The global financial markets relate to stocks, bonds, securities, debt, and many more. The fluctuations in the interest rate of debt and securities depend on the national interest rate of all countries. Changes in interest rates have a significant impact on foreign investment. High-interest rates have a stronger currency value than the country with lower interest rates. Influential currency value countries attract more foreign investment as the investors will find the country to be less risk with currency.
If foreign investment is increasing, it will increase the demand for the country’s currency, which will increase the value of the currency. Lower interest rates decrease the inflow of foreign investment, which in turn decreases the demand for the currency and decreases its currency value. MNC’s look forward to expanding their business overseas and to markets which they have not entered. The global financial markets play a significant role in the expansion as the MNC’s need debt to start its business, and raising debt in the country or market that it is starting its operation is needed.
The reason to raise debt in the same market is to avoid currency risk and gain tax benefits for the company. The central banks play a significant role in regulating the financial markets, and it decides upon the interest rates of the country, taking into many considerations like GDP, inflation, trade, political factors, economic factors, and more. This has an impact on the currency and for MNC’s to start their business. A change in one of the factors has an impact on the rest of the process directly or indirectly.
So, the quote by Leonardo da Vinci is relatable to International Finance with financial markets and the rest of the world as one decision of a country has an impact on other countries, one decision of a business has an impact on the other businesses and countries related to growth, trade, financial market, investment. So, when taking a decision, every possibility of the decision’s outcome on self and others must be taken into consideration before carrying out the decision as everything relates to everything else.
US faces trade tensions with China and the EU and many other countries. The hold on imports and exports has become a significant factor in the slow down of growth globally. The trade wars between the countries have indirectly affected other countries like Japan’s exports have decreased, which has impacted the production line to produce less and still having to bear the same fixed costs. The US trade tensions have an impact on the global economy as the US is cutting down on imports and the countries whose economy is mainly on exports, their economic value and GDP is decreasing which is making the countries to impose higher tariffs to maintain the value.
This has an impact on the business as they try to cut costs to save up and maintain their net profit margin, which might lead to unemployment and inflation. The EU and China’s market growth have slowed down, and these two players hold a significant share in the global economy. The US itself must spend much on aid to businesses, farmers as their imposition on trade are leading them to slow down their production as they are not getting the materials they want in time. This has a significant impact on the global economy and its slowdown. So, the US need to carry out its trade activities with its partners for the growth of the global economy.
In the next ten years, the US can decrease its trading activities with China and the EU due to many tensions revolving around it. US, EU, and China will have problems in trading, which will make the US find other countries to import goods and services. In order to this step, the EU and China will find other countries to do trading activities in which a lot of other countries will get benefitted. This might also be a downside for the US, EU, and China if some other country comes out and becomes the global successor.
This gives opportunities for Japan, Britain, and developing countries like India, Zimbabwe to increase its trading activities with the US. It will, in turn, increase the country’s GDP, and if other factors also support, the country’s currency will also become stable. It will create lots of job opportunities in the country and decrease inflation with proper political decisions.
The current geopolitical forces have significantly increased the financial risk of a business searching for new opportunities around the world. The businesses are running out of places to carry out their business with less risk. All the businesses must take appropriate measures to cover up the risks to make up their investment in a new country or opportunity. The chances of them covering up their investment in case of the unsuccessful attempt of setting up a new subsidiary of their business or brand and not go under loss in the newly set up place. Businesses have found a way to invest money and start the business and have lesser financial risk.
Businesses invest less equity and more debt. Businesses can raise debt through financial markets, money markets, banks, and other financial institutions. If the business goes under loss, they can declare as loss and wrap up the business by paying through the remaining assets left over from the business. The reason businesses have losses is because of lack of information to enter a new market as in-depth market research whether to go into the market and what all factors to consider once invested. The businesses will be dealing with new political power, one they are not familiar with, like their home country.
So, it is difficult to predict the political scenarios to slow down or loss of investment. The market may be volatile, and the people’s preferences might also be different compared to their customers. It is also tricky for value creation, such as investing in an unstable market where there is a threat of terrorism or war. It is also challenging to carry out trading activities if any war breaks out between countries where the trading activities happen through. There is a high chance of a corrupt political scenario, which makes businesses even harder to carry out business and make a profit to gain a return on their investment.
This is a chance of both considering value creation as well as a high financial risk to businesses. It is risky for a business that has high competition, which forces them to start businesses in unstable markets and has a high risk of making losses and even losing the value it had. In the current scenario of the trade war between the US, China, and the EU, businesses find it hard to do their trading activities and are difficult to expand to any of the countries facing this scenario. It is challenging to have a perfect prediction as to the outcome of this trade war, which makes it hard for businesses to find opportunities and have less financial risk. The businesses face both problems due to geopolitical forces, where it is not possible to find value creation opportunities and face a high financial risk.
Studying international finance has helped me gain much insight into how the financial world works. The subject talks about finance in every part of the country and countries together as a whole to form the global financial world. The knowledge I have gained through this course made me understand to think about all the possible outcomes resulting from each situation to make better decisions in an organization as well as in personal life. Finance is a part of everything like politics, businesses, sports, and many more. It is essential to move forward in this world to make sound financial decisions and increase the wealth and find out more opportunities.
For a business that is dealing with global boundaries, it is essential to understand the financial markets before taking out decisions to expand or merge with any other company. It takes into consideration interest rates, exchange rates, financial markets, economic conditions, political scenarios. It is needed for a firm to know what the company is dealing with and also what the future scenarios will be by taking a decision and also form a strategic plan and formulate out all plans of actions to be less risky and make a return on the investment it is about to take. It is not possible to be an accomplished financial without the least bit of knowledge about the global financial markets.
As the world is so complex made up of many factors, types, opportunities, businesses, and politics, it is difficult to make financial decisions without the least bit of knowledge in finance and knowledge on the global financial markets as it is linked or connected with everything. Without the least bit of knowledge in finance, it is not possible to think of many scenarios related to interest rates, exchange rates, and related ideas of finance, which leads to a loss of information for taking out finance.