The Impact of Brexit on the Financial Markets

Published: 2021-07-06 06:28:26
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IntroductionBrexit is basically Britain’s exit from the European Union. European Union is a partnership for economic and political reasons in which 28 European countries are involved. On 29 March 2019, UK shall depart the EU as maintained by the schedule. The transitioning period shall allow both EU and UK to decide about the details of the process and to settle the terms. According to CNN, UK and EU have achieved a milestone by reaching on a joint legal agreement as a result of tortured negotiations. However, this agreement shall cause Britain to provide concessions as forced by EU. The overall impact of Brexit and such concessions which Britain is forced to make can have an impact on the financial markets.The border of the Republic of Ireland between UK and EU is appearing as a sticky point between the two and which contains the probability that the agreement can be unraveled. The question is whether Northern Ireland, a part of UK shall remain part of EU or not. Not only this but there are many repercussions which have been anticipated by various analysts.DiscussionForeign Direct Investment and the UKAccording to Dhingra (2016), the decision regarding where to invest is determined by a number of factors. The investors are attracted by those firms to a great extent which are big in size and operations. The characteristics that the UK market offers, makes it a very lucrative market for FDI. The exclusion of UK from EU, the impact on the investments and trade costs is likely to happen. the reasons for which the FDI of UK might get disturbed include, the increase in the coordination costs which the multinational companies bear tend to increase, the companies operating shall face different regulations and shall face difficulties due to the strict migration controls.The Economic Consequences of BrexitThe prospects cited by Kierzenkowski (2016) were negative. The Brexit is expected to leave the negative shock on UK economy. it is not only negative for the economy of UK but also for the other OECD countries. There are several channels which contain the highest probability to transmit these negative shocks. It shall also depend on the time horizon and the intensity might increase as the time passes by. In the short run, it is expected that the economy of UK might face tough financial conditions and the low level of confidence. However in the long run, when the process of the exit shall formally end the effects can be seen more visibly. These include may revolve around trade barriers, and the labor mobility might face restrictions as well. the structural changes through a variety of channels such as immigration and capital may increase the country to forgo the huge part of GDP.The Potential Impact of Brexit on European Capital MarketsThe European and the UK capital markets enjoy a high level of interconnections. The Brexit shall cause this interconnections and interdependence to be unpicked. This can be a costly and lengthy process. Further, both enjoy the economies of scale and the benefits offered by the single market which offer lower costs shall end. Not only this, the framework of the EU is consistent which provides many benefits to its members such as an increased labor force due to free movement and reduction in the complexity and costs. The UK as a third country might tend to face increased regulation to access the single market and its influence might shatter (Wright, W. 2016).According to Belke (2018), found that the key financial markets shall remain instable continuously due to the uncertainty caused by the policy changes caused by the Brexit. In addition, the real economy of both the countries shall also contain the potential that it might damage the other countries of Europe along with the UK. The study also shows that the GIIP economies outside the UK shall tend to remain the main losers.Various Sectors of Financial Services and BrexitAccording to Ani (2017), there are a number of sectors in the financial services industry that shall be affected in the long run.Research studies suggest that the UK has a huge marine insurance market which is ranked third in the global marine insurance market. This market is 40 percent related to EU. The worth of this market is 18 billion dollars, a huge contributor to the country’s GDP. Further, the investment policies of the banks which are dependent on the decisions of an individual firm’s decisions regarding investment policy and allocation also contain a probability of getting affected. The single market of EU has the UK to accelerate trading of the foreign currency. Asset management also enjoyed benefits due to the opportunities caused by the single market for them to provide cross-border services.Conclusion and RecommendationThus, there are a number of dimensions through which the Brexit may affect the financial markets and economy of the UK. The implications are short-term as well as long-term as analyzed by the researchers. However, the responsibility lies with the decision makers of the country to manage the process in an efficient way so that maximum benefits can be achieved out of it.ReferencesAni, P. (2017). The Impact of Brexit on Financial Services. The Market Mogul. Retrieved 20 March 2018, from https://themarketmogul.com/impact-brexit-on-financial-services/Belke, A., Dubova, I., & Osowski, T. (2018). Policy uncertainty and international financial markets: The case of Brexit. Applied Economics, 1-19.Brexit: All you need to know. (2018). BBC News. Retrieved 20 March 2018, from http://www.bbc.com/news/uk-politics-32810887Dhingra, S., Ottaviano, G., Sampson, T., & Van Reenen, J. (2016). The impact of Brexit on foreign investment in the UK. BREXIT 2016, 24.Hilary Clarke and Bianca Nobilo, C. (2018). UK and EU strike Brexit transition deal. CNN. Retrieved 20 March 2018, from https://edition.cnn.com/2018/03/19/europe/eu-Brexit-deal-intl/index.htmlKierzenkowski, R., Pain, N., Rusticelli, E., & Zwart, S. (2016). The economic consequences of Brexit.Wright, W. (2016). The Potential Impact of Brexit on European Capital Markets. New Financial.

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