Global Finance Signature Assignment: Economic Forces and Mechanisms

Global Finance Signature
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Table of Content
TOC \o "1-3" \h \z \u Global Finance Signature PAGEREF _Toc11920564 \h 4Introduction PAGEREF _Toc11920565 \h 4I.Global Finance PAGEREF _Toc11920566 \h 4Inflation Rates PAGEREF _Toc11920567 \h 4Interest Rates PAGEREF _Toc11920568 \h 4Country’s Current Account/Balance of Payments PAGEREF _Toc11920569 \h 5Government Debt PAGEREF _Toc11920570 \h 5Terms of Trade PAGEREF _Toc11920571 \h 5Hedging Foreign Exchange PAGEREF _Toc11920572 \h 6Sample financial derivative; PAGEREF _Toc11920573 \h 6II.The balance of Payments PAGEREF _Toc11920574 \h 8III.Foreign Direct Investment, Cross-Border Acquisitions and Finance Foreign Trade PAGEREF _Toc11920575 \h 9Foreign Direct Investment PAGEREF _Toc11920576 \h 9Easy access to foreign markets PAGEREF _Toc11920577 \h 9Access to raw materials PAGEREF _Toc11920578 \h 10Hindrance to domestic investment PAGEREF _Toc11920579 \h 10Negative influence on exchange rates PAGEREF _Toc11920580 \h 10Cross-Border Acquisitions PAGEREF _Toc11920581 \h 10Diversification of portfolio PAGEREF _Toc11920582 \h 10New markets PAGEREF _Toc11920583 \h 10Tax PAGEREF _Toc11920584 \h 10Political instability PAGEREF _Toc11920585 \h 10Finance Foreign Trade PAGEREF _Toc11920586 \h 11Timely cross-border payments PAGEREF _Toc11920587 \h 11Mitigations of risks PAGEREF _Toc11920588 \h 11Expensive PAGEREF _Toc11920589 \h 11Less accessibility PAGEREF _Toc11920590 \h 11IV.The International Monetary System PAGEREF _Toc11920591 \h 11V.Foreign Trade in Transaction, Translation and Economic Exposures PAGEREF _Toc11920592 \h 12Transaction Exposure PAGEREF _Toc11920593 \h 12Translation Exposure PAGEREF _Toc11920594 \h 12Economic Exposure PAGEREF _Toc11920595 \h 12Summary PAGEREF _Toc11920596 \h 13Conclusion PAGEREF _Toc11920597 \h 13References PAGEREF _Toc11920598 \h 14
Global Finance Signature
Introduction
The level and health of a country’s economy are determined by the foreign exchange rate among other factors. An economic window provided by the country’s foreign exchange rate is usually monitored and analyzed for stability. Anyone that is interested in engaging in international money transfer should always check the currency exchange rates. The foreign exchange rate is referred to as, the rate used to convert a country’s currency into another. However, the rate is usually unstable because of the currencies inflows from one country to another. This paper focuses on the concept of global finance, the balance of payments, foreign direct investment, the international monetary system and foreign trade in transaction, translation and economic exposures.
* Global Finance
Inflation Rates
A change in the rate of currency exchange may occur due to the changes in market inflation. Value of currency is likely to appreciate if the inflation rate of the country is low compared to another. This occurs because lower inflation rates encourage a slow increase in the prices of goods and services. Therefore, a country that registers high rates of inflation is likely to see depreciation in its currency because of the high interest rates. On the other hand, a country that records an increasing value of a currency is said to have a consistently ...