The Financial Performance Of Barclays Finance Essay - Free Essay Example

Sample details Pages: 7 Words: 2088 Downloads: 5 Date added: 2017/06/26 Category Finance Essay Type Research paper Did you like this example? The following report is aimed at comment the findings of Barclays PLC financial performance analysis. The first section presents an internal and external analysis. The second comments a series of financial ratios. Finally, the last section concludes. Introduction Banks are an important part of the financial system. They channel financial resources from individuals who have surpluses to individuals who lack capital. Banks transfer these assets in the form of loans. Loans are evaluated and classified according to the default probability (risk). In this manner, Banks assure that lenders invest their wealth in trustable projects, that is, economically viable (Arnold, G., 2008). Banks, then, subside the research task from lenders and allow them to get a safe and constant return rates in a determined timeframe and conditions (Valdez, S., 2007). As any business, Banks are aimed at increasing the wealth of the owners. Banks employ accounting systems and economic models to measure their financial performance. Accounting and economic models evaluate: 1) whether the wealth of the owners is augmenting, and 2) at what extent (Atril, P., McLaney, E., 2008). They provide several financial indicators which help business management to control the enterpr ise performance; among them, the financial ratios are widely used. The purpose of this report is to comment the findings discuss how bank (Barclays PLC) overall performance should be evaluated. The first section presents a review of Barclays internal and external performance. The second section evaluates Barclays financial performance. Finally, the last section concludes. Don’t waste time! Our writers will create an original "The Financial Performance Of Barclays Finance Essay" essay for you Create order A review of Barclays internal and external performance Barclays is one of the worldwide leaders in financial services. It was founded in 1690 in the UK. Barclays has operations in 50 countries spanning over Europe, the US, and Africa. Its headquarters are located London, UK and employs 153,800 people worldwide (BARCLAYS, 2009). Barclays retail banking includes personal customers, home finance, local business, consumer lending and financial planning (DATAMONITOR, 2010). Internal performance Barclays capital strength has provided the company with resilience to cope adverse market conditions. For example, the companys liquidity pool increased to pound;127 billion at 31st December 2009 from pound;43 billion in 2008. Hence, cash flows allow the bank to negotiate better selling conditions in their product portfolio (BARCLAYS, 2009). Barclays has kept its lending growth volume regardless global economic situation. The bank has reduced its derivative assets; therefore, its balance sheet size has been reduced (BARCLAYS, 2009). However, Barclays operations are threatened by its weakness in cost management. Its subsidiaries in Western Europe registered detrimental costs in 2009. Thus, the bank may face difficulties in its expansion plans (BARCLAYS, 2009). On the other hand, Barclays mobile banking services have experienced a significant growth due to smart phones popularization. This new service portfolio is likely to reduce workload in banks branches; therefore a sign ificant cost reduction may be achieved during the fiscal year 2010. Even though, internet and credit transaction fraud has also risen. Hence, information security investments may undermine cost management accomplishments (BARCLAYS, 2009). Barclays is pursuing to expand its operation in India and UAE. Even the bank has been present in both countries since 1970s; it does not have a considerable penetration. These markets have attractive conditions to increase the bank market share. Therefore, an expansion strategy for India an UAE is foreseeable (BARCLAYS, 2009). External performance Barclays impairment losses in 2009 affected banks profitability. This effect was present despite balance sheet size reduction. Disposal of these legacy assets is one of the main banks objectives for fiscal year 2010 (BARCLAYS, 2009). UK government legislation regarding Asset Protection is aimed at improving customers trust by clearing up banks balance sheets. However, there is no a complete strategy on this matter. These uncertainties add pressure on financial markets, making difficult banks capitalization. Besides, a more competitive environment will be roomed (BARCLAYS, 2008). Finally, mergers and consolidation in banking industry will make more difficult, for