Main Challenges of Global Financial Management
Global financial management is the financial system of operations that determines the health and performance of the world economy. Even a small business owner needs to be conversant with global finance, especially if you do business internationally. Your marketing and investment strategies hinge on an understanding of the economics of the different regions where you have an interest.
Operating in a globalized environment means being answerable to different countries with different political environments and cultural norms, as well as trade procedures and tax conditions to comply with. In addition, the credit conditions may be totally different from what they are domestically. Anticipate day-to-day financial management challenges when operating internationally and devise ways to maintain healthy equilibrium within this economic framework to ensure your business's continued growth and survival.
Risk management is a major challenge of global financial management. For example, if you're buying supplies or selling products overseas, your business may face the risk of high prices caused by inflation in emerging economies. Although vulnerability to financial crises in many emerging markets has been reduced significantly due to stronger balance sheets, better fiscal policies and more flexible exchange rate regimes, other factors still pose risks. Potential threats to energy supplies, imbalances in the world economy and other fiscal sustainability issues call for prudent financial planning and management of those risks that most affect your particular business.
In a globalized economy, the cash that goes in and out of the various countries is subject to fluctuations in exchange rates. This creates uncertainty for financial managers when it comes to the value of the home currency in relation to foreign currencies. Continuous fluctuations in the foreign exchange market could mean slow business for global organizations. If you need part of your financing for projects in emerging economies where you conduct your business, fluctuating exchange rates can subject you to higher interest rates. You have to monitor the foreign exchange market closely for suitable rates that benefit your organization.
Unlike financial management in a single country, global financial management must deal with many other banking institutions that have problems of their own. Some multilateral development banks, such as the International Monetary Fund and World Bank, have been set up to regulate international economic affairs in emerging economies and typically give conditions to various countries and their banks. This can be a challenge when doing business in a country where these institutions have influence, since they advise banks in such countries to avoid testing waters in the riskier markets in its structural adjustment programs.