Global Economic Treasury and Risk Management

Question: Discuss about the Global Economic for Treasury and Risk Management. Answer: Introduction The changes in the U.S. interest rates might have both negative and positive effect on the U.S. markets depending upon the positive and negative change in the interest rate. Generally, when the Fed (the Federal Reserve Board) changes the interest rate of the U.S. dollar then the rate at which the bank borrows money also changes. Therefore, this has a ripple effect on the global economy. In this assignment, the effect of the increased U.S. interest rate on the capital movements, Asian countries and global economic growth rate has been highlighted for better understanding of the importance of the change in interest rate. Impact of Increased U.S. Interest Rates on Capital Movements According to Hopkin (2012), the impact of the international capital flows has a prominent impact on the emerging market economies. It has been found that in the emerging markets, the foreign flows have resulted into the decrease in the systematic risk and increase in the economic growth and physical investment. Moreover, Ward and Chapman (2012) stated that the capital flows might not affect the interest rates in the U.S. Opined to many market observers, an increase in the U.S. interest rates in the long run might result into substantial losses on the positions of the bond. Nevertheless, the long-term interest rates imply a puzzling and low market participants, policymakers and financial economists. In addition to this, it has also been found that the foreign flows have a statistically and economically large significant influence on the U.S. interest rates, particularly in the case of long run situation. The large foreign purchases of the U.S. government bonds have contributed to the low levels of the U.S. interest rates (International Business Times 2015). The foreign official purchases of the U.S. government bonds have a statistically and an economically large influence on the long-term U.S. interest rates. The Federal Reserve credibility is evidenced by the dramatic deductions in the both long-term inflation expectations and long rate volatility that is contributed to the refuse of the long rate in the prior period. Nevertheless, it has been found that nowadays, the foreign flows have become relatively more important. A standard macroeconomic model controls the various factors and this helps the market researchers to estimate that there had been no foreign official flows into the government bonds of the U.S. over the past decade (Nber.org 2016). It has been noted that the rise or fall in the U.S. interest rates have an effect on the psychology of the business and consumer. According to Kaletsky (2015), when the interest rates increase, both the customers and businesses generally cut back on spending and this result into drop of earnings and the stock prices and vice-versa take place. Moreover, there is an inverse relationship between the U.S. interest rates and the bond prices. Therefore, with the increase in the interest rate, the bond prices decreases and vice-versa. Opined to Hopkin (2012), the longer the maturity period of the bond will be, more it will deviate in the relation to the U.S. interest rates. Impact of Increased U.S. Interest Rates on Asian Currencies Opined to Deshpande and Nurse (2012), with the hike in the U.S. Federal Reserve, marketing the end of one of the greatest monetary policy experiments is an important factor. The action of the Fed had a profound influence on the financial markets and not just in the developed markets, however also in the emerging markets. The emerging countries are the developed countries of Asia like India. Therefore, it can be said that with the rise in the U.S. interest rate, there is an effect on the emerging countries. It has been found that with a significant strengthening of the dollar might cause serious issues for the emerging economies. Here, the governments and the businesses are considered as the currency devaluation and large dollar-denominated debts that threatens to spin out of control. Finally, it has also been found that the currencies move in the similar way as the monetary policy move in case of any country. Impact of Increased U.S. Interest Rates on Global Economic Growth It has been found that the U.S. has the largest economy across the world (Acumen.sg. 2016). Thus, every economic move made by the U.S. market puts an immediate effect on the global market and therefore, it puts influence on the global economic growth. As per the worldwide speculation, there is a scope that the U.S. market might raise its interest rate and along with all the indicators there are concerns regarding the ripple effects that might affect the rest of the world. Depending on the basic level, the increase in the interest rates might go hand-in-hand along with the appreciating currencies (CNBC 2015). It has also been found that the U.S. dollar is utilized or considered as a benchmark of future and current economic growth in many parts of the world. In addition to this, it has also been noted that in the emerging countries like India, a strong position of U.S. market or the strong dollar provides a positive light to the particular country. The reason behind this is that the de veloped countries like the U.S. generally outsources their work to the developing countries like India for completing the task in lesser number of days and also for doing the work at cheaper rate. Therefore, the developing countries mostly depend on the dollar or the U.S. interest rate for maintaining the economic condition of the respective country. Opined to Chapman, Ward and Chapman (2012), an appreciating U.S. dollar in turn influences the global economic facets both domestically and across the world, especially in the commodities market, credit market, stocks market and investment opportunities. Conclusion Therefore, it can be concluded that the rise or fall in the U.S. interest rate is an important factor for the global economy. Thus the prediction of the investors regarding hike in the U.S. interest rate will increase or enrich the U.S. capital movements. In addition to this, the Asian currencies will also depreciate along with the increase in the U.S. interest rate. Finally, it can also be said that as America is considered as one of the largest economy across the world, hike in the U.S. interest rate will lead to the global economic growth. References Acumen.sg. 2016.Whats the likely impact of rising US Interest rates. [online] Available at: https://acumen.sg/whats-the-likely-impact-of-rising-us-interest-rates/ [Accessed 23 Aug. 2016]. Chapman, C., Ward, S. and Chapman, C. 2012.How to manage project opportunity and risk. Chichester, West Sussex: Wiley. CNBC. 2015.Chart: How does the Fed hike impact emerging markets?. [online] Available at: https://www.cnbc.com/2015/12/16/fed-interest-rate-hikes-impact-on-emerging-markets.html [Accessed 23 Aug. 2016]. Deshpande, A. and Nurse, K. 2012.The global economic crisis and the developing world. London: Routledge. Hopkin, P. 2012.Fundamentals of risk management. London: Kogan Page. International Business Times. 2015.How Do U.S. Interest Rate Hikes Affect Emerging Markets?. [online] Available at: https://www.ibtimes.com/how-do-us-interest-rate-hikes-affect-emerging-markets-2102118 [Accessed 23 Aug. 2016]. Kaletsky, A. 2015.What a US interest rate rise really means for the dollar. [online] the Guardian. Available at: https://www.theguardian.com/business/2015/nov/17/what-a-us-interest-rate-rise-really-means-for-the-dollar [Accessed 23 Aug. 2016]. Nber.org. 2016.International Capital Flows Alter U.S. Interest Rates. [online] Available at: https://www.nber.org/digest/nov06/w12560.html [Accessed 23 Aug. 2016].