6 pages

uDc 339.7.012 professional paper

mIkI runtEV *

nEW trEnDs anD fEaturEs of IntErnatIonal fInancIal manaGEmEnt

abstract

The motive for writing a paper is to answer the question of whether and how much international financial management affects positively the overall socio-economic currency and financial relations in markets around the world in the context of international economic relations. This paper links questions about the relations between national economies and international financial markets, on the one hand, and on the other hand, monitoring and analyzing the movements of foreign exchange markets. The main research question is what are the latest trends, challenges and characteristics of international financial management after the turbulent conditions in the international economy, finances and currencies. For this purpose, in general, the paper has a section dedicated to theoretical and methodological studies. Therefore, the role and problems in the functioning of the financial markets, currency control, and their risks are described. In this context, the main characteristics and peculiarities of the international economic environment, analysis of globalization in the work and control of currency courses are revealed.

The research expects the following results: that international management and market relations are more actively required for a more comfortable economic environment on the development of international financial management.

keywords: Financial Statistics, Monetary Policy, Monetary Data, Currencies, (euro currency, euro-dollars), Financial Markets, Economic and Financial relations. JEL Classification: A10, F00, F02.

* PhD of economics, direction of international financial management, email: miki.runtev@ yahoo.com

250

Economic Development No. 3/2017 p.(249-261)

Introduction

Considering the movements of the international financial markets in the last ten years. It became apparent that the transactions are more commonly made in the Euro currency. Before the start of the recession, the income of the american families were struck with inflation. The inflation was on a lower level then the previous 10 years. America had created an amazing economical machine, but apparently it only worked for the people on the top. As an example, one of the greatest economies of the world, the USA left millions unemployed. But even before the crisis, the US economy didn‘t deliver on what it was promising. There was a rise in the GDP, but most of the people felt as their living standards went down.

As a problem, due to the turbulences and risks, we single out the unresponsible conduct of governments across the world. Especially with the inequality of prices, and lack of control over currency markets. That was the main reason that the central banks of Japan, USA and Europe, were pointing out to the need for further lessening of the monetary policy in their countries. Those activities would lead to stabilization of the world financial markets, as well as economies as a whole.

The aim of this paper is to cover the new situations in the currency markets. We will take a closer look at the crisis with the fall of the dollar compared to the Euro. Today, after the era of the biggest world financial crisis, this topic is a lot more complex and as such it needs to be a topic of good international financial management in a very complex and risky surrounding. This is the base of this pieces, that the international financial management even today is facing new challenges because of the many very complex situations in the international economic and financial relations. In the globalized era those relations keep leaning towards negative manifestations of financial markets, and as such they deserve separate analysis for companies (micro level) as well as countries (macro level).

Theme of this paper is to introduce new characteristics, conditions and tendentious of international finances. They require new approaches to financial management, national and international regulations, new roles of the world and regional financial institutions. In this context,we uncover the main characteristics of the international economic environment, the analysis of the globalization of the work of multinational corporations and firms, turbulence and problems with currencies. Organization and control

251

Miki Runtev: NEW TRENDS AND FEATURES OF INTERNATIONAL FINANCIAL ...

of the international financial markets like ethics and social responsibility of the international financial management. Final aim is to gain the findings for financial stabilization, surpassing of current risks of currency markets as well as successful dealing with new challenges.

1. InfluEncE of thE EuropEan monEtarY unIon, crIsIs WIth thE Euro anD Dollar oVEr thE natIonal fInancEs/EconomIEs.

The claims that governments sometimes deal with failures shouldn‘t be imposed on the markets, as it is unfounded. Also the goes for the claim that after they fail, the markets should be abandoned. In a turbulent world like this the role of a financial manager is huge, requires a lot of knowledge, fines and following of the happenings in the world of international and national finances. The work of international organisations and regulators as well as a slew of questions is directly linked to the business environment. It‘s evident that the challenges are big and many questions aren‘t being asked anywhere in the world.

