Question 1
Financial globalisation has occasioned a number of unprecedented effects on the world economy. Through the extensive flow of finances between economies, there has been a trend for businesses and individuals to invest their money where it fetches the best returns. Most notable of this is the tendency by the wealthy from the developed nations to invest in developing economies mostly in Africa to take advantage of certain conditions such as lenient taxation and favourable interest rates as well as affordable labour (Prasad, Eswar, et al. 201). The same can be said of the tendency by most companies to set up production in countries with low production cost.
Through the deepening financial globalisation, there have also been effects of money laundering where individuals who gain wealth unjustly, stuck their money in foreign accounts especially in nations with no money laundering laws such as Virgin Islands (Buchanan and Bonnie 115). Such has been a common practice for most African states where politicians gain money corruptly and have to hide it elsewhere to escape the law of the land from catching up with them.
Financial globalisation has also led to recent claims of terrorism financing in which a group of terrorists finances its global network through the convenience offered in money transfer services (Warde and Ibrahim 39). The governments, in response, have created several laws in an attempt to curb the extremes of financial globalisation. Such efforts include monitoring of cross-border financial inflows to track the motive of the funds sent to various groups in a bid to curb terrorism financing. Also, the governments have resorted to fixing their exchange rates to control the rate of foreign direct investment or to discourage the same as the case may require. Despite challenges, the measures have worked to minimize the vulnerabilities of local economies from uncontrolled financial inflow.
Question 2
Economic risk of a nation is the existence of a possibility that changes in the macroeconomic environment of a nation will affect the investments in the nation, usually by foreign companies. The best case of this was evident in Zimbabwe when, under the rule of the reigning president, foreigners were ordered to vacate their premises for them to be surrendered to the locals. The result was losses on the parts of the international investors who had invested in the country and a subsequent hyperinflation due to sanctions from global partners to the nation (Hanke and Steve 250).
Anticipation for economic risk in Zimbabwe continue to be high as the country remains under the rule of the same president who created the current inflation, and there are massive intimidations of people who attempt to change the policies as they are. Besides, there has been a substantial drop in investor confidence following the hard stances expressed by the current president, Robert Mugabe (Jong-A-Pin and Richard 15). The president has been tough regarding, especially, his idea of how whites have for long controlled wealth in the country.
Economic instabilities such as those experienced in Zimbabwe affect other nations in a myriad of ways. For instance, the trade partners who export into the Zimbabwe market are discouraged by the interest rates and the exchange rates in the country which causes them to shrink their business engagement with the nation (Fosu and Augustin 289). Depending on the severity of the economic instability, the country may also fall back on its debt payments to other nations. In such a case, the lender nations suffer economic planning hitches due to a delay in remittances by the affected nation, which could expose them to other spill over detriments arising out of financial constraints.
Works cited
Warde, Ibrahim. Islamic finance in the global economy. Edinburgh University Press, 2000.
Prasad, Eswar, et al. "Effects of financial globalization on developing countries: some empirical evidence." India’s and China’s Recent Experience with Reform and Growth. Palgrave Macmillan UK, 2005. 201-228.
Buchanan, Bonnie. "Money laundering—a global obstacle." Research in International Business and Finance 18.1 (2004): 115-127.
Hanke, Steve H. Zimbabwe: Hyperinflation to growth. New Zanj Publishing, 2008.
Jong-A-Pin, Richard. "On the measurement of political instability and its impact on economic growth." European Journal of Political Economy 25.1 (2009): 15-29.
Fosu, Augustin Kwasi. "Political instability and economic growth in developing economies: some specification empirics." Economics Letters70.2 (2001): 289-294.
