing costs for companies and consumer spending. Higher interest rates can lead to lower investments and consumption, resulting in a decline in share prices.

Given this analysis, none of the options seem to fit as a non-external factor. However, if you strictly consider individual corporate decisions (as in option 1), it may appear to be less external compared to government policies or interest rates. Therefore, while all options can be considered external, the nuance may lean towards viewing Corporate Takeovers as less external than the rest of the factors listed.

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