The Effect of Brexit and Social Media on International Trade and the Global Financial Market
International finance is one of the key indicators of effective international trade. Therefore, the lack of trade finance can create a critical barrier to trading activities worldwide. It is notable that a financial crisis, such as the recent global and Asian ones, is associated with such shortage resulting in reduced trade flows. International trade and finance can also be influenced by Brexit and social media. Therefore, this paper will investigate to what extent these aspects affect the situation globally, in particular in developing and emerging economies.
Brexit is a phrase that is used to describe the British exit from the European Union (EU). It was formed with the aim to enhance trading relations across blocs, as well as to prevent a war among member states (Buckle, Hewish, Hulsman, Mansfield, & Oulds, 2015). The EU comprises 28 countries that can trade freely across borders due to fewer restrictions placed on them (Buckle et al., 2015). All member states are guided by one Constitution formulated by the European Parliament. Additionally, they use one currency, the euro, to aid in the exchange of goods. The Constitution also addresses such aspects as the rights of individual countries (Buckle et al., 2015). Therefore, the union forms a single market, where its participants can do business freely with fewer restrictions because goods and services can cross borders any time at less or no duties, facilitating trade among member states.
Being a member of the European Union allows British companies doing business in other countries of their choice without restrictions, creating jobs within and outside their boundaries and setting prices for goods and services under control of the union (Buckle et al., 2015). It is notable that free movement has created an interactive European market where people can move and seek jobs in other member states to improve their living standards (Buckle et al., 2015). However, Brexit can bring about several challenges to the economy. It can deteriorate the economic status of the EU because banking services in England increase the level of interest rates to cover extra damages caused by the gap left by Britain(Buckle et al., 2015). The exit of the UK from the EU is foreseen to reduce prices for shares making them less attractive to foreign investors because they will decline in value drastically. However, in the long run, their value will increase with companies’ returns (Buckle et al., 2015).
Withal, UK parties have campaigned for a British exit from the EU for a long time. They claim that Britain faces too many restrictions from the Union, which are imposed on business in the form of a fee paid annually for membership, which yields fewer returns (Buckle et al., 2015). UK parties also want Britain to have full control of their borders reducing the number of people crossing them. Since the free movement of individuals, goods, and services is the major aim of the EU, the British perceive this idea negatively since they believe it puts pressure on public services. Exiting the Union will enable Britain to control its borders for the purpose to curb immigration and increase security in the country (Dewatripont, Freixas, & Portes, 2011). If the UK wants to be a member of the EU again, it should start negotiating with its member states, which must agree with it rejoining. Most importantly, new members are expected to adopt the euro currency after meeting the relevant criteria (Dewatripont et al., 2011).
The British exit from the EU will have various effects on the future of European corporations and integration. The UK-EU relationship debate focuses on what Brexit means to Britain and is less concerned about its implications for the Union. The former has faced several problems associated with its membership. Trade is one of the first spheres that will be affected considerably. Since Britain claims to face strict regulations, the exit will allow it to have full control of its business boundaries with no barriers (Buckle et al., 2015). It will be able to improve the security level and will have to stabilize its trade with other countries without restrictions that may lead to fewer returns.
Being a member of the EU, Britain acts as a trade partner for other member states and offers reduced trade costs. It makes make it easy and cheap for consumers to acquire goods and services at reasonable prices, promoting exports (Fazi, 2014). However, if the UK leaves the EU, the trade pattern will be affected due to high tariffs and non-tariff barriers to traded products. Moreover, Britain will have fewer benefits in the future European market, and leaving the Union will lower the net contribution of the EU budget. Brexit will reduce the level of trade lowering productivity. Most importantly, Britain will not benefit from future trade deals with other nations, specifically the USA and Japan, which are likely to increase their revenue considerably (Fazi, 2014).
Brexit is also associated with changes in several financial regulations, which can be defined as control imposed on financial institutions to maintain the integrity of such systems (Buckle et al., 2015). They are not restricted to rules and laws to govern the powers of brokers, banks, and investment companies. Most financial regulations are imposed by the governments of different specific nations, as well as stakeholders of specific groups to protect investors. An example is setting a threshold standard for capital, regular inspection of conduct, and the prosecution of misconduct. Therefore, financial institutions should follow regulations with the aim to maintain financial system stability (Fazi, 2014). Most importantly, their role is to implement and enforce laws to prosecute market misconduct, license providers, maintain confidence and protect clients in the financial system (Fazi, 2014). In line with this, the European Union ensures that nations enjoy reduced restrictions through signing treaties that facilitate trade amongst themselves. It also sets financial regulations common for all members. The main aim is ensuring free and fair trade among countries. Financial regulations are applied to financial institutions, traders, and brokers in the EU. All these laws concern the UK, but if it exits the European Union, it will have to stabilize its market (Fazi, 2014).
