Case in Point

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Case in Point

The world slumped into an economic recession between the year 2008 and 2009, and this affected many companies all over the world. Samsung is one of the companies affected by the financial crisis at the time, and this is reflected in its share price in the year 2009. During an economic depression, spending drastically reduces as people earn less money and thus have less disposable income. They choose to spend less, affecting sales of a company like Samsung and therefore making share prices decline. Things took a turn for the better between 2010 and 2014 as share prices for Samsung rose significantly. As the world recovered from the financial depression of the previous years, there was a growth in the economy. More people got jobs, business improved, salaries rose, and people had more money to spend. In addition to this, these years were marked by an increase in products from Samsung, such as mobile phones and other electronics. These occurrences led to the rapid rise in the share prices of the company.

Market risk affected the share prices of Shell Oil as well as McDonald’s, although to a lesser extent compared to Samsung. The demand for food and gasoline remains fairly steady during times of both economic growth and slump. While people can choose not to buy electronics, they cannot help but purchase food and fuel their cars every day. McDonald’s provides people with affordable meals; hence, customer demand falls only slightly during an economic depression. This aspect of steady customer demands works both ways; share prices do not decrease significantly during a financial crisis, but neither do they rise dramatically during an economic boom. To conclude, higher risk leads to a higher return in the case of Samsung, and the opposite is true in the case of McDonalds and Shell Oil.