Globalization and its Impact on Commerce and Society
Trade has not only influenced monetary and financing system of a country but even alliances among nations. No nation can form its monetary policies independent of other nations.
International finance is the branch of economics that broadly studies the monetary and macroeconomic relationship between nations. It studies capital flows among the nations, exchange rate fluctuations the balance of trade, tax policies effects, and other related issues.
Benefits of International Finance:
International finance integrates world economies and thus facilitates easy flow of capital across countries worldwide. For a developing country, with high return on domestic capital, investment can be financed more cheaply by borrowing from abroad than out of domestic saving alone.
International finance moderates domestic regulations through global financial institutions
International finance leads to healthy competition among domestic financial sector and hence, results in more effective banking and financing services. Letting foreign financial institutions into the country improves the efficiency of domestic financial markets.
International finance promotes domestic growth and investment through capital import. Investors in richer countries can earn a higher return on their saving by investing in the emerging market than they could domestically.
International finance leads to effective capital allocation by providing information on vital areas of investment
International finance gives countries access to capital markets across the world and, thus, enables a country to lend in good times and borrow in bad times. Everyone benefits from the opportunity to smooth out disturbances and by diversifying the risks.
Governments face the discipline of the international capital markets in the event they make policy mistakes.
The Scope of International Finance:
Multinational corporations have subsidiaries or joint ventures in different countries. Their operations, organizational structures and lines of business depend on the global, political, socio-cultural, economic and legal environment of the countries in which they do the business. For this purpose, international treaties like Basel norms, Kyoto Protocol and WTO guidelines lay down a uniform framework for how business should be conducted between different countries.
The economics of international trade and international finance are much the same except that international finance involves greater risks and uncertainties as the assets being traded are claimed to flow of returns that extend for many years in the future. Besides, the markets of financial assets are more volatile as compared to the market in goods and services as financial decisions in financial assets are more rapidly revised and implemented.
International finance has two functions namely, treasury and control. The treasurer is responsible for financial planning analysis, fund acquisition, investment financing, cash management, investment decision and risk management. While, controller deals with the functions related to external reporting, tax planning and management, management information system, financial and management accounting, budget planning and control, and accounts receivables etc.
To maximize the returns from investment and to minimise the cost of finance, the organization has to make portfolio decisions. A wide variety of financial instruments, products, funding options and investment vehicles are available for corporate finance hence decision making in international finance is complex. Understanding of economic theories and principles is required.
Due to changing nature of environment at international level, the knowledge of latest changes in forex rates, volatility in capital market, interest rate fluctuations, macro level charges, micro level economic indicators, savings, consumption pattern, interest preference, investment behaviour of investors, export and import trends, competition, banking sector performance, inflationary trends, demand and supply conditions etc. is required by the practitioners of international financial management.
The Impact of Globalization:
Globalization is defined as a concept which connects countries across the world through information, trade and technology.
Globalization has many dimensions as social, political, cultural and of course economic. Globalization integrates economies and societies through the flow of ideas, information, technologies, capital, finance, goods, services and people from one country to another. This integration is also called as ‘cross-border integration’.
This integration can take place through movement of capital, flow of finance, trade in goods and services and through movement of human resources
Characteristics of Globalization:
Globalization provided advanced and faster transportation system (road, sea, and air), and communication system between countries,
Due to globalization, there is a movement of capital between countries in the form of investments from countries abundant in finances to the possible profitable destination worldwide.
It increased cross-border and large scale transaction of finance, goods (raw/ semi finished/ finished), resources (material/ human) and services,
Due to it, there is easy migration, movement and settling up of people in foreign countries and exchange of skilled and unskilled labours increased.
It uses modern technologies like the internet and there is a huge sharing and exchange of knowledge between countries.
Impact of Globalization on Society:
Globalization broadened our mind and gave the concept of the global village.
It helps people to understand manners, habits, and customs of different countries. It helped in the exchange of cultures between different countries.
It helped to compare the nation with developed nations and help to fight illiteracy and to improve the level of education and standard of living of people.
It helped to compact social issues like hunger, poverty, and give away bad practices of child labour, child marriages etc.
Students can go to different countries for higher education.
Impact of Globalization on Commerce:
Movement of capital:
It has been seen that foreign capital flows in the form of Foreign Direct Investment (FDI) and Foreign Institutional/Portfolio Investments (FIIs)
It plays a very important role in the development of an economy by enhancing the production base of a developing economy by the trade in goods and services and financial flows:. It develops capital market.
Developing countries have more opportunities such as better access to developed markets, technology transfer leading to improved standards of living and better productivity.
Production of Quality Goods and Services:
It helps people to understand manners, habits, and customs of different countries. Hence a merchant can gather valuable information about different commodities produced and required in different countries and can shape his business strategy according to the needs.
Sometimes it is better to import than to produce locally. In such cases, the country which can source such products economically can be found very easily.
Impact of Globalization on World Politics:
Due to globalization, the government can obtain useful knowledge of the people, the forms of government around the world and their aspirations.
It contributes to improving international relations and friendliness among different nations which have a clear vision of future developments.
Disadvantages of Globalization:
It has increased the disparities between the developed and developing nations, thus increasing the gap between the rich and the poor. Rich and wealthy people are able to exercise more control over the national resources through the application of science and technology.
The local industries which are based on traditional methods of production could not compete with their global counterpart using mass production and high-end, specialized automatic methods.
The economies of the world are now interconnected. Hence the economic downfall of one major economic nation adversely affects the entire global community.
Globalization requires skilled labours hence there is a chance of unemployment of unskilled labour.
Less developed nations become dependent on developed nations.
It leads to pollution of soil, water and air. Developed countries have shifted their polluting industries to less developed countries.
There is exploitation of natural resources. Some places on earth, which was once rich in minerals and forests can no longer claim their richness. Forests have been cut for setting up large industries. The industrial discharges have widely contributed towards environmental degradation.
Globalization has a homogenising effect on the society hence old tradition, custom, and cultures are on the verge of extinction. Less developed nations have shed their traditional dress, food, and rituals.
Unequal distribution of international trade gains is another main disadvantage of globalization.
There is a cost to this globalization.
Developing countries have underdeveloped capital markets and high-risk premiums, they cannot fully participate in this growth and increased investment brought about by globalization. The country getting the foreign investment can get into a debt trap.
Developing nations have to face problems in international trade due to rising tariff and trade barriers.
It leads to volatility in the financial markets, inequalities within and across different nations, and slow participation of Third World countries due to trade, investment and financial barriers.
Due to easier migration and movement of people, there is a possibility of the spread of some diseases.
Profit is the buzzword for companies in the era of globalization due to which many companies do not provide a good working condition to the workers.
The Impact of Globalization on India:
Increased GDP and increase in the rate of growth of GDP
Increased foreign exchange reserves
More investment in form of FDI and FII investment in capital market.
Rise in the share in the world’s export. Increase in import to cope development.
Broadening trade deficits
Greater volatility in foreign portfolio investment than FDI
The slow pace of industrialization due to easy availability of the product in international market.
Decrease in the share of agriculture in the GDP
The increase in the number of rural, landless families.