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Financial Globalization Essay

1086 words - 4 pages

IntroductionDuring the past two decades, financial markets around the world have become increasingly interrelated. Financial globalization has brought considerable benefits to national economies and to investors, but it has also changed the structure of markets, creating new risks and challenges for market participants and policymakers. The international marketplace continues to present opportunities for companies. But change is constant and prudent so companies must work to minimize their risks while maximizing their opportunities. The International marketplace can offer considerable financial returns to companies conducting business but there are risks that have to be considered such as trade, foreign exchange, cash management, cross border financing, investment, and multi currency requirements.In conducting business overseas, you will encounter the need to deal with multi currency financial flows, fluctuating market conditions, and exchange risks. Risk management internationally has always been a critical issue, due to financial deregulation and innovations. The unpredictability in the financial market has increased tremendously. Instability in exchange rates due to floating exchange rates, unstable interest rates both with domestic and foreign assets has exposed all the financial mangers to a greater uncertainty in achieving companies' financial objectives. Rapid advances in corporations and governments having to rely more heavily on national and international capital markets to finance their activities have heightened the emphasis on money management performance. At the same time, cross-border financial activity has increased. Investors that manage a growing share of global financial wealth are trying to enhance their risk adjusted returns by diversifying their portfolios internationally and are seeking out the best investment opportunities from a wider range of industries, countries, and currencies. Also non bank financial institutions are competing sometimes aggressively with banks for national and international markets, driving down the prices of financial instruments."A significant portion of many companies business is conducted outside the United States. For the years ending December 31, 2001, 2000 and 1999, approximately 60%, of United States based companies revenues were generated from customers outside of the United States. This made them vulnerable to be harmed financially and operationally by changes in foreign regulations and telecommunications standards, tariffs or taxes and other trade barriers. Although almost all of their contracts with foreign customers require payment in U.S. dollars, customers in developing countries could have difficulty in obtaining the U.S. dollars they owe these companies, including as a result of exchange controls. Exchange rate fluctuations may adversely affect the ability of their customers to pay us in U.S. dollars. If these companies ever need to pursue legal remedies against their foreign business...

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