CHANGES IN FINANCIAL SYSTEM
The International trading of government and countries has been changing over the last few decades so thus the financial system. It is a challenge to the government and the country to develop a financial system that would fit their needs to endure the continuous financial crisis that is happening around the world and a systematic approach to progress to improve the quality of life of their people especially among the third world and developing countries, such practices evolves changes.
Globalization is probably one of the main reasons why financial changes occur, the introduction of information technology and the internet makes an instant access to the adaptation and innovation of such financial system to the world and this are done accordingly for a strong desire to make critical evaluation and means to reach out the country’s economic growth or survival. If such countries have been experiencing financial distress they may look for alternative means or they can simply try the other financial system structure that the world has been offering because it is their only options. These changes include Institutional, Ideational and Structural system.
Institutional Financial Changes – the International Investors has been responsible for the development of Institutional Financial Changes the cross border financial investment has increased in terms of volume and investors from foreign countries flooded the market. They give rise to the economy and employment generation from other countries; it deals with foreign exchange, foreign policy, import and export trade liberation and securities. This changes has been innovated during the 1980’s and 90’s. But it already occurs in the early 1970’s. There has been cartel, tariff, taxes in import export etc. Some countries may need to enforce these financial changes because there will be pressures and changes in international trade and the products that may come in and out of their countries must be subjected to tax law.
Even the payment system has changed to facilitate the exchange of goods and services institutionally the clearing and settling of payment can be made through online process, banking system through bonds and checks or credit cards. All across economic conditions and countries can widely use a range of financial intermediaries in their transaction to be able to manage and control the risk and liquidity. There are also adaptations of various funds for personal and organization security including; pension funds, life insurance, mutual funds, emergency funds and more. Basically all the changes in this institutional financial scheme are because of the adaptation by allowing special institutional and international transaction to enter their countries.
Ideational Financial Changes – The history of the nation that involved political, economic and sociological events can creates ideological financial changes and structure to a nation, this is to compensate the importance of the challenge they have faced. If there is a crisis or threats in a certain country they can visualize how their financial stability can move so they allow their government to interpret the situation to control the economy and people. However the ideas mostly presented by ideational or ideological principles are usually an alternative and not merely changes in their financial standings but can also be to protect and preserve their cultural interest. Usually these countries have a slight resistance to globalization and international trade.
Others call it the politics of financial crises; it is easier to understand if you know the history of Qing Dynasty of China has made a diplomatic dispute in western countries that changes their foreign policy including their financial standings, German and Vietnam is also an example. You could imagine how their financial situation would evolve during the history of war and it still affects their present condition giving their countries limited financial proposition not necessarily negative but is the result of philosophy and ideology. As of today you can easily recognize the situations in Libya.
Structural Financial changes – Is a financial changes and situation of a government or organization that focuses on elimination of risk or transferred risk, example is loan and mortgage that can affect their behavior and standings. A certain country and government or organization can use such structured finances to gain sources of funds through financial arrangement that they can use as a working capital or capital assets through credits from banks. Securitization of structured finance seeks to reduce credit concentration to high risk and liquidity and alternative funding etc.
Structured finance can cover a variety of ways to finance such instruments Asset backed securities, Mortgage backed securities and Collateralized debt obligation etc. all this are structured forms of instrument that can serve as a basis or substitute payments in case of loss. Trenching availability can also be important in a structured finance, because it allows investors to further diversify their group or portfolio. The structured finance can offer a more advantage than the traditional source of fund because it can offer more flexibility and diversity to customers and many country’s all around the world has been doing such practice for their long term financing.
Credit:ivythesis.typepad.com
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