New level in the field of international trading has been given to services. The exchange of services keeps on getting bigger and their share has reached 1/3 of the world balance ( around 1.5 trillion dollars). Characteristic trait of the new century is the sharp increase of the dynamics of the migration of the population. This in turn is a very important production factor as labor. In this process tens of millions of people are involved. The quantity and quality characteristics of the modern financial management and the international economical relations, are one of the many factors for development of national economy and finances.

With the forming of the new order of international markets and the consequences of the last world crisis and the new happenings on the international scene. It places the European monetary union (Euro zone) before serious issues and the need for new solutions and with it firmer currency courses and markets, should it reconstruct the existing financial and political structures or look for new more unstable markets. As an example of these markets is Russia, China, Japan, Turkey, India, England and other developed markets with more developed currency markets then the dollar and euro.1

1 Analysis of Miki Runtev PhD of economics, direction of international financial manage- ment.

252

Economic Development No. 3/2017 p.(249-261)

The monetary union (Euro zone) being the whole of the financial- economic relations linked with the functioning of the main currency in the European economic integration as it‘s main characteristic, it was to increase the currency stability in the European Union. With this in mind it raised the question if it should have been turned into a basic component of the strategy fr economic growth, or to give a new impulse on the European integration process and to show stabilizing effect over the international economic and currency relations. With the development of the western European trade system and the increase of the level of joined cooperation and integration of the economies of certain countries, the need for a European macro economic policy was accepted.2

The differences that we have in the financial - credit system of some countries lead to having inconsistency in the prices, the interest rates as well as the currency worth etc.

As one of the main financial institutions, the European Central Band (ECB), is a bank which has a lawful mandate to create a price stability in the euro zone and the euro as a singular monetary asset. Reflecting on the euro, professor Robert Mundell who is also called the intellectual father of the Euro, back in 2009 said:3 „Creation of the Euro zone will inevitably lead to competition in the dollar zone from a standing point of perfection in the monetary policy as well as regulation of other currencies.“ Because of this, the world today is facing a bipolar outcome in the international monetary system, if we take into account the newly developed zones as well as the quick expanding economies in the world. At the same time, the Euro will unleash powerful forces on the market that will transform the way in which the European citizens live and work. When it was created the expectations were that in the following years it should bring in increased efficiency, bigger productivity, better standard of living and decrease in the unemployment levels. For businesses, the Euro should have meant decrease in the transaction costs, useless waste of resources in dealing with few European currencies, increase and domination in the trade. The risks were also overseen, of course only in a price that eventually in the end the client will be the ones to take.

2 Gagarinа G.Yuri, Economics of the EU, Moscow State University – Lomonosov, Moscow 2003 y, pg.187 3 International Monetary Fund, Finance and Development, interviews economist Robert Mundell, September 2016, accessed on June 27, 2017 year, pg.4

253

Miki Runtev: NEW TRENDS AND FEATURES OF INTERNATIONAL FINANCIAL ...

The gains and problems of the increased foreign part in the banking sector in a national economy is a topic of discussion of many theoretical and practical people in the field. This question is getting even more valid today in a state of a financial crisis. Even though this topic is the focus of many research papers, many answers are left partial and open due to the limitation on the relevant data and the uncertainty of the choices of key leaders of the EU. The economic state in the Euro-Zone led to a relatively low foreign requirement of domestic goods, which are still seen as basic risks for the domestic economy. On the currency market there wasn‘t any noted pressure on the course of the currency and the stock reserves. This lead to the increase of trust of the EU citizens in the European trio of creditors ( European Union, European Central Bank and the International Monetary Fund ). The citizens have a point when they say now is the time that Europe starts dealing with the problems in its own way. Taking into consideration that EU is no longer in a critical state, it has the necessary instruments to deal with it‘s own problems as well as to bring a democratic, European solution.

