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Finance After Financial Crisis

Finance after the financial crisis

Financial innovations have been responsible for every sector’s growth or demise since cash was invented. Primarily financial innovations started early as a solution to the disadvantages of batter trade. Interest rates and the credit cards have been influential innovations of the past few decades (Banka, 2013).

Financial innovation is an ongoing process because it is a response to current financial problems or perceived future trends of the market. These innovations have been achieved by enhancing goods or services or by introducing new managerial procedures aimed at reducing costs while improving quality and competitiveness.

Affordable capital had been a dream for many entrepreneurs in the past. But thanks to credit innovations, financial institutions came up with sound solutions to this problem. Businesses have been able to access affordable loans for capital by the use of assets as security for banks.

Businesses that were seeking growth were able to finance their ventures by selling shares from their companies. A share is a unit of ownership that can be valued as per companies’ financial statement (Banka, 2013). These shares can still be split to retain ownership but at the same time raising capital. All these credit is given to financial innovations. Through this, many companies have experienced immense growth creating wealth and employment.

The government has also benefited from financial innovations by raising funds for development from the sale of bonds. Banking services have become affordable especially in Africa where banking was expensive. Financial institutions such as the World Bank and the IMF were created from financial innovations to help poor countries in meeting their financial obligations.

Despite being at the forefront of humanity’s advancement, financial innovations have also had catastrophic effects. One of the reasons being that financial innovations led to a centralized monetary system which became prone to manipulation because they are being controlled by politicians who do not necessarily have the public interest as an agenda. A good example is Italy and Greece just to mention but a few, whose economies have suffered leaving them with huge debts and budget deficits.

In addition, the innovations gave an edge to those with financial knowledge as well as those who don’t have it. This became destructive when non-business skilled individuals took huge loans to start businesses and eventually failed. The use of financial institutions such as the IMF and the World Bank has been exploited by governments. Third world countries suffered most with huge debt burdens as their leaders embezzled these funds and stashed them into personal accounts. These institutions such as the IMF have also been used to manipulate countries to change their financial policies.

Some innovations have also been used for ulterior motives like the use of financial regulators to manipulate markets. Majority share holders have pulled out of companies intentionally to cause their collapse. The liquidity crisis in the USA can be attributed to the negative effect of financial innovations.

References

Banka. S. 2013.IMA-Think-Tank.[online] Available at: <http://www.cfo-connect.com> [Accessed 13 May 2013]