Furthermore, Brexit can bring about the need for changes in some regulations created by the EU. The most important is the financial sector transformations. Since the financial system of the Union including the UK as a member state, Brexit will lead to a change in such laws to separate their financial markets (Fazi, 2014). This change is necessary because when regulations are not changed, and the UK exits the union, it will enjoy the freedom of engaging in business with other EU nations with the privilege that is granted to member nations only (Fazi, 2014). Additionally, Britain will have to alter its financial policies to make them independent from those of the Union.
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The UK financial market was formed following the EU regulatory law adopted in 1999. The latter has to be changed following Brexit. Being a member of the EU, Britain has used its expertise to influence the development of the European financial services framework, and the adoption of the Brexit model will prevent it from being able to impact new applicable EU initiatives and measures, to which its international firms are subjected conducting their business across the EU. Brexit will also change the interaction of the UK with the European court of justice (Fazi, 2014). Therefore, it follows that Britain will not have such institutions as its asset.
For firms based in the UK, the material effect is not anticipated in banking and investment services, but it poses a challenge whether the system continues to offer financial services (Fazi, 2014). For firms that use passports, it is important to evaluate possible alterations in the framework of business and groups. Moreover, it is critical to have an EU subsidiary enhancing banking services to the rest of the world through the passport system. Therefore, for EU businesses that may indulge in the provision of banking services in the UK, it is imperative to establish subsidiaries (Fazi, 2014).
Considering possible implications for the financial services industry after Brexit, several aspects can be seen to occur. Some authorized institutions, such as banks, operating in the EU and based in the UK require passporting (Freixas, Laeven, & Peydro, 2015). It, therefore, means that British banks can offer financial services across Europe from their location in the UK. It is notable that the aspect of passporting allows American banks or Swiss banks to trade in a similar way from a subsidiary founded in Britain. However, Brexit will make passporting impossible unless special considerations are put in place. Most importantly, organizations that offer financial services in the EU and still opt to continue such activities will be forced to establish a subsidiary in Europe.
Brexit will have a considerable effect on the demand and supply of capital goods internationally. Specifically, other states, such as the USA, will shy off trading with Britain because of a decrease in security for their goods due to a smaller market (Fazi, 2014). As a matter of fact, the supply of products from the U.S. and China will be reduced creating greater demand in the market. On the other hand, the financial market of derivatives established between Britain and other EU member states will have a reduced value of securities since a drop in market prices following the exit. Additionally, the Forex market will be affected as a result of Brexit. The Euro currency will experience a slight decrease in trade. Withal, international bonds and securities will be impacted by a change in transparency within trading blocs, as mentioned earlier, and China and the U.S. will fear to supply products and services to Britain resulting in an increase in bonds and securities (Fazi, 2014).
Brexit will lead to the need for trade regulations across boundaries. Before it, the UK has the freedom to trade on tariffs, equities, and bonds among other securities freely with other countries (Buckle et al., 2015). However, the exit can bring about threats of the EU quotas imposed to limit the number of goods and services that can be sold in Europe. Brexit will not affect trade with other countries like the USA based on the current terms, as much as the UK will not be a link between EU and U.S. trade deals with. Therefore, trade on currencies and derivatives will not be affected between the UK and other global countries only if it does not include EU member states (Buckle et al., 2015).
Brexit may also have an effect on exchange rates of global currencies. The value of the pound will increase since Britain will no longer use euros during the trade. The demand for the latter will decrease since most countries will not be interested in trading a lowly-valued currency. On the other hand, the dollar will be exchanged at a higher rate since most people will prefer it to the euro as a common currency (Buckle et al., 2015). Overall, the U.S. financial market will be less affected than the one in Asia and the European Union because it is relatively independent. The latter economic areas will experience a decrease in stock prices because of reduced imports to Britain. The main reason is a possible decrease in the purchasing power of the British. Therefore, Brexit will cause numerous challenges destabilizing world currencies and stock prices, especially in the EU and China (Buckle et al., 2015).
Brexit has an effect on international trade and the global financial market, being positive for some nations and negative for others. It means that the UK will have the freedom to trade with other countries, and it will not be faced with restrictions that are dictated by the Union. On the other hand, it will influence the international financial market strengthening the pound value and depreciating the euro since most financial policies will be changed to exclude Britain from the Union. The Chinese financial market will face a reduction of stock prices because of decreased imports to the UK and lower demand for such products caused by the purchasing power of the British, while the USA will be less affected by the situation. The European Union is the first party, which will have to overcome financial challenges and stabilize its currency.