Namely, in 2016 the Euro notes a growth tendention in relation to the US dollar. In the world currency markets the Euro got stronger and reached it‘s highest level in two years. The European central bank started a policy of reduction of the stimulus measures. The value of the Euro in co relation with the dollar has a slight increase of about 1.7% at 1,1660 dollars, but there was a point at which it reached 1,1682 dollars and is the highest level from mid 2016. Also it‘s important to note that the dollar got weaker when compared to the Japanese Yen, so the value dropped 1,2% to 110,94 Yen. That state of the dollar index showed the value of the american currency in relation to the six most important world currencies and it dropped for record 1,4% down to 93,88 points, which is the lowest level in a year.4

But, accordin to the old/new director Werner Hoyer of the European Investment bank, a bank that represents the interests of the countries members of the EU, he thinks that the EU awaits new challenges, especially with dealing with the loss of the United Kingdom as a member of the board of banks of EU.

The influx of currency based on the exports of goods from those countries is smaller. Direct reason for this is the growing deficit of the current budget of those countries. For some of these countries ( Romania, Bulgaria, Hungary, Serbia, Ukraine, R.Macedonia ), the state of the deficit in their 4 www.faktor.mk/archives/ source=rss&utm_medium=rss&utm_campaign=fundamental and technical aspects of the currency pair-eur-usd, accessed on 28.06.2017y, pg.3

254

Economic Development No. 3/2017 p.(249-261)

balance reached a double digit value compared to their GDP.5 In any case, the global economic crisis led to drastic reduction of the flow of currency based on foreign investments. There was also a reduction of foreign direct and portfolio investments in the previous 5-7 years. This helped finance a significant portion of the deficit of the said countries. The fall of the credit rating caused those countries to have less and less access to foreign credits. That in turn led to a very powerful pressure over on the currency value and the national currencies.

Some of those countries in a situation where there was a much higher demand then supply for foreign currency allowed for free fluctuation of their currency, which caused their depreciation. In the past many citizens and numerous companies from the countries of Eastern and Central Europe, borrowed from banks in the Euro-zone, or Swiss Banks. Those credits were given in Euros, Dollars, Swiss Francs or some other currency but at a much lower interest rate then the credits in their domestic currencies.

The IMF recommended to the countries of Eastern and Central Europe, that were already part of the European Union to quit their national currency and have the Euro as their national Currency without having to formally become part of the Euro-Zone and fulfill the needed criteria for it. The IMF thought that by doing this they can solve the problem with the external debt and also restore the faith in the national currencies and stop them from getting in a even bigger currency crisis.

The percentage of the global growth of 2016 was 3.1% and that is a mild slowing down in relation to 2015 year. That was because of the improvement of the policies in the developed countries, but also at the group of fast growing countries and countries in development. The newest projections of the IMF show increase of the global growth during 2017 and 2018 to 3,5% and 3,6%. This growth is due to the gradual adaptation to the global economy after the global crisis and the favorable conditions of the financial markets. For 2018 there aren‘t many big changes6 in the forecast even though the risks around the global growth are rated as positive. At long term though they still stay unfavorable and are mainly influenced on the ability for increased protectionism and risks. As one of the causes for global inflation in 2017 it points to it‘s further hastening, mainly alluding to the higher prices of crude oil and energy. 5 http://www.nbrm.mk/information from international financial markets, May 2017 year. 6 www.nbrm.mk, The analysis is based on the IMF’s World Economic Outlook, the ECB’s Economic Bulletin; Bloomberg; Reports by Roubini Global Economics and Capital Econom- ics, 2017 year.

255

Miki Runtev: NEW TRENDS AND FEATURES OF INTERNATIONAL FINANCIAL ...

These states with prices leave space for inflation in the upcoming period, and with this it increases the uncertainty in the ambient for leading of a monetary policy.

