AFIN 867 video script
AFIN867 Group video presentation (Group2 Online)
Brexit and how UK will face International financial issues if they leave the European Union
What is Brexit?
· The word ‘Brexit’ comes from two merging words of ‘Britain’ and ‘exit’ which is a shorthand way of explaining UK is leaving the European Union.
· Brexit will create great uncertainty on European financial system and UK financial services and capital market.
· It all started on 23 June 2016 at a public vote called a referendum where 52% voted UK should leave EU and the departure date was set to 29 March 2019.
This was the planned timeline for the Brexit event which started on Dec 2017 followed by proposal adoption dates and the date for UK to exit EU was set on 29 March 2019 with 2 years of transition period.
What are the major International financial issues due to Brexit?
· London’s status as an international financial centre is threatened by a loss of competitiveness of the city due to risks for cross-border capital flow, risk of prices and risk on the banking regulations.
· UK is the number one destination for US goods and services with the EU and the second biggest recipient of American investment. UK is also the biggest investor in the U.S.
· Some of the US financial institutions operate globally with also being present in United Kingdom and Europe. For these firms, the impacts of the Brexit will be more direct and immediate. In addition, it will also cause higher degree of trade friction between UK and the European Union post-separation.
· There are 112 major European companies listed on London stock exchange due to the convenience the firms had for trading shares. Furthermore, 60% of non-EU firms establish their European headquarters in London & UK, while 40% of the European headquarters of the top 250 companies are based in London.
· UK had the option of stay in the European Economic Area (EEA) with a customs union or a basic free trade agreement with check at the border. If the UK stay in the customs union, The British Prime Minister stated that if UK stays in the customs union they would have to fall under all EU rules and would not be able to strike trade deals with other countries. The second option would keep Northern Ireland in the customs union and parts of the single market. It will separate it from rest of the UK creating a border down in the Irish sea.
Risk of prices/currency with inflation on prices
· When the news broke about UK leaving the EU, there was a brief period of chaos. The FTSE fell by 8% in its lowest one-day slump. It was the lowest slump after the 2008 Lehman Brothers collapse wiping off £120billion in losses. Also, the pound fell against the dollar by 13%, which was the lowest in 30 years.
· There will be fluctuations in foreign exchanges rates so it is recommended for UK to monitor the foreign exchange market closely for suitable rates that benefits domestic organizations.
Banking regulations
Firstly, Brexit will allow UK to have m...
