International Finance and its Role in the Global Economy

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INTERNATIONAL FINANCE

Finance
The financial market plays a leading role in capital accumulation and leads to the production
of goods, as well as services. The credit prices and investment returns provide a strong signal
to the consumers and producers who are known as the market participants. Such signals help
enables the funds to be directed to the consumers, businesses, investors and government that
takes an active part in borrowing of the money by establishing a connection with the ones
who value the funds to the utmost that is the ones who are ready to pay a heavy price in terms
of the interest rate (Porter & Norton, 2014). In the same manner, the presence of a financial
market of robust nature helps the market and institutions in ensuring the smooth flow of
funds between countries.
Further, when the financial markets are efficient in nature, leads to a lowering of the cost of
research and transactions in the economy. When a large basket of financial products is
available, with different risk, as well as pricing pattern, an efficient financial system leads to
allocation of different products to participants that give borrowers, as well as lenders a close
match for their needs. Further, when the individuals, government or business require funds, it
can be easily traced which financial institution or market can provide funding and the cost
can be ascertained by the borrower. Hence, this provides the investors the flexibility to
compare the financing cost to the return that is expected on the investment. In this manner,
financial markets lead to the direction of the allocation of credit in the overall economy and
hence lead to the facilitation in terms of the production of goods and services (Choi & Meek,
2011).
The global financial provides a variety of services that enable economic growth and hence
aids in the facilitation of the global trade.
Risk management – The global financial system provides risk management from the stake of
the financial market, as well as commodity prices by pooling different risks. The presence of
derivative transactions helps the bank to provide risk management (Vaitilingam, 2014). Such
services are beneficial in the manner that it helps in economic growth and aids in terms of
financial crisis.
Provision of liquidity – With the aid of strong global financial system, there has been a strong
presence of banks, as well as other financial providers that lead to the safeguard of the
businesses, as well as individuals during the needs of cash. Bank provides the function of
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