The steady growth of the global economy continued in the last two to three years in developed countries and in emerging economies and developing countries. In the most significant developed economies, the trend of growth was observed in the United States and Japan. Compared to the economies of the eurozone and the UK, they achieved similar growth rates in late 2016. The US economy accelerated the GDP growth in the fourth quarter (from 1.7% to 2% annually), mostly due to the increased domestic demand.7 Compared to that, the growth in the economic activity in the euro area reached 1.8% in 2016, mainly from its own consumption and exports. Namely, the economies of China and India also experienced a high growth trend. Some signs of recovery are also noted in the Russian economy, which, according to forecasts, amounted to about 3.4% - 3.5%, this is also due to improved expectations for the growth of developed countries. It is important to note that the countries of the region also noted a tendency of economic growth for 2016. For example, Romania registered a 4.8% growth trend annually. The Turkish economy experienced a 3.5% growth trend, mostly due to personal consumption.8

Compared to other economies, good growth rates were recorded by Albania, Croatia and Bulgaria (4%, 3.5% and 3.4%), as well as others due to personal demand. Serbia also showed a good growth of 2.4%. While the Republic of Macedonia has seen a tendency of growth from favorable movements where for 2016, annual GDP growth was 2.4%. But the projections for 2017 - 2018 indicate a slowdown in the tendency of growth in the Macedonian economy.9

7 www.nbrm.mk, Quarterly Report, 2017 y, pg.5 8 http://bankarstvo.mk/index.php/ostanato/item/6161-mmf-ne-ja-promeni-prognozata-za- rastot-na-svetskata-ekonomija, accessed on 27.07.2017 year, pg.3 9 http://bankarstvo.mk/index.php/ostanato/item/6161-mmf-ne-ja-promeni-prognozata-za- rastot-na-svetskata-ekonomija i index.php/licni-finansii, accessed on 28.07.2017 year, pg.5

256

Economic Development No. 3/2017 p.(249-261)

Graph 1: Movements of the indicators of the inter-state economic situation and their activity from 2008 to 2017 year

Source: www.nbrm.mk, Quarterly Report, May 2017, Market, ISM – Chicago, 2017 year, pg.8 – *PMI – index can have a value between 0 and 100. The way it’s calculated is by taking into account the percentage of respondents that reported an increase in the economic conditions relative to the previous month. The reference value of the index is 50, which indicates unchanged economic conditions. The value of a higher or lower than 50 indicates an economic expansion or contraction. Accessed on 29.07.2017 year.

Thus, today the world is more actively looking for the new global currency instead of the dollar, the euro, the yen and the pound, as a substitute for the current international currency system. The Chinese yuan is not mentioned as an alternative, but it is said that China is in a good position to play the leading role because of the good economic fundamentals and the increasing influence in the world. Strong economic growth made China the world‘s second-largest economy, but its currency, due to the tight control of the capital market, did not play a significant role outside the country‘s borders. This is due to the fact that Beijing has reduced its restrictions in order to strengthen the international role of the yuan. Thus, China and Japan after 2011 y, began with a direct exchange of the yen and the yen. To this end, the US dollar and the movements of currencies against the dollar are a very interesting phenomenon in the global financial market. The situation with the currency of

257

Miki Runtev: NEW TRENDS AND FEATURES OF INTERNATIONAL FINANCIAL ...

the dollar has a major influence on the general market movements. Given that the dollar is the main world currency, which significantly affects the prices of other currencies. The US dollar became the world‘s leading currency at the end of World War II and was the basis of the Bretton Woods agreement, due to the reason that then the other currencies were virtually tied to it.

Processes with the currencies and the dollar, influenced the financial conditions of the post-war world. Even today, it is further influenced as a consequence of the complex geopolitical relations on the world stage. Today, the dollar has great importance on the international financial market because, the dollar is a reserve currency in many countries in the world. This is very important, because that is how the situation is related to the US economy, which is still today in 2017 the leading economy in the world. Therefore, the strength of the US economy should be in the direction of being practically displayed on the basis of parameters describing the currency of the dollar.

