Week 4: International Finance
Two international financial organizations are instrumental in fostering global trade. The World Bank offers low-interest loans to developing nations. Originally, the purpose of the loans was to help these nations build infrastructure such as roads, power plants, schools, drainage projects, and hospitals. Now the World Bank offers loans to help developing nations relieve their debt burdens. To receive the loans, countries must pledge to lower trade barriers and aid private enterprise. In addition to making loans, the World Bank is a major source of advice and information for developing nations. The United States has granted the organization millions to create knowledge databases on nutrition, birth control, software engineering, creating quality products, and basic accounting systems.
The International Monetary Fund (IMF) was founded in 1945, one year after the creation of the World Bank, to promote trade through financial cooperation and eliminate trade barriers in the process. The IMF makes short-term loans to member nations that are unable to meet their budgetary expenses. It operates as a lender of last resort for troubled nations. In exchange for these emergency loans, IMF lenders frequently extract significant commitments from the borrowing nations to address the problems that led to the crises. These steps may include curtailing imports or even devaluing the currency.
Some global financial problems do not have a simple solution. One option would be to pump a lot more funds into the IMF, giving it enough resources to bail out troubled countries and put them back on their feet. In effect, the IMF would be turned into a real lender of last resort for the world economy.
The danger of counting on the IMF, though, is the “moral hazard” problem. Investors would assume that the IMF would bail them out and would therefore be encouraged to take bigger and bigger risks in emerging markets, leading to the possibility of even deeper financial crises in the future.
Course Competencies:
- Explain the importance of analyzing external and internal environmental factors ( Culture, Finance and Economy, Political and Legal and Marketing factors) .
- Analyze various outcomes that will present challenges to a variety of countries and the impact
- of interdependence of those countries.
- Analyze the impact management decisions/strategies have on the global world.
- Evaluate and identify appropriate remedies based on business strategy.
Learning Objectives:
- Discuss the role of the International Monetary Fund (IMF) and the World Bank
- Evaluate the impact of the global capital markets (particularly the venture capital and global capital markets) on international managers and businesses
- Relate how International Financial Reporting Standard (IFRS), global money management methods affect global business.
To-Do List:
- Read Chapters 7, 8, and 9 in Global Business Management
- Week 4 General Discussion
- Week 4 Reading Quiz: Chapters 7, 8, and 9
- Week 4 Group Collaboration
- Week 4 Progress/Peer Review Discussion
- Week 4 Individual Reflection
Sources:
- Global Business Management, Version 1.1 By: Sanjyot P. Dunung Published: November 2020 ISBN (Digital): 978-1-4533-3741-7 https://scholar.flatworldknowledge.com/books/34695/read
- Authors: Lawrence J. Gitman, Carl McDaniel, Amit Shah, Monique Reece, Linda Koffel, Bethann Talsma, James C. HyattPublisher/website: OpenStax
- Book title: Introduction to Business
- Publication date: Sep 19, 2018
- Location: Houston, Texas
- Book URL: https://openstax.org/books/introduction-business/pages/1-introduction
- Section URL: https://openstax.org/books/introduction-business/pages/3-2-why-nations-trade