global financial managementmba2nd

8/2/2019 Global Financial ManagementMBA2nd

1/11

The global financial situation, as of 2010,continues to struggle. The main issue is bankwrite-downs, that is, the admission that ahuge percentage of loans on the current bookswill not be repaid. All theories on recovery musttake this specific challenge into account: how to

restore creditworthiness to the financial sector,especially small and medium size businesses.


2/11

Real Estate:

One major challenge of financial management isthe continued deterioration of real estate markets

globally. Falling prices and vacancies remain aproblem, especially in the U.S., Spain and WesternEurope as a whole. Foreclosures continue to rise inthe western world, which is, in turn, harming

global financial markets.


3/11

Consumer Credit:

Consumer debt and insolvency in Western Europeand (especially) America is another huge challenge

for financial management. Americans are saddledwith low or non-existence savings, high debt andirrational consumption patterns. Asunemployment grows, those millions living onrazor-thin margins are certain to foreclose ordefault on debt.


4/11

Corporate Credit:

High yield defaults, according to the

International Monetary Fund (IMF) reached 12percent in 2009. The main challenge here is toassist in the restructuring and refinancing offirms seeking to avoid default. In Europe, the

real problem is that about 75 percent of all bankloans are from small and medium sizebusiness, which have a 50 percent higherchance of defaulting than big business.


5/11

General Credit: According to the IMF, a full 30 percent of

American debt and 40 percent of WesternEuropean debt is expected to be written down, or

slated as non-repayable. This includes both loansand securities. The main challenge is that banksmust be able to support any kind of recovery.Keeping interest rates low is not a problem in thedeveloped world so long as output is low. But

these low rates drive competition in debt tradingand refinancing, maintaining profits for banks atthin levels.


6/11

Banks:

Global credit management must deal with banksthat are barely limping along, and now have toface further heightening of costs from insurancepremiums and new regulatory systems. The IMFholds that the real challenge is for banks to get outof risky markets and focus now on simplebusinesses and plans and spend money to increase

risk management systems.


7/11

Emerging Markets: While Western banks can hold rates low without

fear of inflation, this is not possible in the ThirdWorld (including Eastern Europe), according to the

IMF. The financial, macro-level infrastructure isnot as well developed. As of 2010, Western banksare pumping liquidity into emerging markets,hoping to stabilize them. Nevertheless, states likeChina and Taiwan are likely to maintain state

control (rather than bank control) over theircurrencies. The real challenge in emergingmarkets, according to the IMF, is that loans arechanneled only to the highest quality borrowers,leaving many enterprises without support.


8/11

The rise of globalization in the final decade of the 20thcentury precipitated a need for global financialmanagement. Simply defined, globalization is progresstoward one large, conglomerated (A corporation made

up of a number of different companies that operate indiversified fields) , international market for trade,finance, communications and the economy. In order forsuch a system to subsist, it must be managed. Thus wasborn the need for global financial managers who are

faced with many challenges in their ongoing efforts tomaintain healthy equilibrium within this globalizingframework


9/11

Agency Cooperation: Former Federal Reserve Board governor Laurence H. Meyer

identified cooperation as a major challenge of globalfinancial management. According to Meyer, the globalfinancial market is a network of entities, from private

corporations to third party monitors to governmentalagencies. Successful global financial management requirescooperation from all of these agencies. However, this provesa difficult task, given that each agency is ultimatelypursuing a different end result. Thus a primary challengefacing global financial management is juggling this

panorama of desires, and reaching acceptable compromises,in an effort to create a cooperative environment.


10/11

Price Risk Management: Jerry R. Skees, University of Kentucky H.B. Price Professor of

Policy and Risk, identifies price risk management as a majorchallenge facing global financial management. Price riskmanagement is a challenge facing global financial managersworking in future markets. Simply put, a future market is aframework in which parties agree to an exchange of goods for aset price, to be delivered at a future date. If the price of thesegoods increases dramatically in the interim period, the buyer isthe better for it. If the price of these goods decreases dramatically,the seller is the better for it. Successful financial mangers workingin global future markets are charged with predicting market

trends in order to increase profits.


11/11

Disaster Risk Management: In "Understanding the Economic and financial Impacts of

Natural Disasters: Disaster Risk Management," published bythe World Bank, authors Charlotte Benson and Edward Clayidentify the disaster risk management challenges facing

global financial management. Global financial mangersfrom, and working within, disaster-prone regions of theworld must predict the cycle of natural disasters, have afirm understanding of which areas of a nation or industrywill and won't be affected by such disasters, and haveenough capital to cover the losses incurred by potential

disasters.

global financial managementmba2nd

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