Financial Stability in the UAE, Research Paper Example

Globalization is the technological advancement, through adopting innovation in the banking sector and financial markets.  The global market is a situation whereby it is possible to sell and buy a product at same price irrespective of the geographical location; this has been made possible by the presence of telecommunication networks, which has led to cross-border trading.  Globalization in the banking sector and financial markets has led to wide geographical market. Financial stability is a state whereby an economy is self-sufficient, healthy and there are enough cash flows in the economy (Renaud 87).  It is also a state whereby financial systems runs its key operations, which include spreading the risk allocation of scarce resources for a foreseeable future despite the situation of the slump, recession, and periods of structural changes in the economy.

Globalization has led to the growth of financial markets; the global financial market has been buoyant throughout and this has supported the fixed income financial market. It has led to minimizations of risk leading to the realization of the yield by the investors. This market has attracted potential investors leading to the generation of the cash flows to sustain and propel the UAE economy (Al-Tamimi et al. 35). Monetary policy and fiscal policies of other nations affected the financial markets as well; it leads to low yields in bonds markets and treasury bills. The UAE financial regulation, monetary and fiscal policies lure investors leading to increasing revenue.  Falling Euro Zones has scared investors from investing in UAE market, and this resulted in low return in the financial markets

Globalization in UAE has also led to the volatility of financial market leading to the trading of risky securities. Real estate investment in UAE is one of the risky investments due to global real estate investment trends. This persistent change in real estate prices in the short run and the long run has greatly affected the financial stability of UAE; it has led to reduced cash flows leading to low GDP hence a low per capita.

The banking sector is affected negatively by globalization despite widening of the market to increase the revenue. Globalization had led to draining of bank reserves and reduction in banks liquidity leading to high-interest rates, which sparks out inflation leading to high standards of living. It has led to the increased government and consumer spending in UAE; this led to financial instability due to the unstable economy (Al-Malkawi et al. 105). Exposure of the local banks to foreign banks has led to a reduction of the market share, which is a major challenge in credit creation in the banking sector. The level of lending has also been greatly affected by globalization, lending rates to the resident reduced, this affected development leading to slow pace of economy growth.  Availability of credit has been a major challenge in UAE this had led to the government exposing the UAE economy through borrowing of funds from the foreign countries; this leads to high-interest rest, which does not cushion the investors leading to low development.

Shadow banking in UAE is a result of globalization; this is known to be a genesis of systematic risk in the economy that exposes the economy externally and domestically. Exposure of the economy leads to the low-income generation as it is exposed to financial and non-financial institutions. Domestic exposure has led to credit intermediation due to lack of intermediaries in the global economy (Zaki et al. 311).

Financial Market and Banking sector in UAE has been affected positively and negatively by integration of country’s local financial system and international financial system through the liberalization of financial sectors; this has led to financial stability

Works Cited

Al-Malkawi, Husam-Aldin N., Hazem A. Marashdeh, and Naziruddin Abdullah. “Financial development and economic growth in the UAE: Empirical assessment using ARDL approach to co-integration.” International Journal of Economics and Finance 4.5 (2012): p105.

Al-Tamimi, Hussein A., Mohammed Hersi Warsame, and Andi Duqi. “Readiness of the UAE Banks for the Implementation of Basel III.” Available at SSRN 2575086 (2015).

Renaud, Bertrand. “Financial Crises and Real Estate Bubbles: Dynamics and Policy Responses in Dubai.” The Global Economic Crisis and Consequences for Development Strategy in Dubai (2012): 87.

Zaki, Ehab, Rahim Bah, and Ananth Rao. “Assessing probabilities of financial distress of banks in UAE.” International Journal of Managerial Finance 7.3 (2011): 304-320.