The Link Between the Global Market and Banking

Over the last few decades, the way partnering countries, including their global markets,
regulate and manage the global economy has changed dramatically. These transformations can
impact the interchange of services and goods and money flow across countries. As witnessed
throughout the last century, excessive swings in the world economy can lead to a global
economic crisis. This does not, however, prevent people and businesses from transacting. Global
markets and international banking services, for example, are all part of the global economy and
continue to flourish. It is also important to note that global markets and banking are associated
with multiple risks, including exchange risks. This paper explores the connection between global
markets and banking and important considerations, including exchange risks. The big question
is: are global markets regulated well or appropriately?
Global markets are divisions of investment banks that provide financial services and
products to businesses, governments, and organizations worldwide. Global Markets are
responsible for all primary and secondary market sales and trading activity for goods and
services aimed at companies and financial institutions (Tata, 2020). To put it another way, global
markets are the interconnection of numerous transactions, or investment exchanges, all over the
world that allow individuals and institutions to purchase and sell financial assets worldwide. The
separation of exchange rate restrictions and the lifting of regulated fixed exchange rates from
specific capital markets have boosted global markets. Furthermore, technological advancements
have simplified the usage of banking services on a global scale.
For sustained performance in the global economy, global markets and banks are forming
partnerships with banks, clients, and other financial institutions worldwide. In the current global
market, investors are more interested in diversifying their portfolios by investing in several

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currencies. Spulbar & Birau (2019) states that while equities lag, other assets such as bonds,
currencies, and foreign exchange (FX) are interconnected and visible in international trading
markets. Moreover, capital markets are evolving in tandem with the global economy’s rising
complexity and network. Every day, billions of dollars in cross-border exchanges in terms of
investments and assets are transacted by financial institutions worldwide. Therefore, it can be
argued that global markets are well regulated to some extent.
However, due to the frequent occurrence of financial crises in multiple nations, global
market regulations have become a focus of public interest. Therefore, while a well-regulatory
structure is in place to manage global markets, more can be done. The absence of uniformity in
national and international legislation poses a barrier in global markets. Regulatory practices in
international markets are extremely complicated because of differences in securities, exchange
regulations, and other legislation applied between nations. The state’s unwillingness or inability
to collaborate with other countries to enforce national laws related to global market activities
might compound these challenges (Guttmann, 2016). Because securities regulations are
fragmented worldwide, countries must be willing to work together. Global markets will continue
to exist in some form or another, whether they expand or contract. Therefore, establishing a
worldwide network to control operations in foreign markets and ensuring that international stock
trading is not completely exploited to skirt national rules may be beneficial.
When a company decides to engage in global market transactions, it welcomes new risks
and opportunities. Currency and political risk are the two most significant risks connected with
global markets. These risks might make it difficult for a company to sustain a consistent and
predictable revenue stream. Currency risk implies the changes in the value of an investment due
to fluctuations in exchange rates. In other words, the revenue or gain generated globally

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following the exchange into the local currency will fall if it increases in value against the foreign
currency. Therefore, owing to the changing nature of exchange rates, global businesses might
find it challenging to hedge against this risk, and this can adversely impact global markets
(Guttmann, 2016).
Furthermore, a political risk might arise when a government adjusts its policies abruptly,
which can have a detrimental influence on a multinational corporation. These policy changes
may include market obstacles that limit or restrict international trade. For example, certain
governments may levy additional importation taxes or impose quotas in exchange for the right to
ship goods to a country. Although tariffs and quotas can protect local markets and businesses
from foreign importation, they can negatively impact local economies if foreign countries decide
to retaliate. For global companies operating in such economies, import tariffs and quotas can
negatively impact revenue streams as these regulatory measures aim to boost local businesses
and limit foreign companies.
International trade can lead to lower resource prices and more lucrative markets despite
these risks. Some of these dangers can also be mitigated by global business strategies. A
corporation might, for example, buy futures, currency forwards, or options in the foreign
exchange market to hedge some of its currency risks. This hedging aims to limit the risk that
fluctuations in the foreign exchange market may impact the Company’s sales and earnings.
Importers and exporters, for example, frequently employ future exchange contracts to protect
themselves from fluctuating exchange rates. Global corporations can achieve this by entering
into a currency-forward agreement with a financial institution. Finally, political risk insurance
can assist multinational enterprises in continuing to grow and extend their global activities even
when market conditions are uncertain or unclear. Businesses can insure themselves against

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warfare, crime, labor issues, supply disruptions, and trade barriers through political risk
insurance.

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References

Guttmann, R. (2016). Finance-led capitalism: Shadow banking, re-regulation, and the future of
global markets. New York: Palgrave Macmillan.
Spulbar, C., & Birau, R. (Eds.). (2019). Emerging research on monetary policy, banking, and
financial markets. IGI Global.
Tata, F. (2020). Corporate and investment banking: Preparing for a career in sales, trading, and
research in global markets. Springer Nature.