Barclays, to adjust pricing levels and protect their market position. However, Barclays has the resources and skills to tackle challenging business environments (BARCLAYS, 2009). Barclays financial performance ROE ROE ratio presents negative trend in the last three years. The cause of this behaviour was the increase in the operation costs, 25%, plus a drop of 25% in the interest income. The net effect was a drop of drop of 77% in the net income in 2009. In 2008, Barclays acquired Lehman Brothers, thus, the total financial figures of the bank were affected. This buy clarifies the abrupt changes in costs and interest incomes. Positive results of this acquirement may be reflected in one or two years; it can be said that this normal behaviour of acquirements (BARCLAYS, 2008). ROA ROA was also hit by the Lehman Brothers effect; the indicator fell 50% from 2007 to 2009. Total assets were duplicated during 2008 and the net income after taxes was a little bit higher than in 2007. However, in 2009, Barclays made a restructuration in its total assets and was able to reduce them a 44%, that is, total asset were almost the same than in 2007. Unfortunately, net income after taxes also dropped 44%. ROA indicator was, then, almost the same than in 2008. ROA hid the company efforts to align the bank to the pre-acquisition levels (BARCLAYS, 2009). Net Interest Margin Net interest margin improved in 2009. It surpassed 2007 value. Assets are producing more Interest profit than in 2007. This can be interpreted as a positive effect of the Lehman Brothers acquisition, since the asset combination is generation more income. However, the increment in operation costs undermined the net effect of these results (BARCLAYS, 2009). DuPont This indicator clearly shows the Lehman Brothers acquisition effects. The equity multiplier registered a growth during 2008. The net profit margin was almost 300% higher than in 2007. However, the asset utilization went down 518%. The net effect was a low ROE (BARCLAYS, 2008). In 2009, the equity multiplier, and net profit margin felt down 49.48%, and 63.45% respectively; whereas, asset utilization grew 281%. Even though, ROE ratio was the lowest one in the studied period. This erratic behaviour was caused by the total asset amount. Each indicator by itself does not provide enough information regarding how well the company is doing it. For instance, asset utilization seems to be worst than in 2007, therefore, the implication would be that acquisition was a bad deal for the bank. In the case of the Equity multiplier, the conclusion would be the same. But, the net profit margin figure seems more realistic and clearly shows that a growth of 10% in two years justify the buy (BARCLAY S, 2008). The ultimate result is indicating that the new company is expected to have a return in equity of 6.28%. However, this metric does not include dividend amounts; thus, investing in the new Barclays firm may still be attractive. DuPont exercise shows that any indicator does not have all information at glance, thus, they should be used in combination in order to provide relevant and useful information. By decomposing ROE in three different ratios, it is possible to understand the effect of total assets and the operating revenue into the companys investing profile. Besides, it is clear the effect of the increment in the cost of the sales and operations. From the graph, it can be seen that Lehman Brothers firm made a massive sales and their expenses were under control. However, it can be inferred that liquidity may be one of the relevant factors that pushed former owners to sell it. This thesis is aligned to the main causes of the 2007s global financial crisis. Therefore, the acquisition was justified and was a good opportunity to improve the banks financial performance (BARCLAYS, 2009). Net Interest Margin This ratio shows a negative trend. The lowest value was registered in 2008. However, during this year the interest income registered the highest value during the period. In 2009 the interest income dropped 24.18% but asset were reduced almost 50%. Even though, they continued 12.34% above the 2007 value. The net effect was 25.24% below the 2007 mark. It is important to say that 2009 is a good result and shows how the bank is trying to move the new company to the levels in which the former one was operating. It can be inferred that the strategy is to stabilize the bank and then increase the profits. Acquisition was, again, the event that impacted the ratio behaviour (BARCLAYS, 2009). Earning base Earning base is indicating that bank is acquiring more assets which are directly implied with the profit generation, that is, that it is lending more money