Describe the risks associated with global investing. Both developed and developing countries face a number of long standing impediments to growth and their impact is compounded by geopolitical turmoil and risks associated with global investing (Suder, 2004). He continues to say that strong and lasting global growth belongs to the past, given the many risks and vulnerabilities that spill over and create volatility (Suder, 2004). The first risk according to Suder (2004) is that the volatility and complexity of global investing makes the quantitative assessment of a country’s risk difficulty. This is based on the fact that the country’s currency exchange rates fluctuate as well as its tax rates.
Suder (2004) also says that another risk may be “due to absence of institutional stabilization mechanisms such as lender of last resort fund makes the global investing risky and vulnerable to shocks like never before” (p. 84). Suder (2004) argues that worldwide income inequalities within and among countries impede the conditions of stable and sustaining growth and therefore it is further associated with risks of global investing.
In addition Suder (2004) maintains that slower and more erratic growth might be the new reality. This is a major risk associated with global investing because as the global economy becomes an echo chamber that propagates and accentuates imbalances, it is doomed to face cycles of stop and go. As a result investors and lenders are worried about the reliability of corporate governance and accounting systems (Suder, 2004).
Explain the importance of cultural sensitivity and ethics in global finance. Lack of cultural sensitivity and ethics in global finance leads to shortcomings of ratings and panel based market and global finance consensus. In addition Suder (2004) says that this leads to a more rigorous examination of the economic, institutional and socio-political fabric that holds or distorts a country’s development path.
According to Kim & Seung (2006) cultural sensitivity is important in the area of global finance because it promotes customer relations. Cultural sensitivity and ethnicity will ensure sufficient care in selecting for example overseas distributors and chasing orders around the world instead of establishing a basis for profitable operations and orderly growth (Kim & Seung, 2006). Cultural sensitivity and ethnicity will ensure that international distributors are treated on an equal basis with domestic counterparts and also ensure that print service, sales, and warranty messages are in local languages which can be understood by indigenous cultures (Kim & Seung, 2006).
In conclusion, Marquardt & Berger indicated that the global economy has forced the creation of global organizations, companies that operate as if the entire world is a single entity with a common culture and business ethics (2000). Marquardt & Berger (2000) continue to say that global firms emphasize on global operations hence they use global sourcing of human resources which a big drive towards achieving global cultural sensitivity and ethnicity. They also noted that an organization is globalized when it develops a global corporate culture, strategy and structure as well as global operations and global people which are fully supported by cultural sensitivity and ethics in global finance (Marquardt & Berger, 2000).