THE HISTORY AND THE SCOPE OF GLOBAL FINANCE

When it comes to understanding what global finance is, it is basically the branch of financial economics broadly concerned with monetary and macroeconomic interrelations between two or more countries. As it examines the dynamics of the global financial system, international monetary systems, balance of payments, exchange rates, foreign direct investments, and how these elements relate to international trade, the global finance is sometimes referred to as multinational finance which is additionally concerned with the matters of international financial management.

Therefore, both investors and multinational corporations in any cases must assess and manage some of the international risks involved such as political risk, transaction and foreign exchange risk, also economic and translation exposure.

To start off the above topic, it is necessary to have a quick grasp of international financial management so that we can get a better overview of what global finance is all about. By definition, international financial management is a term that grew out of the need for individuals and organizations to consider the implications of financial decisions due to numerous cross-border transactions, which are prevalently occurred or commonly executed in the world economy as of today. Such a decision-making in international financial management must account for potential impacts related to various capital structures, approaches to risk management, and how to best leverage taxation systems.

Currency exchange rates and differing methods to determine price of assets in addition can have a major impact on the bottom line in international financial management. As such, the topic accounts for the structure of the currency exchange system and how to determine asset prices in a global setting is practically concerned with how different currencies impact the prices on stock markets.

Overall, the main goal of international financial management is to create the most possible amount of wealth for shareholders and this includes suppliers, vendors, employees and end customers who all must be observed from financial perspectives when considering any cross-border transactions.

Historically, the GATT (General Agreement on Tariffs and Trade) which was signed in 1947 by approximately 23 countries was a treaty aimed to minimize barriers to international trade by eliminating or reducing quotas, tariffs, and subsidies. This treaty at the beginning of its establishment was intended to boost economic recovery after World War II.

Due to the fact that the GATT mostly dealt with trade in goods or tangible products, the creation of World Trade Organization or known as "WTO" by its acronym on January 1^st 1995 marked the biggest reform of the aforementioned treaty which covers trade in services and intellectual property. As a result, the financial participation of both exporters and importers along with the myriads of international transactions flowed significantly since the establishment of WTO (World Trade Organization).

On the other hand, proper management of international finances can help an organization or institution in achieving same efficiency and effectiveness in all markets. And of course, there are reasons as to why companies would like to invest capital in overseas markets such as the efficiency of production cost, the opportunity to broaden markets and diversify business units, the possibility of earning higher returns, and so on. Thus, below here is the scope of global finance which can be conceptually distinct but identifiable.

1. International Financial Economics: It is concerned with causes and effects of financial flows among nations, application of macroeconomic theory and policy to the global economy.

2. International Financial Management: It is concerned with how individual economic units, especially Multinational Corporations (MNCs) coping with the complex financial environment of international business.

3. International Financial Markets: It is concerned with international financial instruments such as Foreign Direct Investment (FDI), foreign exchange markets, international banking, international securities markets, financial derivatives, and so forth.

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DEFINING THE MEANING OF GLOBALIZATION

Broadly speaking, the process of globalization is an inevitable phenomenon in human history which has been bringing the world closer through the exchange of goods, products, information, jobs, knowledge and culture. In fact, what is unique from this phenomenon of globalization is the emergence of a modern form of international trade in recent decades, which is aided by the pace and scope of worldwide integration resulting from the unparalleled advancements, as well as the reductions in the cost of technology, communications, science, transport, and industry.

As a result, the global markets have become more intertwined and the production process has been made far more efficient by the option to create "world competitive products" whose components are made in different locations along with the ability to ship information and advertise those products easily from one country to the next, whereby locating the manufacturing process is becoming less expensive and this in turn has changed the pattern of overall productions and consumptions across the globe.

First of all, globalization in theory is the process of international integration arising from the interchange of world views, products, ideas, and other aspects of culture. To put it in simple terms, globalization actually refers to processes that promote world-wide exchanges of national and cultural resources, including a string of technological advancements in transportations, telecommunication infrastructures, and the rise of the internet which have become the major factors of globalization; resulting in generating further interdependence of economic, and cultural activities.