Social media are described as both applications and sites that are used by people to communicate with one another from different parts of the world. They use structured and unstructured data that are made possible with the help of multimedia elements not restricted to rich graphics, text, animation, and video among others. Examples of social media platforms include Facebook, Twitter, Google+, Instagram, Pinterest, and LinkedIn. Social media have an effect on international trade and the global financial market because people and businesses can communicate across the world, provide some feedback and reactions, helping to determine their buying decisions and demand for products. Companies post some important financial information, which determines stock prices in the international financial market. Therefore, this section will explain how individual social media platforms affect the financial and trade situation.
Facebook. Facebook is one of the platforms visited by a large number of people globally. It has over 800 million users a day, making it the largest social media platform (Zhu & Chen, 2015). Facebook is an international social media website that has been used widely for trade between continents. Specifically, over 93% of the buying decisions are based on this social media platform (Zhu & Chen, 2015). Therefore, ignoring it during the trade is one of the biggest mistakes made by various companies since over 72 percent of consumers are likely to engage with brands advertised on Facebook (Zhu & Chen, 2015).
Facebook acts as a brand ambassador of international organizations. An essential aspect is to ensure that customers are introduced and encouraged to buy brands of specific products. Facebook is used to facilitate this aspect by advertising and offering opportunities to purchase such items. Visual and textual content is one of the features of the platform that is used for international product promotion. For example, such a U.S. company as Coca-Cola advertises its brand using Facebook and gets numerous customers’ views. The website has ‘like, comment, and reaction’ features to give feedback on a product (Wikstrom & Ellonen, 2012). Therefore, Facebook is an excellent medium to promote products in the international market and to facilitate trade.
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Withal, the Facebook platform establishes a good reputation between customers and brands. It enables the latter to be viewed as a trusted source, and no other company can claim such a product. A report by customers provides from 90 to 100 percent satisfaction (Zhu & Chen, 2015). It is notable that as a social media tool Facebook provides efficient customer services across the globe, and it always encourages referrals since users inform their friends about particular items advertised on the website and improve their sales.
On the other hand, Facebook has been used to influence the financial market across the globe to manipulate share prices. A company can decide to exchange false information on social media; however, this is considered as a fraudulent activity since it threatens the financial matters of its shareholders (Wikstrom & Ellonen, 2012). Sharing financial data through social media is a type of security fraud that is considered as an offense. Such kind of information has the power to influence financial markets. Additionally, some data on Facebook, especially those posted by individuals, maybe rumors that can disrupt financial stability. Specifically, users’ reactions to the exchange of bonds and securities can influence exchange rates since countries will engage in the purchase of securities in the international financial market.
Twitter. Twitter is another social media platform that hosts millions of people per day (Wikstrom & Ellonen, 2012). It uses both static and dynamic multimedia contents to share and pass information. Tweeter has been a popular public sentiment for about a decade; it has become a platform essential for economic commentators, policymakers as well as their followers. Some of the renowned economists have over one million followers, and others attract hundreds of thousands of subscribers on Twitter; therefore, this offers a platform to discuss international trade and other hot economic topics, to which people pay attention.
Twitter has also been used as a platform to promote products globally to increase sales. Such companies as Coca-Cola runs a Twitter account, where it provides information about its products. It also offers opportunities to discuss the company’s brands and get feedback on how products can be improved or on what can be adjusted to produce a perfect item. Also, international companies use Twitter to get ideas about the type of product that should be introduced in the market. Customers always have an opportunity to say their views through comments and reactions on features allowed by the Twitter platform. Therefore, Twitter is an effective social media tool enabling both individuals and companies to discuss financial matters, as well as facilitating promotion and sales.
Twitter is a social media platform that offers topics for conversations that can predict what will happen in the market, especially during a period of negative economic news and when financial variables are inadequate (Wikstrm & Ellonen, 2012). Twitter activity is used to predict price movement in the U.S. stock market and in a less liquid residential property market. Additionally, Twitter contains discussions of the impact of Brexit on the financial situation. Most importantly, it is notable that the information provided on Twitter and other social media plays a role in strengthening or weakening the efficiency of financial markets since some people may post disinformation. Such discussions that attract many parties are expected to have an impact on exchange rates, bonds, and securities.
LinkedIn. LinkedIn is the third most used social media platform among business owners and professionals in different fields. It makes connections between products and companies, being counted as an important aspect of international business-to-business relations. LinkedIn provides many options that make it easy for firms to survive and compete effectively in the international market. The website has been used to create shareable content for the benefit of customers. The platform sorts out information about a particular product relevant to viewers. Such target groups become engaged in activities of a company, expanding its global market influence. Most importantly, LinkedIn uses different formats to present business data, such as Slide Share, presentations, blogs, webinars, infographics, and video. These contents suit the international audience, promoting sales of goods at hand.
