Global Finance Environment

Globalization is a concept which in recent years has more widespread use. It plays a central role in the discussions of politicians, economists, sociologists. It not only has theoretical value, but also a political and ideological slogan, mobilizing supporters and opponents to certain actions. Globalization is a process that was initiated and stimulated the most economically developed countries (the United States, the countries of Western Europe and Japan). However, it is at full approbation of the other participants in international relations, although the extent of their involvement and awareness of the depth of transformation is very different that is automatically reflected on the importance of ongoing changes and their dynamics in each country. It can be argued that globalization is based, on the one hand, upon the interdependence of countries, regions, and the other – on the uneven economic development. It is a necessary condition for the internal and external liberalization of economies.

The role and effects of globalization are perceived and valued differently. Some see it as the main engine of technological and economic development, a catalyst for the progress of civilization on a global scale, the guarantor of open markets and free movement of goods, people and ideas, the real power of forming a unified global community. Others, however, see it as a process that destroys jobs and hope for a fair distribution of what makes humanity as an evil, soulless force that erodes the sovereignty of states and leads to mindless unification of cultures.

Financial factors of globalization are related to the global movement of capital, transfer of money and property. The globalization of finance has its positive and negative sides. The former include the fact that it allows to go through the initial stage of economic development much faster than before. The negative factors are a destabilizing effect on the economy of the states, where there are problems in the socio-economic structures and mechanisms, and contributing to the rapidly spread worldwide effects of the financial crisis that occurred in any country. The result of the globalization of financial markets is also the internationalization of ownership. Currently, as a major source of international investment there are the major firms that create branches in other countries or are buying back local businesses, so that international trade is forced production on an international scale. The key driving forces of globalization are:

– a new of scientific and technological progress. Mankind has enriched the universal information technology, and allows to create a global infrastructure for economic interaction between nations;

– the activities of transnational corporations that operate globally and spread around the world cohesive business standards and similar products, including the use of new information technologies;

– expansion of the Internet as a self-paced, leading to a deep qualitative change, global communications, business and entertainment media;

– the activities of international economic organizations that promote harmonization in the beginning (to bring them to a common basis, the removal of contradictions), and then the harmonization of national legislation in the countries of the world that put common singing of global development and developing mechanisms for their implementation,

– expansion and aggravation of global problems, forcing humanity to unite their efforts in overcoming them.

These drivers directly impact the finance of organization. Firstly, if the company is production, it has chance to decrease its expenses with the globalization processes. Such companies can move their production into the region where production is less costly. These will positively affect the finances of organization. With the globalization a company also can use outsourcing and outstaffing for decrease expenses of the company. Globalization opens new areas for marketing and advertising, which are more effective and less costly for the company. Economizing is the main advantage of the globalization for the company’s finance management.

There is a scope of main risks that global investing predicts. The first one is connected with transaction costs. This type of risk is one of the biggest barriers for investing in the international markets. Transaction costs are a consequence of the complexity of the world, are bounded rationality of economic agents, and depend on where transactions are carried out in the coordination system of economics. Too high transaction costs may prevent the implementation of economic action. The next global investing risk is connected with the currency risks. Currency risk is the risk of loss due to adverse changes in foreign exchange rates, and (or) precious metals (metal currency). Foreign trade operations have risk of foreign exchange losses related to changes in the currency of payment. There are losses associated with the exporter’s exchange rate down payment and losses associated with importing the appreciation of the currency of payment. Other important risks that are connected with global investing are liquidity risk, and risks which are connected with the bottom line.

For any company that is working in the international market it is essential to perform ethically and have cultural sensitivity. Any company’s action impacts its finance, therefore, it is rather important for a company to know cultural and traditional differences of its partners, employees, customers, to know their needs and wants in order to perform company’s management and performance line accordingly. Social responsibility policy is a set of rules of a company that supports ethical norms of the global world. Cultural sensitivity will help a company to build effective marketing strategy that will not cause financial problems and difficulties. Cultural sensitivity and ethics are the key elements for the company that is going to become global.

As a result of the globalization, financial capital gained considerable mobility, flowing around the world to the most attractive and more profitable opportunities: the application of the global players operations with the diversification of assets and liabilities by country and region, the development of a wide network of representative offices, branches and subsidiaries abroad have not only allowed us to identify with their country of nationality. Financial globalization has increased the influence of international markets for operations lending and borrowing by residents of different countries, which has led to the growth of the international network of financial institutions and corporations to raise the proportion of business attributable to foreign countries, and to fundamental changes in the organization of their systems of management of financial flows. Therefore, global financial environment is volatile, and lots of factors impact its performance effectiveness efficiency despite its negative and positive trends.

About the Author

Nancy Bauman is a financial analyst and accounting expert. She is also an expert on business ethics and is constantly participating in university conferences as a member of the Educated Youth Movement. She regularly contributes articles related to business and loans at