Although several scholars place the origins of globalization in modern times, there are others who trace its history long before the European age of discovery and voyages to the New World (some even trace the origins to the third millennium BCE since the beginning of the 20^th century where the pace of globalization has intensified at a rapid rate, especially during the Post War era).

Second of all, the International Monetary Fund (IMF) in the year of 2000 identified four basic aspects of globalization, in which they are trade and transactions, capital and investment movements, migration or the movement of people, and the dissemination of knowledge. What’s more, such environmental challenges as climate change, cross-boundary water or air pollution, and over-fishing of the ocean are linked with globalization where its processes affect business and work organization, economics, socio-cultural resources, and the natural environment.

Globalization, in addition to the above subject matter, can also be defined as the process of change to increase interconnectedness and interdependence among countries and economies; bringing the world closer through better world-wide communication, transport and trade links. Hence, this process is not only changing the world dramatically and quickly, but also affecting economic, social, political and cultural aspects of life.

Meanwhile, globalization is manifested in these four interrelated developments:

1. The increase of international exchange of goods and services despite all the restrictions therein.

2. The internalization of production and real investments.

3. The increase of integration of financial markets.

4. The relatively high degree of policy convergence or joint agreement among countries.

The statistical evidence on these developments is arguably impressive. In the trade area, for example, the ratio of international trade to the GDP of all countries has been practically more than doubled over the last two decades. Although trade at this stage has substantially outpaced the growth of the GDP in all facets, however, the major new phenomenon is seemingly placed within the size of services in total trade, particularly in the financial services.

After all, globalization encompasses some key dimensions such as helping local businesses to plan and expand globally, sourcing the factors of production (e.g. raw materials, components, machinery, technology, finance) which can be obtained from the best source anywhere in the world, basing the product development and product planning on the global market considerations, and so forth.

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AN OVERVIEW OF GLOBAL FINANCIAL SYSTEM

Prior to fathoming the general overview of global financial system, one must have a better grasp of what financial system is. By definition, a financial system is a set of institutions such as banks, insurance companies, and stock exchanges that permit the exchange of funds. As it exists on a firm, regional, and global level, the financial system also includes sets of rules and practices that borrowers and lenders use to decide which projects get financed, who finances projects, and the terms of financial deals.

When we look at from the international perspectives, the global financial system is the worldwide framework of legal agreements, institutions, both formal and informal economic action that together facilitates international flows of capital for the purposes of investment and trade financing. Hence, the borrowers, lenders, and investors exchange current funds to finance projects, either for consumption or productive investments, and to pursue a return on their financial assets.

Broadly speaking, the global financial system has changed significantly following the financial crisis that took place somewhere between 2007 and 2008. Such developing countries have seen a decline in their net financial flows due to the collapse of the international banking sector, which was further exacerbated by weak growth prospects in key emerging markets and low commodity prices from 2014 until 2015.

While countries in East and South Asia continue to be major recipients of global financial flows, they have also become major providers for other developing countries in particular. Thus, public financial flows which derive from the assistance of overseas development and multilateral lending have further exhibited strong growth following the above financial crisis; mitigating the decline in private flows.

Moreover, the global financial system involves a multitude of players from small individual investors to colossal corporations and governing bodies where each has a role to play. The systemic importance of the global financial system stems largely from its multiple roles through:

1. Regulating and Facilitating Transactions: The system helps to regulate and facilitate the exchange of money and assets globally.

2. Allocation of Resources: The system helps in the allocation of resources by channeling funds from those who have surplus capital (savers) to those who are in need of capital (borrowers).

3. Risk Management: The system allows for the management and diversification of risks which are associated with cross-border financial activities.

Aside from the aforementioned roles, questioning how the global financial system works are practically anchored in exchanges between buyers and sellers within markets, underpinned by financial institutions, and regulated by international laws. It is a system of endless cycles of lending and borrowing, buying and selling, and risk management.

When it comes to the operation of global financial markets, it is literally founded on the principles of supply and demand. The amount of capital/equity in the form of money or assets, for example, flows from places where it is abundant to places where it is scarce. As a result, this flow is facilitated by financial markets which include:

- Stock Market: it is where the shares of publicly-held companies are issued and traded.