LinkedIn has also been used to introduce and advertise a new product or brand in the market. It is notable that the main aim of social media is to help in the promotion of goods, and LinkedIn fulfills this goal effectively (Zhu & Chen, 2015). It provides information on a discount on a new product, entertaining content, customer services, and feedbacks based on responses from customers. Importantly, LinkedIn promotes international trade since it presents new brands in the market for users to purchase. It also increases traffic to the company’s website by providing links to it for customers to have detailed information on products and to make a buying decision (Zhu & Chen, 2015).
LinkedIn has influenced the financial market considerably. It provides discussions and feedbacks on financial events that can be used to control the financial situation. Over 430 million users of LinkedIn can discuss financial market aspects, such as a change in stock prices (Zhu & Chen, 2015). Additionally, they set the best price for companies’ products affecting global international trade through feedbacks. Therefore, the LinkedIn platform may influence prices for goods and services, as well as exchange rates of currencies and securities that are traded in the international financial market.
Google+. Google + is another social media platform that has been widely used in business globally as a form of communication between individuals and companies. It integrates such features as YouTube and Gmail, which provide interactive content for effective business management. The second tool facilitates communication between customers and brands and services offered by companies. As a matter of fact, the latter have used Gmail to send product catalogs and price lists. Additionally, Google+ has been used for promotion; a company sends advertisement messages to individuals and other firms to improve sales of specific products in the global market. On the other hand, YouTube is an imperative form of advertisement since it provides visual information and guidelines on the use of a product in question. Most companies promote their products through it to attract more customers and to improve sales.
Additionally, Google has enabled search engine optimization, whereby companies can customize their website contents to be seen by customers. Though the use of keywords, Google+ increases search visibility for small, medium, and corporate businesses to enable people to reach such sites easily. Thus, Google+ has a great influence on the international financial market. Based on the reviews of different websites that take care of global financial matters, Google ranks the best one that will be seen by everybody based on its contents. Additionally, it produces results and information on the most preferred financial market site influencing its contents.
Pinterest. Pinterest is among the social media platforms that have been used in business to improve international trade and to influence the international financial market. It works in a similar manner to Twitter, where users establish what they like and then pin a link to their virtual pinboard. People can view such products and items on the social media website. Pinterest is a vital platform for business; it facilitates visits to business websites again and again due to its features. A user will keep coming back to such companies that offer the promotion to different products. Pinterest has blended different services offered by other social media platforms, such as Twitter, to bring about new experiences for businesses. Therefore, it provides opportunities for the promotion of products through the use of different features that open the international market. Though trade promotion, Pinterest is capable of establishing a market that attracts customers to goods for profits.
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Therefore, it is notable that the social media platform mentioned above has an effect on the demand and supply of goods internationally. Specifically, more reactions to the type of advertisement on Facebook, Twitter, or any other website evokes a rise in trading activities depending on their type (Wikstrom & Ellonen, 2012). A positive response increases the demand for products initiating the supply of goods and services in question. As a matter of fact, the latter makes bonds and securities rise considerably because of trust built by trading blocks. Besides, there will be an increase in the circulation of currency in the international market because of the exchange of goods and services for money among countries. On the other hand, social media influence trade in bonds and derivatives because people discuss how securities can influence international trade (Wikstrom & Ellonen, 2012).
Social media affect currency exchange rates globally based on economies of scale discussed on such platforms. In line with this, people are resolved to use a currency with a higher value, such as the U.S. dollar. It means that other currencies experience a decrease in their value and are exchanged at a higher rate with dollars. In this case, the latter is stronger than euros or pounds because its value increases from more purchases of products and services advertised on social media websites (Wikstrom & Ellonen, 2012).
Social media platforms, such as Facebook, Twitter, Pinterest, Google +, and Instagram, are important for business operations. They do not only help in the promotion of products but are also vital for improving the quality and quantity of brands based on the feedback from customers. Social media are considered the most efficient mode of promotion since it hosts many people being potential clients. Additionally, they are accessible everywhere globally reducing the cost of traveling to purchase or view products. On the other hand, social media have contributed to the global financial market since they discuss financial and stock exchange issues that may have an impact on financial matters nationally and worldwide. As a result, it enables economists and experts to determine the volatility and fluctuations in the financial market, research it and predict possible changes based on public sentiments. However, they are not accessible in areas with no Internet coverage and to those who may not afford smartphones or computers.