International Financial Management

Introduction

As the analysis in the previous modules indicated, Italy in the ninth biggest economy at the global level. Its economy is mainly dependent on services and manufacturing sectors. The services sector contributes to approximately three-quarters of the total GDP and at the same time responsible for over 65% of the job opportunities in the country. The industrial sector contributes to one-quarter of the total production in the country and caters for approximately 30% of the workforce in the country. This paper will seek to conduct some analysis on the financial issues in the country related to currency, banking system and the overall performance of the financial system.

Currency and its Performance in Italy

Italy is part of the Euro economic zone, where the currency is moderately valued on a global level per the purchase price parity. In Italy, the investment flow potential helps improve the general economic situation. The issue of the debt crisis holds the probability of affecting the economy on a long-term basis. Italy’s currency trading strategy has seen the high investment flow capability and moderate business environment contribute to a slightly positive overview of the investments here.

Italy used Lira as its currency from 1861 to 2002 when Euro was officially introduced. The country joined the Exchange Rate Mechanism in 1979, which was a system linking the currencies in the region of European Economic Community. The aim of this system was to avoid huge fluctuations in relation other European countries. This saw the country maintain an exchange rate on stable levels of +/- 2.25%> today, The Bank of Italy is part of the Euro system and engages in the foreign exchange market interventions together with the ECB and National Central Bank of Eurozone. The Bank of Italy carries out foreign exchange trade as a way of controlling its foreign currency reserves (Focus Economic, 2017). To ensure a balance of inflows and outflows of the foreign currency and in a manner that does not affect the foreign currency reserve the Bank trades with its market counterparts.

Banking System in Italy

In Italy, the banking system is diversified into banks of different sizes. As of March 2017, the sector had 580 banks. These included 314 cooperative banks, 85 branches of foreign banks, 59 standalone banks, and 64 credit institutions (owned by 59 bank holding (Associazione Bancaria Italiana (ABI), 2017). The recent domestic reform in the sector of cooperative banks has seen the cooperatives banks merging into one or two major groups. The sector continues to experience a concentration of banks caused by the corporate governance reforms. Between 2018 and 2016 the number of banks in Italy reduced by 24.4 % while the branches reduced by 15%. In 2016, over 24 million clients were engaged in internet banking. Digital bank transfers were 45% of the total bank transfers (Associazione Bancaria Italiana (ABI), 2017).

The banks in Italy have felt the heat of the financial crisis that made the situation of bad debts worse on the bank balance sheets. The sector is also faced with the risk of excessive fragmentation as well as small banking enterprises (Spiller, 2017).

Financial system and Doing Business in Italy

One of the factors affecting the performance of the international business is payment processing (Shackman, 2015).Being a member of EU, Italy participates in a move by EU to deal with issues of delayed payment in doing business. This is through a directive that caters for all commercial transactions within the EU where a company that fails to receive payments within 30 days of the deadline is entitled to an interest of 8% above the European Central Bank rate ad 40 Euro for recovery of costs (U.S. Department of State 2016, 2016). This sees the inclusion of financial sector to aid the process of process of payments and prevent delays. 

References

Associazione Bancaria Italiana (ABI). (2017). Italy’s Banking Sector: Facts and Figures. Retrieved from http://www.ebf.eu/about-us/italy/

Focus Economic. (2017, October 24). Italy Economic Outlook. Retrieved from https://www.focus-economics.com/countries/italy

Shackman, J. (2015). The economic and financial environment of international business. Trident University International, Cypress, CA. Retrieved on 1 November 2017.

Spiller, M. (2017). Have the New Reforms WOrked. Retrieved from https://themarketmogul.com/italian-banking-system-debt/

U.S. Department of State 2016. (2016). Doing Business in Italy.