It is also expected that the course of foreign exchange must reflect the economic reality. As the most developed countries have to work on the stability of their currencies, as well as the emerging economies, other states must allow free market movement of the value of their currencies. Today, the world economy is recovering rapidly, but the leaders of the most developed countries must continue to work on overcoming trade differences, currencies and their risks.

2. currEncY control anD rIsks

Another key risk in international investment is the currency risk. Namely, currency risk occurs at different levels in the investment process. At the beginning of the process, limited partners face the currency risk between the point at the time when they are committed to the fund of different currencies and the time when they receive capital calls. Distributions are made in the currency of the fund, but also to the extent that the exchange rate moves between the currency of the fund and the local currency of the limited partner. This can affect the performance of the fund, viewed from the perspective of limited partners. Empirical evidence and confirmations about the movements of currencies have a really material impact on the performance of private investment funds, regardless of the fact that currency movements are largely unpredictable. Therefore, the protection against currency risk is recommended.

258

Economic Development No. 3/2017 p.(249-261)

The risks in the long-standing turbulence of the US dollar have resulted in several times, both with growth and with its decline in 2017. That led to a drop in a record low compared to the value of other world currencies. As the main risk factor, and the reasons for the fall of the dollar, the problems on the American political scene can be highlighted. There was a fierce assault on President Donald Trump, who „collaborated“ with Russia to become an American president. Another reason for this is the poorly implemented foreign and economic policy that has resulted in counter effects and has relieved the United States on the global stage. The reason plus this was the record value of the euro that stabilized after the ECB‘s strong efforts and monetary policies for larger investments rather than restrictions. Namely, in conditions of relatively higher oil prices and the constant interest of foreign investors for investments in Russia, there were risk forecasts. The ruble from the beginning of 2017, in the past six months, varied by about 7% compared to the US dollar.10 Special accent is put on Russia and China who intend to break the dollar in the next decade. With this tendency of the fall of the US dollar, which in only four months fell to a record 10.2% against the euro, more investors believe that now is a good time to buy the US currency. But the question arises, what if the dollar from the current level will significantly strengthen ?. Thus, some analysts of „Admiral Markets“11 argue that the reasons for the sharp weakening of the dollar in recent months in relation to all other important world currencies should be sought in the movements of the currency market as of 2014. Therefore, the situation at the time was quite different, the dollar began to sharply strengthen as a result of the deliberate increase in interest rates in the United States. For big banks, investment funds, private investors, it was a sure sign that the crisis was over and massively began to transfer capital from other currencies into dollars. Namely, analysts of „Admiral Markets“ also consider that the current trend of weakening the dollar against the European currencies that just started, suggest that it is not yet time for long-term investments in the dollar.

10 www.worldbank.org/Documents/, Partnership with the Republic of Macedonia,06.2017 11 Admiral Markets, http://www.dailyforex.com/ EUR/USD Forex Signal, http: 2017/08/eur- usd-forex-signal-august-7-2017/82286, accessed on 31.07.2017 year, pg.3

259

Miki Runtev: NEW TRENDS AND FEATURES OF INTERNATIONAL FINANCIAL ...

Graph 2, Condition of the exchange rate of the dollar against the euro, since 2007 measured quarterly by 2017 year

Source: Eurtostat 2017 year, www.nbrm.mk, Quarterly Report, May 2017, pg.11, accessed on 29.07.2017 year.

This situation with the weakness of the dollar has inflicted major problems on central bankers around the world in relation to many global currencies. Thus, the risk of inflation is reduced at a time when many have been thinking about how to get out of unsustainable politics for years. The dollar, in relation to other currencies, should reflect the strength of the US economy in relation to other countries. Some governments actively participate in those markets to influence the value of their currencies.

The United States has remained on the margins in recent decades. Past administrations were not well focused on the expected challenges. As a result, they have pushed other countries to stay out of the market. The Bush and Obama administrations had made progress in persuading China to allow the value of their currency to climb in relation to the dollar, which moves to overcome the risks of trading in currencies.

