Accomplishment of the class objectives will help me better understand general financial mechanisms and how they work on a global scale. This knowledge will help me successfully operate a team because the more I know about basic principles, the more effective I am as a professional manager. The major risk that I might encounter as a manager if I do not master these objectives is that I might not be able to see ‘the bigger picture’ and lead the team to a deadlock.
WTO and G8 (now G7) are the global organizations that form the rules by which those who participate in them agree to conduct business (Cavusgil et al. 76). They also act like negotiation and problem-solving platforms where representatives of countries could find a resolution for their problems. For instance, WTO has a dispute settlement mechanism that allows nations to have observers and officially elected WTO dispute settlement board review the matter of conflict and help the parties find a way out. Multinational companies conduct hundreds of global trade operations daily and to keep them from violating human rights, organizations like WTO and G7 exist.
The importance of understanding the international monetary system is dictated by the influence it has on our lives. Each country’s economy reacts to the changes in the balance and coordination of economic processes and there is no way to ignore them. In order to be financially safe and prosperous, each person ought to know how the world of finance works.
Reading Assignment
Globalization and its Implications for the Multinational Firm
Globalization as a phenomenon has revolutionized the customer’s understanding of the product (Editorial Board 3). It has practically made its quality and price into the two most important factors for buyers. The distance is no longer an issue that could restrict other companies to work on local markets but, due to organizational difficulties, such operation could be costly. In order to compete with inherently more understandable brands and products of the other nation’s market multinational companies (MNC) are forced to develop a unique, universally recognizable, and culturally acceptable brand. With the growing customer’s awareness of the variety of products, for MNC it has become a challenge to maintain people’s interest in their offers (Bekaert and Hodrick 43). Therefore, globalization as a phenomenon has communicated MNCs the constant need to adapt and change in an attempt to suit the customer’s fast-shifting moods.
International Financial System
Currently, the international financial system is comprised of two major institutions such as World Bank and International Monetary Fund (IMF) (Editorial Board 28). World Bank is created under the guidance of the United States and Great Britain, but now there are about 180 countries who participate and collectively manage this financial structure (Wild et al. 12). Its goal is to free the world of poverty through the effective use of financial instruments. Mostly, these instruments are comprised of crediting the governmental development projects in the areas of infrastructure, policies, labor market, and corporate governance (Editorial Board 28). Future challenges of this organization include rising levels of poverty connected to rapid population growth and instability of political situation, which might diminish the benefits of organizational cooperation. IMF as the second component of international financial system is aimed to help countries’ financial systems recover from various destabilizing events such as natural disasters or financial crises. It can help by providing counsel or financial aid. Future challenges of the organization consist of currency-related, debt-related, and bank-related issues. Problems in these spheres may undermine the IMF’s capacity to foster financial development.
Types of Foreign Exchange Exposure
Currently, MNCs can face issues connected with selling and buying currency or products, investments, or fundraising. In all of these areas, there are risks of losing money. Therefore, there is a need for close monitoring and control for operations in each of those spheres to identify and mitigate failure risks. As far as the mitigation is concerned, there are different hedging strategies to avoid complications. One of such measures is entering into a forward contract that allows a company to sell currency at a rate based on its expected price, which often safeguards MNCs against loses. Also, constant monitoring and adjustments of the price of goods and services based on purchase power parity can be implemented to cement the company’s position on the market.
International Financial Markets
Financial markets are the platforms where different types of valuables are traded (Valdez and Molyneux 12). There are currency markets that trade Eurodollars (the dollars stored in non-US banks) and other Eurocurrencies such as yen, francs or pounds. There are markets that trade different bonds (debt obligations) such as Eurobonds, medium-term-notes, or global bonds. Stock markets trade shares of different companies (Miranda-Agrippino and Rey 29). Those shares might be traded as depository receipts that allow shares to be traded on different stock markets or as global registered shares, which are traded across all platforms with equal rights for each holder. Other types of financial markets trade futures, options, and swaps, which are all instruments that need a certain skill and cunning to trade but can become effective risk-mitigating mechanisms.
Works Cited
Bekaert, Geert, and Robert Hodrick. International Financial Management. Cambridge University Press, 2017.
Cavusgil, S. Tamer, et al. International Business. Pearson Australia, 2014.
Editorial Board. Global Financial Management. Words of Wisdom, LLC, 2015.
Miranda-Agrippino, Silvia, and Hélène Rey. World Asset Markets and the Global Financial Cycle. National Bureau of Economic Research, 2015.
Valdez, Stephen, and Philip Molyneux. An Introduction to Global Financial Markets. Palgrave Macmillan, 2015.
Wild, John J., et al. International Business. Pearson Education Limited, 2014.