to customers. It is clear that in 2008, due to acquisition, the bank owned a series of assets which were overloading the cost structure. In 2009, the situation improved since assets were re-structured and their number was reduced. This indicator should not be higher than 50%. The rational is that banks earning assets are loans, thus, bank should ensure they payment of those loans whit its assets. Therefore a healthy ratio level may be around 50% (BARCLAYS, 2009). Operating Efficiency Ratio and Wage ratio The operating efficiency ratio shows that bank is struggling with its operating expenses. In 2007, the ratio was 187%, which means that bank was investing two resource units to produce one. In 2008, this indicator grew almost 2.5 times. However, the bank made a very good effort and reduced the figure 32%. When wage ration is included in the analysis, it presents a drop in 2008, due to redundancy. However, the operation expenses did not diminished; therefore the operation efficiency ratio did not improve. It can be implied that work force is not the biggest expense, as many author claim, but a combination of inefficient process and asset sub-utilization. Unfortunately, annual reports did not provide deep information (BARCLAYS, 2008, 2009). Interest Income / Total Assets and Interest Rate Risk Ratio The first ratio provides information regarding how much interest income is produced by the total assets that bank owns. This indicator shows a growing trend with a little drop in 2008 due to the total assets acquired from Lehman Brothers. Thus, Barclays is improving its asset utilization. Talking about interest risk ratio, this indicator should be ideally around 100% to ensure that all loans are backed up with assets. However, the bank registered values below 10%. On the other hand, this indicator also shows a growing trend, which means that this figure is going to improve in the future. This indicator also supports the 2008 acquisition (BARCLAYS, 2009). Liquidity Risk Ratio Cash is the blood of the business. This ratio is relevant because indicates the capacity of the bank to convert its asset in cash. This indicator showed a negative trend with a peak in 2008. Its value has never been below 90% which indicates that bank has no cash flow issues. However, it highly depends in the asset restructuration. According to the 2009 annual report, asset management is one of the key objectives of the current management board. Thus, liquidity risk ratio will improve during the next years (BARCLAYS, 2008). Capital Risk Ratio Capital risk ratio shows at what extent the bank is prepared to afford its long term compromises. Values on this indicator shows that bank is in a very good position since its long term compromises do not represent a high percentage of its total assets; the lower this indicator the best. However, it shows a growing trend accelerated by the 2008 acquisition. It can be inferred that management team is trying to either improve the bank resource availability, by long-term instruments, or restructuring the acquisition cost. The peak in 2008 can be explained by the heterogeneous asset combination post-acquisition (BARCLAYS, 2008, 2009). Conclusions After analysing Barclays bank ratios, it can be inferred that the acquisition of Lehman Brothers was an organic growth during crisis times. Thus, Barclays took advantage of the economic situation in 2008. Its solid cash figures allowed the bank to reject the bail-out plan from the UKs government. This action increased the customer preference for the bank. After acquisitions, the ratios tend to show bad results. However, this is somehow expected, since new components are added to the operation and a new organization is created. In the case of Barclays, these variations were not significant to the overall company performance. Finally, internal and external performance measurement is a complementary part of the ratio analysis. Ratio analysis is highly dependent on accounting information and the standards to gather that info. Thus, the results may vary if another set of accounting rules is applied. Internal and external performance measurement provides the background information to understand the number, trends and behaviours of the ratio result. Hence, both analyses are complementary rather than exclusive. Ratios provide a standard and normalized way to compare and analyze information, but they are meaningless by themselves. Ratio value is important, but it adds nothing to management process if it is not translated into coherent and relevant series of events which explain the root cause of that percentage. Thus, a good selection of indicator and measurements will guide the company to better results.

