Financial Markets – Richard Bell

Financial markets, the most important challenge for Global Business in the Future.

In order for a company to expand globally there must be a way to deliver their good or service in the country of interest and they must have the confidence that they will be paid for producing that good or service.  Global business relies on a certain level of trust that the financial mechanisms in place will allow them to be paid and that the currency they are paid in is reliable and holds a reasonably predictable level of value in comparison to their local currency.  The stability of global financial markets is key to the future of global business. 

According to the World Economic Forum (www.weforum.org) the weaknesses that the 2008 financial crisis exposed have still not been resolved.   From their online report titled What are the 10 biggest global challenges?we read “The world economy is still struggling with slow growth, unconventional monetary policy in major economies, and constrained government budgets. It is vital that we find ways of making the financial system more resilient and able to withstand shocks in the market.” 

The World Economic Forum also list a financial crisis as the second highest on their list titled Global Risks of Highest Concert for Doing Business (2018).  The first was unemployment or underemployment which is one of the interconnected risks to a financial crisis.  Other interconnected risks to a financial crisis were: Failure of financial mechanism or institution, Asset bubble in a major economy, Unmanageable inflation, Cyberattacks, Interstate conflict, Profound social instability, State collapse or crisis and Failure of nation governance. (see report at http://reports.weforum.org/global-risks-2018/global-risks-landscape-2018/#risks)  

Each of the interconnected risks have their own interconnected risks.  As an example, one of the risks that could contribute to a financial crisis is profound social instability.  According to the report, profound social instability is impacted by things such as large scale involuntary migration, extreme weather events, natural disasters, terrorist attacks, adverse consequences of technological advances and illicit trade.   We can see that there are many things that could cause a problem that would significantly interrupt the financial markets.    

One of the concerns for many people all around the world is the impacts of a trade war and the policies of the Trump administration.  It is yet to be seen how these policies will fully play out, but this American president is quite different from others and there is justified concern about what he may do that could upset the entire system.  

From this week’s material in the Global Critical Perspective and 10 Mega Trends That are Reshaping the World along with the Noam Chomsky video, we covered many potential issues such as the uber elite influence on policy, corporations increasing in power, cost of elections and the influence those that fund them are provided, the growing economic inequality, the amount of debt individuals, corporations and governments are taking on and other topics we covered can all impact one of the interconnected items on the threat list to the financial markets. 

The Wall Street Journal surveys top economists every month and according to a recent report the top concern was President Trump’s trade war with China.  The second highest threat was the disruptions to the financial market.  According to website www.thestreet.com the UK agrees.  From their article Bank of England Says Global Financial Markets Risks are ‘Material’  by Martin Baccsardax, we read that “the Bank’s Financial Policy Committee said tightening U.S. dollar funding conditions are increasing risks in some emerging markets and that trade tensions between the U.S. and China, as well as rising corporate debt levels in both of the world’s biggest economies, are global vulnerabilities that are material and have increased.” 

Global business will thrive as companies around the globe produce goods and services that are desired worldwide, as long as the financial markets provide the platform for exchange of payment in currencies that hold their value and are reliable to the seller.  The global financial market is so interconnected and can be impacted by so many different world events that we must be cautious and diligent in mitigating those risks the best that we can.