what is global finance essay

what is global finance essay

The Importance of Global Finance in Today’s Economy

1. Understanding Global Finance

For many of us, these everyday realities barely touch home. It is difficult enough to worry about the health and well-being of our own piece of earth without adding the complexity of the whole planet to the equation. However, the global economy does affect our lives, sometimes in very direct ways, such as fluctuations in fuel, food, and health-care costs, inflation, and unemployment. These factors will certainly have a long-term impact on our own and, even more so, on the lives of our descendants. In our world, peace is largely a function of economic security. To achieve this we need to understand the global economy, the forces that shape our future and the extent to which our own actions can have an impact. As we’ll see, this is particularly true when it comes to exercising our rights as “consumers” because we do, in fact, have a great potential for change and we set the directions in which both local and global economy heads as we define and express our ever-changing wishes and desires.

We live in a very different world than we did just a few years ago. Today, the economy is truly global. A typical car on the streets of Detroit may have been assembled in one country, designed in another, manufactured with parts from a dozen others, and originally sold by a company with headquarters on three continents. We may not even be able to say with certainty which car company built it, unless we took a look at whose name is stamped on the tires. The financial side of the world economy is even more interconnected. Apples are traded in New York with electronic data sent from Africa to Hong Kong over the world wide web through satellite links managed by European banks, all well before sundown. Every evening on the news we are regaled with stories of the Japanese miracle, the Chinese expansion, the withering European economies, the rise and fall of Nasdaq stocks and high-tech firms, and the slowdown of the once all-powerful American economy.

2. The Role of Global Finance in Economic Growth

It follows that the policy objectives pursued in Malaysia, although dictated by the special circumstances of the country, are in line with the broader view of the role of finance in economic development. The paper concludes that the reform of international financial institutions in the development finance is critically needed and, in particular, priority should be given to the establishment of an International Financial Facility. Another important goal is the improvement of the international financial architecture – that is, the network of international financial institutions and instruments which govern the provision of international capital to developing countries. Without coordination, there are instances where the benefits and costs associated with lending are perceived differently by each potential lender and borrower, and therefore insufficient lending occurs or lending does not occur at the socially optimal terms.

Finance plays an important role in today’s economy. Many of the finance topics and concepts taught today are not new – they have their origins in industrial organization, industrial economics, business finance, and corporate finance. Finance can help firms raise the capital necessary for the purchase of plant and equipment, and investors can calculate the rate of return of an investment. The firm’s investment and planning decisions are, therefore, crucial in terms of economic development. In terms of the resource allocation function, the paper identifies price distortions, macroeconomic instability, and financial underdevelopment as three of the most important causes of the inefficiencies generated by the firms’ investments. The management of corporate finance can, therefore, affect the economic performance of the country as a whole.

3. Challenges and Opportunities in Global Finance

Today’s financial and investment markets are replete with localized trade and macro pressures and, if anything, an even stronger focus on managing risks. Globally, these factors combine to create a complex and interconnected network, marked by latency in some areas and tighter regulation in others. Firms, irrespective of size or sector, will be forced to continually innovate to ensure efficient and competitive solutions. It is essential to identify the opportunities and transform inopportune and burdensome risk calculations to effective risk responses. We must also learn from each other and continue to develop training and incentive-based programs for employees and partners who interact closely with our global clients. Executed correctly, we can play an important partnership role between businesses, industries, service providers, and government roundtables and various institutions.

Economists recognize the significant responsibilities faced by global finance and markets and, concurrently, the challenges posed by a rapidly evolving system. Global and local financial systems play an outsized role in the preconditions for economic and social development, yet they can be the source of crippling volatility and uncertainty. A comprehensive reform program will be necessary in a number of areas. Deepening the focus on creating ‘smarter’ or more comprehensive growth across industrial and consumer markets, supply chains, trade, and innovative business models can only be a positive development. A vibrant global and local finance architecture is essential to support these goals. The longer-term opportunity for global finance is to help shape a stronger underlying narrative and to develop parallel strategies that bring a more balanced flow of financial and related resources to the global economy.

4. The Impact of Global Finance on International Trade

The most advanced economies have attracted a larger share of global trade over time, and the pace of growth of these economies has accelerated after the implementation of financial liberalization. Once these economies implement this liberalization, they get access to global finance, and funds allocation improves their rate of growth and development. This enlarging demand for goods and services from these economies triggers a chain of reactions from different countries to produce in accordance with this demand. International trade is also influenced by fluctuations in domestic demand for goods and services too, and these increases in demand are additively increased with credit and international trade liberalization. To obtain these ends and aims, a mix of domestic and international trade policies is to be adapted and is of prime importance to find a judicious mix so as they do not clash with each other.

The international trade system since the early nineties has evolved in favor of a more open trade system and is now relatively more stable. This contrasts with the fact that the global finance system has not become equally stable, but it is considered too unstable to be disrupted in its stability.

5. Future Trends in Global Finance

Factors such as low personal savings rates, escalating retirement costs, and the social burden of supporting the aging population are expected to add further pressure to fiscal sustainability. Given the global nature of asset markets, the impact of these structural imbalances will not be limited to one region and will influence the strategy and structure of recovery across the global economy. In the expansionary phase, there would likely be pressure on prices, exchange rates, and regional asset bubbles. In the inevitable recessionary phase, a much-needed adjustment in private consumption patterns in the USA would translate to reduced export demand for China and India.

However, these relatively recent technological advances are widening the gap between the digital literate and the rest of the population. Access to technology can be costly. The rapid pace of change calls for adaptation, which can be time-consuming and a distraction from accountability-focused innovations associated with the “dot.com bubble”. New industries, those of digital innovation and development, have the potential to contribute to regional economic growth and development. Digital innovation in business can add to our nation’s competitiveness. The capacity to capitalize on the opportunities is reduced if Australians do not “hold a sound blend of entrepreneurial energy, insight, inspiration, toughness, and a will to adapt successfully”.