Global Financing and Exchange Rate Mechanisms - Research Paper Example

 Global Financing and Exchange Rate Mechanisms Global financing is the use of international financial systems that consist of financial institutions and regulators to conduct business. In the world, today, it is crucial for global business entities to have a regulated mode of trade. This is because everyone is bound to have a fair share of the globalised market share. The exchange rate mechanisms refer to the fixed rate of currency exchange. There may be variability in how these exchanges occur, but internationally, it may be in small margins to allow the fair share, and exchange of currency. It is through trade and other businesses that this exchange rate mechanism is realised (Hill, 1999). This is between countries where export and import is the mode of trade. This paper will review the effect of tariff and nontariff barriers that may exist in the global market with different financial operations. Tariff and Nontariff barriers in trade Tariff barriers refer to those duties often imposed on goods. Tariffs are simply taxes imposed on goods that may enter a country through trade. This is done to regulate the trade that is occurring in a certain country. There are some effects that often follow the imposing of taxes on the goods being traded. International trade is the reason why they are usually imposed. International trade offers a consumer a wide variety of goods from which they can choose what best suits them (Busch & Mansfield, 1995). Tariffs often allow the government to cash in on the trading that occurs between countries. This is by the revenue collected during the trading activities in the form of tax. It is a way for the economy to grow (Busch & Mansfield, 1995). This is probably the main reason as to why they exist in the first place. When mixed with other trade barriers, tariffs constitute to a high percentage of hindrance to international trade. Developing countries suffer the brunt of these hindrances since their market is easily penetrable. However, outside markets for them are not easily penetrable. Global financing and exchange rate mechanisms determine the profit that an organization can make from its operations. Exporting is still an issue that needs addressing since many organizations find it hard to trade with outside countries due to the tariff and nontariff barriers. Nontariff barriers are those that give organizations the right to trade in certain commodities easily with other countries (Busch & Mansfield, 1995). Through licensing and import quotas, organizations dealing in trade can make their operations valid, and they can also make profits. There are reasons why tariffs exist. A government may impose taxes on exported goods for reasons out to benefit their local markets. The competition brought on by imported goods on the local market in a country might render some people jobless. This is because an organization may see it wise to shift their production necessities abroad to cut costs. They do so sometimes, in order to protect the consumers of certain products. This means that, on products that a country may feel endanger their citizens the tax levy may be higher than on other goods (Daly, 2000). Infant countries are also protected by tariffs. This implies that, for developing countries, the import on goods by certain industries will be levied so as to increase the growth of that industry. In other instances, retaliation is a reason why tariffs are set. In case, one trading partner thinks their partner is not playing by the rules they may increase the tariffs on goods. This is to make them pay for their deception. This, however, has a negative impact on both parties since the consumers tend to suffer more with such tendencies (Daly, 2000). As seen earlier, global financing is a way in which organizations can increase the profits they make. This indicates that a rise in exportation tariffs makes it difficult for them to do so. Countertrade is a way in which organizations can pay off some of their debts (Daly, 2000). This involves the exchange of goods and services in case currency is not easily changeable. These are some of the risks that are involved or encountered while trading internationally. In global financing, it is rather difficult to decide if a business venture is worth all the risk. This is when there are tariffs to think about in the long run. It is imperative for all those involved in the operations and running of these financial operations have the capability to do so intellectually. Without this intellect, it is highly likely that the industries dependent on these systems are going to suffer. Judging a risky venture and helping manage risks is one thing global financing usually helps an industry that wants to trade (Daly, 2000). How global financing can help manage risks A risk such as a low profit level can be rather detrimental to an organization. It is made worse if the organization is located in a developing nation where the economy may be particularly low (Hill, 1999). Surplus goods are often manufactured in these organizations and/or industries. This is because they make them, but cannot find it in their ability to easily export their products. This risk is something many industries can attest to in the market today. The pressure to hire and retain employees mounts on such industries. Global financing often tries to ensure that all those involved in trading operations have a fair trading field with all the others. Not all risks are controllable. It is, therefore, in the best interests of a company, or industry to manage them is they are foreseeable. Fluctuation of prices due to tariffs can jeopardize an industry’s operations. Taxes and other costs incurred in production and trading of goods might reduce the chances of making a considerable profit for an industry (Hill, 2008). Such a risk can be managed by global financing tools which might take into consideration the tariffs imposed. They, therefore, look at all sides to find a possible solution. Global financing can ensure that tariffs are properly researched on and dealt with to ensure industries do not get the short end of the stick. These risks that can be attended to are often manageable, unlike natural disasters. These financing tools are, therefore, exceedingly vital in the promotion and growth of industries and a country’s economy. This knowledge may help any exporter before they undertake international trading. With the financial tools in place, industries in many developing countries can know how to place themselves in a better position while trading globally (Hill, 2008). Knowledge that tariffs can benefit a business entity in the short run may be of help to many industries. The high price of goods can reduce the consumption by individual consumers and small businesses. This creates a venue for the government to see an increase in revenue created by the duties imposed on some of the goods. However, in the long run, there may be a failure of efficiency since there may be a lack of competition in the market (Hill, 2008). This may reduce the garnering of profits by any industry. This is often created by the emergence of substitutes in the market for the high priced goods. In conclusion, there needs to be the standardization of tariff and nontariff barriers. Organizations like the World Trade Organization (WTO) have come up to ensure that the policing of these barriers becomes better. How consumers benefit or are taken advantage of depends on the tariffs that are present today. Their effect is felt even by the single consumer (Hill, 1999). This is whether they are in an already developed country, or one that is developing. The policing of these barriers may better place the consumer to enjoy some of the products, goods and services offered by international trade. References Busch, M. L., & Mansfield, E. D. (1995). The political economy of nontariff barriers: A cross national analysis. New York: Macmillan Publishers. Daly, M. (2000). Recent trends in tariff and nontariff barriers to trade in the United States. London: Sage Publishers. Hill, C. W. (1999). Global business today. New York: McGraw Hill Publishers. Hill, C. W. (2008). International business: Competing in the global marketplace (7th ed.) Boston, MA: McGraw Hill. Read More