Question

My Subject is International Business Trade

ESSAY

Instruction: Before you begin writing, read each statement very carefully. You are expected to write a minimum of 200 words per question.
You are allowed to cite from other sources provided you follow proper citation rules, APA format.

•   In 2008‒2009, the world economy retrenched in the wake of a global financial crisis. Did the globalization of capital markets contribute to this crisis? If so, what can be done to stop global financial contagion in the future?

•   A firm based in Norway has found that its growth is restricted by the limited liquidity of the Norwegian capital market. List the firm’s options for raising money on the global capital market. Discuss the pros and cons of each option, and make a recommendation. How might your recommended options be affected if the Norwegian krona depreciates significantly on the foreign exchange markets over the next two years?

Answer 1

1)Globalization Set the Stage for the 2008 Economic Collapse:

a). The globalization of labor markets — and especially the outsourcing of once high paying jobs to low-wage economies - drove down incomes in the United States and western Europe.

That effect might have been tempered by the growth of unions and by trade agreements that protected labor rights. But the right wing assault on unions in the United States—and the passage of trade deals that protected the rights of capital and did nothing to protect the incomes of average workers—allowed real incomes for most Americans to drop, especially in the last eight years. In fact, all of the economic growth of the last eight years went to the wealthiest 2% of the population.

b) The globalization of financial markets removed most sources of capital and credit from the regulated national environment and placed them into the deregulated international environment.

One lesson of the Great Depression was the need to assure that banks were no longer free to make investments so risky that they threatened the savings of average investors and the stability of the financial system. Banks were required to buy insurance from the FDIC that protected depositors, and they were subjected to oversight and regulation to assure their solvency.

The stock market was regulated - with margin requirements and strict disclosures.Back then, banks were the major sources of capital and credit. The stock market was mainly domestic. Nowadays, most capital and credit is provided through investment banks and hedge funds that are barely regulated in U.S. and operate in international markets with virtually no regulation at all.

But we need much more to address the fundamental problems created by globalization:

* Stronger unions. Government must pass the Employee Free Choice Act (EFCA) that will dramatically increase the percentage of the workforce with union representation.

* Rewrite trade deals. NAFTA and the WTO must be revised to protect labor rights and assure that the world economy is integrated by bringing the bottom up - not the top down.

* The U.S. must support the rights of unions to organize around the world. The unionization of workers worldwide is critical to the protection of American wages.

* Re-regulate credit markets. That requires tougher regulation in the U.S. and new regulatory structures on the international scale.

2)The global capital market refers to a cross-border market for securities that are used to finance long-term capital needs of companies. The global capital market is used primarily by larg, sophisticated corporations that sell their stocks and bonds to institutional investors, like mutual funds, pension funds and other investment companies.

One of the most popular ways to get access to the global capital market is though an initial public offering (IPO). An IPO is a sale of your firm's securities, usually common stocks, to the investing public on an organized stock exchange such as the New York Stock Exchange (NYSE) or the London Stock Exchange (LSE).

Choose the best option for raising money from the global capital market and plan how you will go about raising the required capital. Whether you choose an IPO or a Bonds issue, you will have to prepare for it, making changes to your corporate governance and financial reporting.

Carry out your capital raising plan. Work closely with  investment bank to do everything required to sell your shares or bonds to global investors.

Pros and Cons of International Funding:

a. In certain cases cost of international funding will be less when compared to home country.

b. Entities with strong fundamentals will not face any limited liquidity issues in international market.

c. However raising money in a foreign country is expensive. The time it takes to conclude a deal isn't any shorter than it is in the U.S., and if you must stay there to nurture the process, it will cost you even more money than if you'd tried it at home.

d. Investors in foreign countries are highly suspicious of anyone coming to their country to raise money. Their natural inclination is to believe that you're only there because you couldn't raise any money in your own country.

Therefore if the firm have strong fundamentals and good growth aspects should go for international funding. So that it can raise enough money as per its business requirements.

However if the Norwegian krona depreciates significantly on the foreign exchange markets over the next two years. Then cost of repayment will increase significantly because of depreciation in home currency.