Question

in regards to: INTERNATIONAL BUSINESS ANY INTERNATIONAL REGULATION AND INTERNATIONAL FINANCE WITH TOPIC BEING CENTERED IN BUSINESS FINANCE RESPOND TO THE FOLLWOING QUESTIONS.

Express your thoughts about the national debt, what you think about the debt in other countries, and what you think about private debt.

Explain whether you think there should he international finance regulation.

Describe what you think China’s role will be.

List and explain the challenges that are likely to come in the future.

Explain what you think some of the solutions might be to the European debt crisis.

Describe how you think corporations will respond to those challenges.

Answer 1

(A) By definition National Debt or Government debt (also known as public interest, public debt and sovereign debt) is the debt owed by a government. Government debt can be categorized as internal debt (owed to lenders within the country) and external debt (owed to foreign lenders).

As of May 15, 2018, the official debt of the United States government is $21.1 trillion ($21,085,763,264,509). This amounts to:

• $64,358 for every person living in the U.S.
• $167,050 for every household in the U.S.
• 106% of the U.S. gross domestic product.
• 546% of annual federal revenues.

Japan has the world's largest debt-to-GDP ratio, with government debt more than twice the size of its GDP—it's also the least populous nation. The United States had a debt-to-GDP ratio of 106.0% as of 2015. As you can see in the above graph, Japan leads the nations with its rising debt-to-GDP ratio. The United States is in seventh place, according to data provided by the OECD as of 2015.

Japan’s estimated gross debt is about twice its GDP held by households and the central bank. If you compare Japan’s debt to the US debt, Japan’s debt is mostly held by its citizens, about 90.0%. However, the US debt is a mixed bag of external creditors and its people. Greece, unlike Japan and the United States, is currently in a vulnerable position since it can print its currency to finance its debt to avoid defaulting on its loans.

China is the most populous country, but its debts only equal about 23 percent of its GDP, well below the rates of nearly all of the other largest countries.

Private debt is the debt accumulated by individuals or private businesses. Private debt can take numerous forms; a personal loan, credit card, corporate bond or business loan for instance. Private debt comprises mezzanine and other forms of debt financing that comes mainly from institutional investors such as funds and insurance companies – but not from banks. In contrast to publicly listed corporate bonds, private debt instruments are generally illiquid and not regularly traded on organised markets.

(B) Functions of an International Finance Regulator:-

• The principal activities of an inter­national regulator should be to monitor agreements and promote free capital flows in a market-based system.
• In addition to imposing stricter capital requirements than envisioned by Basel II, they should dig up other rusty tools to combat leverage, such as margin requirements and reserve requirements.
• The root problem of excessive leverage, and the political dynamics that produce it, are hardly new. Rapid leverage build-up and sharp asset price inflation are often harbingers of financial crisis that politicians discount or ignore.
• An international regulator with teeth is needed to protect against national political interests that, left unchecked, will again push the global system to excessive leverage and risk.

The regulation in the wake of the financial crisis partially addressed challenges exposed by the collapse – there’s need for a global framework along with explicit separation of market and credit risk. The need for an overhaul in financial regulation has been largely accepted both at the level of individual states as well as international bodies .

A brief reminder of the fundamentals of the financial sector will shed greater light on the current dilemma and we must ask ourselves: Why is finance necessary? Why should it be regulated? For what objectives? The financial sector serves society by providing the tools to unlock the potential of capital as an engine of economic development. Finance allows for economic resources to be efficiently distributed and creates benefits in the form of increased investment, increased economic activity and improved ability to manage risk; in simpler terms, more growth. This process of optimization is universal and has played an essential role in global growth over the course of the last 30 years. On balance, despite the recent crisis, the overall effect of finance has been largely positive.

The financial sector has a number of tools at its disposal and regulatory regimes are for the most part created to ensure they function correctly within a coherent system. More concretely:

A process of financial transformation occurs. In the case of banks this involves the transformation of short-term funds (primarily deposits) to finance long-term investments (loans, treasuries). The cost of long-term debt financing is reduced through an act of financial transformation because short-term funds are typically cheaper than long-term ones. Additional benefits accrue as the process boosts the volume of long term investments that would otherwise be limited to the availability of long-term savings.

- Leverage is harnessed by bankers as well as insurers and consists in maintaining relatively small levels of equity in relation to total assets, typically around 8%. Leverage magnifies return on equity : In rough terms, a 1% net margin on assets translates into a 12% return on equity if equity finances only 8% of total assets.

The combination of financial transformation and leverage creates powerful mechanisms through which the financial system, banks and insurers, can meet the needs of the economy as much in terms of financing investments as in providing adequate insurance against risk, without freezing up excessive amounts of capital.

The viability of banks and insurers depends on integrity and confidence between depositors and bank creditors, clients, and insurers. The effectiveness of financial transformation and leverage depends on corresponding levels of trust.