260

Economic Development No. 3/2017 p.(249-261)

conclusion

This paper seeks to give direction in perspective, international financial management to be more involved in the globalized world. In addition to all the challenges and problems faced by new trends and features of international finance, national financial markets and multinational firms.The impact of the process of globalization on the world economy on international relations has proved to be very contradictory. The vast, scale of transnational trade, capital and migration flows were governed mainly by market laws. They have proven capable of triggering financial and other crises of an international character (with a typical example of the current global financial and economic crisis. It was provoked by the crisis in the US financial system in early 2008. Issues of ecology, social policy, rational use of natural resources, demography, science, education, health, remained in the background as problems to be solved. On the other hand, the rapid growth in the volume of business, not only in the main centers of the world economy, but also in many other countries (China, India, Brazil, Indonesia, Mexico) has drastically increased the pressure on the resources of the country‘s potentials And the environment.

So far, this paper identifies the need for writing what is expected in the future of the International Financial Management - to develop in the direction of the countries and international financial markets to go towards overcoming and solving many of the problems of the financial and currency crises , to open up a greater volume of markets, where people can buy and sell goods and services. With this, the markets will be better oriented towards investors. Banks to allow the flow of funds from people who lack productive investment opportunities, to people who have such opportunities. Therefore, markets should always be prone to irrational enthusiasm and optimism. Also, to be, irrationalally accepted, that the removal of currency risk (in the single currency there will be no risk associated with changes in the euro / dollar value). For example, this means removing the sovereign risk - the risk that a state may fail to repay what it owes. The politicians who contributed to the creation of the euro were not thinking thoroughly about the economy of what was created. They do not realize that the way the euro was created actually increased the sovereign risk.

In conclusion, it can be determined that there are some fundamental directions and reforms in the eurozone structure and policies imposed on Member States, with a well-organized single currency or another new

261

system called the „flexible euro“. With its lessons about the consequences of globalization in a deeper world economy, it can be said that the survival of Europe depends on it.

As a fundamental problem we can single out, the situation with the modern foreign exchange markets, which in the last ten years has developed in an extremely complex and dynamic system, under the influence of many economic, political and psychological factors, reacting uninterruptedly to their changes. Compared to material sphere, the level of uncertainty and unpredictability remains considerably higher.

references:

1. Bekaert Geert, Robert J. Hodrick, International financial management, Columbia University and the National Bureau of Economic Research, 2nd ed, 2009 y.

2. European Union, www.europa.eu.int.org, Materials from international organizations 2015y.

3. http://www.imf.org/en/Publications/WEO/Issues/2017/07/07/world- economic-outlook-update-july-2017y.

4. IMF Committee on balance of payments statistics 2016 annual report/ Approved By Louis Marc Ducharme, Prepared by Carlos Sánchez- Muñoz, Paul Austin, Alicia Hierro, and Tamara Razin of Statistics Department.

5. Industrial Development, Global Report. – Vienna. UNIDO 2015 year. 6. International Currency Fund - http://www.imf.org 2014 7. International Financial Statistics – Wash. DC. IMF, www.imf.org/

external/index.htm, 2016 year. 8. McGraw-Hill, International Financial Management, London Stock

Exchange-LSE, (2008y). 9. Mishkin‘s Federik, Book, Money, Banking and Financial Markets,

Money Market, 2010 year. 10. Stancev Vladimir, Globalization and Regionalism, Institute for Liberal

Studies,N* 34/2002, Sofia, 2010 year, pg.58 11. World Economic Outlook. – International Monetary Fund, World

Economic and Financial Surveys, Washington, April 2017y. 12. World Tables – Wash. DC. World Bank World Development Indicators,

2013 year.

Miki Runtev: NEW TRENDS AND FEATURES OF INTERNATIONAL FINANCIAL ...

Copyright of Economic Development / Ekonomiski Razvoj is the property of Institute of Economics, Skopje and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use.