Global finance has a number of challenges. It requires the finance function to locate strategic decisions at the local level and coordinate across geographies. It also requires the professional finance staff to rotate globally. This is because many financial institutions do not have one central headquarters and many subsidiaries operate in multiple countries. In addition, global firms are often affected by the political, legal, and institutional forces at work in each region.
The 2008 global financial crisis shook the world financial system and plunged developed economies into recession. Although stimulus packages prevented a depression like that of the 1930s, the crisis’s continuation illustrates the need for comprehensive global finance regulation. In 2010, the G20 agreed to take initial steps toward international regulatory reform and liquidity support. However, these initial steps haven’t been fully implemented.
Gross capital flows remain volatile. This volatility can affect exchange rates in developing economies. Moreover, the interconnected nature of the global financial system also carries a risk of contagion and crises. As a result, countries have tried to defend their interests with protectionist policies, which led to a period of slowdown in trade. However, efforts to reform the international monetary system following World War II improved exchange rate stability and helped finance globalization.
Globalization offers many challenges and opportunities. CFOs have to adapt their accounting and finance systems to adapt to changing economic conditions. As a result, they must grapple with issues such as the capital structure of subsidiaries and the currency and tax risks associated with international operations. Additionally, incentive systems must be adjusted to compensate managers operating in different economic environments.
