Treasury and Risk Management: Challenges, Consequences, and Policy Actions

Running head: TREASURY AND RISK MANAGEMENT 1
Treasury and Risk Management
Name of the student:
Name of the University:
Authors Note:

Introduction
The paper explores the tensions and trade wars that have caused instabilities in most
financial markets in a number of countries. It also discusses challenges that could affect the
treasury management of banks and financial institutions in the world. It also explains
different policy actions used by various governments to curb down these headwinds. The
paper finally ends with a conclusion.
The geo-political tensions and trade wars between nations
There have been geo- political tensions and trade wars across the world mostly
between countries of US, china and Russia. For example, in the very recent years, the
geo-political tensions have been seen as the United States put sanctions on Russia
over its missiles against Syria. The many problems that seem to be growing in Syria,
have caused political tensions in the global economy (Cgma.org, 2017). Elsewhere, in
Africa for example Egypt has also experienced problems of leadership which have
also resulted into geo-political tensions. These lasted over a long period which led to
bloodshed of some citizens. These political tensions have a negative impact on both
the domestic and foreign economy. For example, there are increasing tensions in Syria
by the Russian government over the nation’s oil infrastructure which have greatly
increased oil prices to 7.0% and above in the recent year(Dickinson, 2012).
The increase has a direct effect onto the economy’s status as demand for
goods decrease ( Claessens and Ariccia, 2010). The government of Syria made an
attack on its own citizens which resulted into the closure of US markets. The
government of United Kingdom, France and United States responded by launching a
missile to particular areas of Syria (Claessens and Ariccia, 2010).In addition, there
have been reports about tensions in the recent year about aluminum and steel tariffs.
1 TREASURY AND RISK MANAGEMENT

These tensions could affect the many sectors in a nation such as businesses and firms
that majorly use such metals and the economy could be damaged.
In all over the world, economic problems and hardships have increased as a
result of trade wars which have raised geo-political tensions (Hooper, 2018). Many
nations have experienced such tensions in the act of trying to overcome the depression
period. For instance, in around 1929 to 1930, trade tariffs were imposed by the
government of US but instead obtained the negative effects of it. Many Governments
were left separated. So, they decided to come up with programs against these tensions
as the global trade wars increased in all countries. It later resulted into a decrease in
production which also reduced the world global market. It finally made the world
depression to continue and this resulted into the World War 2 (Deniz, Igan., Luc,
Laeven., and Hui, Tong, 2012).
Additionally, scholars have reportedly indicated that trade wars have long
existed between US and China. They have greatly impacted and affected onto smaller
nations than they would onto themselves. Trade war is a conflict which is economic
in nature as a result of one country protecting and imposing tariffs on it goods and in
response the other country retaliates by doing the same.
It should be noted that the there is a plan by china to devaluate the Yuan
renmimbi. In the month of July this year there was 6.596 parity against the US dollar
set by the central bank of china. Further, as compared to the previous day levels,
there was an additional 391 points cut. The above strategy is aimed at enhancing the
Chinese foreign trade. It is also aimed at preventing possibilities of further tension on
trade tariffs with the United States of America and at the same difference and improve
the total exports of china(Dickinson, 2012). Therefore the above strategies not only
threaten the economies of other countries but also increase the possibilities of geo
2 TREASURY AND RISK MANAGEMENT

political tensions all over the universe. When protectionism increases, the output of
the nation is seen to be self-sufficient. Many scholars argue that some of these
economic protectionisms might be more expensive compared to others since they can
easily bring about trade wars. For instance, if the tariffs were raised by one country,
the other party would retaliate similarly by raising the same tariffs (Cgma.org, 2017).
However, it is difficult for a foreign nation to be retaliated against when subsidies
have been increased. Many scholars have come up and reported that the major cause
of economic crisis like the great depression is majorly contributed by the presence of
protectionism and trade wars (Dickinson, 2012).
Similarly, trade wars come in when one country puts trade tariffs on its
imports then the other foreign nation by retaliating uses the same forms of
protectionism. According to Tong (2012) trade wars reduce the demand for both
imports and exports of a nation thus reducing the international trade between
countries. He argues that in an attempt by the country in protecting its domestic firms
so as to create more hob opportunities for its citizens, would result in a trade war.
Looking at it from the short run perspective, the idea would work effectively.
However, as time goes on, economic growth is depressed for all the nations
involved. In 1929, a tremendous trade war occurred which saw tariffs on imports
increased to around 900.0 tones. Tong (2012) reported that prices for food increased
for consumers in United states. It made other nations to retaliate using their own trade
tariffs. It then contributed to the increase in depression and the fall of the world trade
hence the rise of the world war 2.
The following are the challenges encountered by the bank treasuries.
3 TREASURY AND RISK MANAGEMENT