What are the main challenges of global financial management?

Answer 1

• The global financial situation, as of 2010, continues to struggle. The main issue is bank "write-downs," that is, the admission that a huge percentage of loans on the current books will not be repaid. All theories on recovery must take this specific challenge into account: how to restore creditworthiness to the financial sector, especially small and medium size businesses.
• Real Estate
• One major challenge of financial management is the continued deterioration of real estate markets globally. Falling prices and vacancies remain a problem, especially in the U.S., Spain and Western Europe as a whole. Foreclosures continue to rise in the western world, which is, in turn, harming global financial markets.
• Consumer Credit
• Consumer debt and insolvency in Western Europe and (especially) America is another huge challenge for financial management. Americans are saddled with low or non-existence savings, high debt and irrational consumption patterns. As unemployment grows, those millions living on razor-thin margins are certain to foreclose or default on debt.
• Corporate Credit
• High yield defaults, according to the International Monetary Fund (IMF) reached 12 percent in 2009. The main challenge here is to assist in the restructuring and refinancing of firms seeking to avoid default. In Europe, the real problem is that about 75 percent of all bank loans are from small and medium size business, which have a 50 percent higher chance of defaulting than big business.
• General Credit
• According to the IMF, a full 30 percent of American debt and 40 percent of Western European debt is expected to be written down, or slated as non-repayable. This includes both loans and securities. The main challenge is that banks must be able to support any kind of recovery. Keeping interest rates low is not a problem in the developed world so long as output is low. But these low rates drive competition in debt trading and refinancing, maintaining profits for banks at thin levels.
• Banks
• Global credit management must deal with banks that are barely limping along, and now have to face further heightening of costs from insurance premiums and new regulatory systems. The IMF holds that the real challenge is for banks to get out of risky markets and focus now on simple businesses and plans and spend money to increase risk management systems.
• Emerging Markets
• While Western banks can hold rates low without fear of inflation, this is not possible in the Third World (including Eastern Europe), according to the IMF. The financial, macro-level infrastructure is not as well developed. As of 2010, Western banks are pumping liquidity into emerging markets, hoping to stabilize them. Nevertheless, states like China and Taiwan are likely to maintain state control (rather than bank control) over their currencies. The real challenge in emerging markets, according to the IMF, is that loans are channeled only to the highest quality borrowers, leaving many enterprises without support.

Reference: eHow - Walter J. Johnson