Question

Question 4. What are your thoughts about the implications of BREXIT? What does it mean in the context of what we have learned about multinational financial management and the international monetary system?

Answer 1

So Brexit is a watershed event in the history of EU. It is one of its kind event and hence it triggers a chain reaction wherein there may be other countries who would like to leave the EU if Brexit becomes a success from hereon.

Britain would no longer be under ECB. It would have a central bank of its own. It would have trade agreements with EU separately. Until now Britain was governed by Trade agreement Intra-EU. Now Britain would have Inter-EU trade agreements. This could possibly be with EU as a whole.

Britain would now have its own separate currency which would measure up against USD etc. Thus there would be exchange rate defined by its own currency rather and the Euro Currency. Britain would be free to practice monetary policies which would be in the best interest of Britain. Since the currency dealing would be changing so would be trade and hence imports and export calculations for Britain. This would mean that Britain has to start off afresh.

Since the currency would mostly be free floating as against fixed rate currency, which means that the value of Britain's currency would be determined by market forces, it would impact the trade deficit and current account deficit of Britain. It would have a good deal of impact on Britain's oil bill.