Critically examine the role of international credit in contemporary Essay - 2

Critically examine the role of international credit in contemporary economies - Essay Example One of the major developments after the Second World War period was the internationalization or liberalization of the financial markets with United States of America on the front. The multinational corporations of USA spread their financial dealings and operation to different bases across nations. Simultaneously a large amount of funds were allocated for purchase of treasury bills of USA. The banks of USA have also spread their operations worldwide during the seventies. International operations contributed to around 20 percent of the total income of the American banks. International credit provides certain distinct benefits to the people of the borrowing nation. These funds obtained through international credit help in financing the projects of local firms and the government. International financial system offers different opportunities of diversification to an investor, which might not be locally available. However, when an economy joins the global financial markets, certain economi c variables may be restricted as well as the effectiveness of certain basic economic and national policies. For instance the capital mobility across the world has automatically restricted the movements of domestic interest rates and also the control of money supply becomes so difficult under fixed exchange rates. Before economic transactions occur between the residents of different nations, certain arrangements are require making payments effective as well as bringing about the exchange or transaction successfully. The arrangements required need to address the political regimes, legal systems and the customary process of doing business in various countries. The basic of the international monetary system centers on the barter system prevalent in history. To make the exchange procedures convenient and easy to handle, a rage of monetary arrangements came into operation.