- Foreign Exchange Markets (Forex): it is where currencies are traded (e.g. US Dollar, UK Pound, Japanese Yen, and so on).

- Commodity Markets: it is where goods such as gold, oil, and wheat are traded.

- Bond Markets: it is where debt securities are traded.

Above all, each financial market operates under a system called "price determination" – a concept by which the price of an asset is set based on the amount of supply (sellers) and the level of demand (buyers) factors.

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INTRODUCTION TO THE STOCK MARKET

Investing in the stock market can be fearsome, especially during the beginner’s phase because of the complexity and the risks involved in the market. By definition, the stock market refers to public markets that exist for "issuing, buying, and selling stocks" that trade on a stock exchange or over the counter – a place where investors can buy and sell ownership of such investable assets. Stocks or also known as equities, in addition, represent fractional ownership in a company and the stock market serves two important purposes behind its establishment:

1. First, it is to provide capital to companies that are listed in the stock market so that they can use it to fund and expand their businesses. For example, if a company issues one million shares of stock that initially sell for $10 per share, then that provides the company with $10 million of capital which can be used to grow its business.

2. Second, it is to render investors (people who purchase and own stocks) the opportunity to share in the profits of publicly-traded companies. For example, if an investor buys shares of a company’s stock at $10 per share and the price of the stock subsequently increase to $15 per share, the investor can then realize a 50% profit on their investment by selling their shares.

To kick things off, a stock or also known as equity is a security that represents the ownership of a fraction of a corporation This, in theory, entitles the owner of the stock to a proportion of the corporation's assets as well as profits equal to how much stock they own, and the units of stock are called "shares". When it comes to the technicality procedure of buying and selling stocks, one must go through brokers who are authorized to trade on the market or stock brokerage companies that allow you to trade using their platform. Hence, here’s the simple process of how to invest in the stock market:

1. To begin investing, you must open a trading account with a broker or a stock brokerage platform (in this case, the securities company). And, a trading account that you must open is basically where you execute your "trading" – a place for you to buy or sell orders.

2. The broker or the stock brokerage platform (in this case, the securities company), subsequently, opens another account for you aside from your trading account which holds the financial securities in your name. As these two accounts are then linked to your bank account, you need to provide the Know Your Customer (KYC) documentation that includes verification via government-authorized identity cards.

3. Most brokers and brokerage platforms, nowadays, have an online KYC process that allows you to open an account in a couple of days by submitting your verification details on a digital basis. Once it is opened or registered, you may begin your trading with your broker or brokerage company via online or phone calls.

Furthermore, the concept behind how the stock market works is actually quite simple. You probably have heard of the New York Stock Exchange. Companies in United States list all the shares of their stocks on the New York Stock Exchange through a process called "IPO – Initial Public Offering". Investors can then buy and sell these stocks among themselves, and the stock exchange tracks the supply and demand of each listed stock. The amount of supply and demand, additionally, helps determine the price for each stock or the levels at which stock market participants (e.g. investors and traders) are willing to buy or sell. At this stage, the buyers offer a "bid" which is the highest amount that they are willing to pay but is usually lower than the amount that the sellers "ask/offer" for in exchange. This difference in the stock market terminology is called the bid-ask spread.

Meanwhile, there are some financial instruments offered by the stock market, such as:

1. Equity shares: They are issued by companies that are listed, and the equity shares entitle you to receive a claim to any profits paid by the company in the form of dividends.

2. Bonds: They are issued by companies or governments and represent loans made by the investor to the issuer. These bonds are issued at a fixed interest rate for a fixed tenure and therefore, they are known as debt instruments or fixed income instruments.

3. Mutual Fund: They are issued and operated by financial institutions and are considered as a vehicle to pool money to be invested in different financial instruments. The amount of profits derived from the investments will then be distributed between the investors in proportion to the number of units, or investments that they hold. At this point, a fund manager takes calls on what to buy and sell on your behalf to generate better returns of the investments you have made.

4. Derivatives: A derivative stems from the value of its performance of an underlying asset or asset class. These derivatives, in fact, can be commodities, currencies, stocks, bonds, market indices and interest rates.

Bottom line, all brokers are paid based on a transaction fee from every trading incurred which includes taxes and dues paid to the government.

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