The impact of geopolitical events on international finance

Geopolitical events are significant events or developments that occur on the global stage and have the potential to impact international finance. These events can range from wars and conflicts to political elections and tensions between nations. Let’s explore how geopolitical events can impact international finance with some cogent examples.

One way that geopolitical events can impact international finance is through their effect on the economies of countries involved. For example, a war or conflict can disrupt trade and investment, leading to economic downturns and financial instability. This can also lead to a decline in the value of a country's currency, as investors seek safer assets in times of uncertainty. In the late 1990s and early 2000s, the value of the South African Rand declined significantly against other major currencies, due in part to economic and political instability in the country. This made South African exports more competitive, as they became cheaper for foreign buyers, but it also made imports more expensive for South African consumers.

Another way that geopolitical events can impact international finance is through their effect on the global financial system. For example, the 9/11 attacks in the United States had a significant impact on global financial markets, as investors became concerned about the potential for further terrorist attacks and the overall stability of the global economy. This led to a decrease in stock prices and an increase in demand for safe-haven assets such as gold. Also, the notorious Sam Bankman Fried, the FTX founder, ?played a significant role impacting the international finance, whose criminal conduct led to cryptocurrency exchange’s collapse. His fraudulent campaign funding from the client funds led to distrust among the investors and the over investment ecosystem.

Political elections can also have an impact on international finance. For example, the Brexit referendum in the United Kingdom led to uncertainty about the country's future relationship with the European Union, which in turn led to a decline in the value of the pound and an increase in market volatility. Similarly, the recent U.S. presidential election was closely watched by financial markets, as investors were concerned about the potential impact of different policy proposals on the economy. An absolute majority in the Indian parliament gave the ruling party more freedom to implement its economic policies, which affected investor sentiment. For example, if the party has a pro-business stance and is able to implement pro-business policies, this can be perceived as positive for the economy and financial markets. A BJP win in India lead to changes in the sectors that are viewed as most attractive for investment. For example, the BJP has historically been supportive of the energy and infrastructure sectors, and its electoral victories have often been accompanied by an increase in investment in these sectors.

Tensions between the nations have invariably affected the international finance. China used to import $4 billion of semiconductor equipment from USA until 2020. But recently US had put a ban on export of semiconductor inputs to China so as to prevent China from strengthening its military and surveillance using American technology. Be it Fentanyl, Semiconductor or Tariff war, Beijing and Washington DC don’t see eye to eye.

Geopolitical events can have an impact on interest rates, which can in turn affect bond prices. Political instability or uncertainty can lead to an increase in risk and uncertainty, which can affect interest rates. For example, if there is a change in government or an increase in political tensions in a country, this can lead to an increase in interest rates and a fall in bond prices. If a country is experiencing high inflation or a recession, this can lead to an increase in interest rates as investors seek higher returns to compensate for the increased risk.

Overall, geopolitical events have the potential to significantly impact international finance, and it is important for businesses and investors to monitor these events and assess their potential impact on the global economy.