Global Financial Management

Questions: Your response to the Key Concepts Exercise has done good work in responding to all of the questions that were raised. You pointed out importance of global institutions in international commerce and the role and some of the functions of the global institutions like the WTO, the IMF and the World Bank. In the process you have also addressed some of the criticisms that have been launched against the institutions named above; I would be inclined to present the institutions before critiquing their performance The comments good and they capture the essence of the exercise. I would like to make a couple of suggestions: (a) comment on the changes in the mission and the functions of these institutions since the initial time of implementation as mandated by the changes in the global economy (b) discuss the emergence of NGOs and private foundations as supplementary to the work of these institutions and (c) point out some of the political and economic factors that affect the exchange rate and the decisions of various countries to select one type over another type of exchange rate regime. Answers: Global integration and international finance In recent years, world economy and international finance is gaining huge importance because of export and import of goods international. Companies all over the world are not only focusing to market their product and services within the country (Rugman and Collinson 2012). There are trying to expand their market base globally to earn more profit and gain international importance. In this process, they have to go through the foreign exchange market where they have to rely heavily on the prevailing exchange rate, which may turn out either way. Answer 1: Hostility in the action of WTO, IMF and World bank It is often said that their action generate hostility because this three organization are partial to the more developed countries and give them more benefits as compared to the under developed countries. This may give a sense of injustice to the poor countries, which in turn affects their attitude towards the foreign organization in their home country in the form of tax disadvantages and political boundaries (Adrei 2014). It can be said that hostility is undeserved as every nation is to be treated equal as per trade laws. However, it must be kept in mind that nations like USA and EU contributes larger amount of funds to WTO, IMF and World Bank so sometimes they give some privileges to these nations. Answer 2: Exchange rate system Exchange rate is the rate at which the currency of one country can be exchanged with another. There are two types of exchange rate system, which are fixed and floating. Fixed exchange rate is one, which is decided by the central bank of a country. This rate is determined based on a powerful world currency like US dollar, Euro and Pound. Whereas fluctuating exchange rate is one, which is determined by the private market analyzing supply and demand. This rate changes constantly. Different nations use different exchange rate system because they differ in their aims and objectives. More than 43% of the countries all over the world follow floating rate exchange system (Ahmed and Zlate 2014). Developing countries often tends to adopt floating exchange rate system as they want foreign exposure in their home market whereas developed countries adopt fixed exchange rate system to provide stability to their business. Answer 3: Roles played by World Trade Organization (WTO), International Monetary Fund (IMF) and World Bank in world economy Dealing in the foreign exchange market can be very risky and unsafe so organization like WTO, IMF and World Bank comes in between to ensure balance. Their roles involve providing security and safety of the transaction entered in the international market. WTO has made many rules and regulation according to those organizations all over the world should enter into global trade. IMF plays a very vital role in maintaining financial stability, promote employment opportunities, reduce poverty all over the world and manage balance of payment (Andreou, Matsi and Savvides 2013). The main objective of World Bank is to provide loans to the organization in the developing and under developed countries. It can be said that they are club of rich rations as they provide more benefits to rich countries who contribute more funds to them References Rugman, A. Collinson, S. (2012)International business[Online]. New York: Pearson. (Accessed 12 January 2015). Adrei, L.C. (2014) Economic convergence, part of advanced European integration,Internal Auditing Risk Management,9 (2), pp.13-21. Ahmed, S. Zlate, A. (2014) Capital flows to emerging market economies: a brave new world?Journal of International Money and Finance, 48 (PB), pp.221-248. Andreou, E., Matsi, M. Savvides, A. (2013) Stock and foreign exchange market linkages in emerging economies,Journal of International Financial Markets, Institutions and Money, 27, pp.248-268.