Paper Topic:

International Financial Management assignment

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: International Financial Management . International Financial Management

Financial system stability refers to the smooth intermediary flow of funds to and from investors to the savers with the help of financial markets and proper market infrastructures1 . Financial systems are very important in the overall growth of the economy because it offers credit facilities to all the other sectors of an economy and thus , when there is stability in the financial systems of a country , it promotes its growth and development . According to a report given out

by the IMF2 , a flexible financial system should have a well defined strategy for crisis management so that it can quickly adjust and get back on track in case of any misfortune to maintain public confidence . Crisis can be as a result of failure in the capital markets , banks or any other financial institution which is not necessarily a bank . When there is financial stability the business cycle remains stable and there is vast economic growth . According to the 9th Geneva Report3 on World Economy (GRWE financial stability is more sustainable now than it was 10 years ago although this stability has been greatly affected by entrance of new financial institutions in the international markets . This report also argues that the present financial systems are under stress as a result of global imbalances , deviations in the assets prices , increase in debts among others . It is thus highly important for all financial systems to promote the financial stability by identifying the major loopholes and threats in their systems and take appropriate measures to safeguard it . The extent of stability achieved by a given a financial system is directly proportional to the amount of threats it is facing from the internal as well as external environments . Common threats which most international financial systems have been experiencing in the recent past are increasing with the increase in the financial market integration4 . This threats can manifest themselves in terms of liquidity shortages in the financial institutions , problems associated with the long term capital management (LTCM ) like in the case of hedge funds crisis and also threats emanating from disruptions of major operations through natural disasters like terrorism attacks , IT breakdowns and so forth . Leverage in itself might not pose a major threat to financial stability but it becomes an issue when it is mismanaged and unsustainable . In addition , credit transfers in financial systems impend high risks in the systems arising from lack of transparency in the transactions . According to the Global Financial Stability Report (GFRS ) released by IMF , risks associated with the credit markets have risen especially in the U . S markets of leveraged loans as well as other credit transfer markets

In the recent past , financial terrorism has become a major global threat to stability of financial systems in terms of money laundering by the offshore centers (OFCs ) and this may result in financial instability of major financial institutions5

Major crises which have happened in the last decade include the recent Asian crisis , the...

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