Question

Money and Banking

Promt:

In June 2016, the United Kingdom (U.K.) held a referendum on whether the country should remain a member of the European Union (EU). A decision to leave the EU was commonly referred to as Brexit and many expert commentators predicted that a vote for Brexit would diminish U.K. economic growth. Suppose you were a small business owner in the United Kingdom around this time.   

1. Ahead of the vote, as what kind of risk would you classify the possibility of a vote for Brexit? Why?
2. Do you think a strategy to reduce this risk through hedging or spreading risk within the U.K. economy would be successful? Explain your answer.

Answer 1

If I were a small business owmer in the United Kingdom at the time of Brexit, I would classify a risk for possibility of a vote for Brexit because of decreased opportunities. That kind of risk can be a market risk. If the Brexit is not there, and UK is still a member of EU, then it can enjoy the increased benefits with EU. By Brexit, UK lost its handship with EU and it cant take the benefits which EU is getting.

There can be a strategy to reduce this risk through hedging or spreading risk within the UK economy. So risk can be spread throughout the UK economy. So that its repercussions will not come immediately. Also, the risk can be hedged and new and innovative opportunities can be discovered for UK's economic growth after Brexit.