Why Has the Power of the Federal Government Expanded. Essay

Kenneth A. Cherisol AMH 2020 Prof. John Fitzgerald Nov 17, 2010 But WHY? Why has the power of the federal government expanded so significantly? Was this shift in power from state governments to the federal government necessary? Government power took a huge shifted from state government to federal government during and after the civil war. Although President Franklin D Roosevelt’s new deal is often considered the pivotal point that caused this shift, the major event attributing to this shift in power was the civil war. The first event that led to a growth in federal power was the ratification of the Constitution in 1789. Although the constitution is to protect the right of individuals and limit the power of government it led to†¦show more content†¦This led to the federal government passing tariffs of farm imports and in 1922 the Capper-Volstead act exempted agricultural cooperatives from antitrust laws. 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Nationalism and Middle East free essay sample

Discuss the strengths and weaknesses of the realist paradigm for the analysis of international politics in the region. Realism with its emphasis on war among great powers, and security competition has been a dominant player in the study of International Relations. It has assisted theorists in understanding human nature, how states interact with each other and portraying things in their true nature, by showing them for what they really are. In it’s aesthetic sense it is defined as â€Å"fidelity to nature in representation; the showing of life etc. as it is in fact. (Armstrong, 2005) This essay discusses the Realist paradigm with relation to the Middle East. I will be analyzing the strengths and weaknesses of this theory, and focusing on defining the paradigm. I also believe it is important for this essay to define the Middle East. To do so, I will be using a variety of content, from journals to books. Focusing on Realism, I have looked at the works of John J. Mearsheimer and Kenneth Waltz. I will be analyzing their study of International Relations, and their Realist ideologies. When discussing the Middle East, Gregory F. Gause’s article entitled, â€Å"Systematic approaches to the Middle East International Relations,† has proved to be an important source of information. The crux of this essay, hence the discussion of the strengths and weaknesses of the Realist paradigm for understanding International Politics in the Middle East, comes from a variety of different journals and articles. For instance, Mohammed Ayoob’s â€Å"Subaltern Realism: International Relations theory meets the third world† and Fred Halliday’s â€Å"The Middle East in International Relations: Power, Politics and Ideology† are two of the journals I will be using for this analysis. Realism, since it’s conception has always emphasized the importance of the State, security and the maximization of power within the state. For the purpose of this essay, I believe it is important to define the state through a realist perspective. Realism pays a great deal of importance to the operations of the state and it’s position in the international system, hence its definition of the state is significant to this essay. Fred Halliday claims, â€Å"Realism treats states as unitary actors seeking to maximize their advantages within a competitive, or ‘anarchical’ system, pursuing power politics. (Halliday 2005) Realists look at the foreign policies of states, and the ways in which they create alliances on the basis of expected threats and suspected opportunities. John Mearsheimer has a similar understanding; he claims International Politics for realists is synonymous for power politics. Mearsheimer describes two types of Realists, classical and structura l, the former believe that states want power simply because it is a part of their human nature. In their opinion virtually everyone is born with a will to be powerful wired into them. Hence, great nations are lead by individuals who are hard pressed on having their states more powerful than its rivals. For structural realists, it is the architecture of the international system, which forces states to strive for power. In an anarchic system, where there is no higher authority above the great powers, and no guarantee that one will not attack the other, it is in the interest of each state to be powerful enough if a rival were to attack. Each paradigm of International Relations theory has it’s own set of strengths and weaknesses. However, in context to the Middle East, the Realist paradigm in my opinion is weaker than its counterparts. What is the Middle East? Geopolitically the Middle East, connecting three continents, extremely rich in oil and situated in between Europe and the East, represents a very important part of the international system. However, it is hard to define what the Middle East is, some merely consider it as a group of Arab nations adjoined due to economic, religious and linguistic similarities. However, many will see much more than that, many will consider Benedict Anderson’s assumption of an imagined community. He says, â€Å"it is an imagined political community – and imagined as both inherently limited and sovereign† (Ayoob 1998). They are imagined as Anderson explains, because it is fundamentally impossible to know all the members of the nation. His theory has resonance in the Middle East because of the effects of imperial rule on the area. The most fundamental change in the Middle East after World War One occurred after the fall of the Ottoman Empire. The Europeans set up boundaries that rarely coincided with the ethnic, tribal or economic connections that had existed during the Caliphate era. After 1918 territorial nationalisms or ‘imagined communities’ started to form, with the new organisms. The new borders made the emerging nation states limited by definition, as the political entities had to work within the newly formed walls. â€Å"Political, educational and economic systems were created and expanded – but also contained – by the European colonial divisions† (Ayoob 1998). The Caliphates are referred to the first system of government set up in Islam and represented the leaders unity of the Muslim Ummah (community). In theory it is an aristocratic, constitutional republic, which in essence means that the Head of State, the Caliph, and other officials are representatives of the people and of Islam. They must govern according to constitutional and religious law or sharia. Theoretically, the Caliphates represent an aspiration for an ideal political unity of all Muslims under one leader. An ideal which only materialized once before for a short period of thirty years under the four pious Caliphs, Abu Bakr, Omar, Osman and Ali. The Ottoman Empire was the last and possibly most significant Caliphate in Middle Eastern history. It constituted a primary unifying force, consolidating the Islamic nations under one rule. The symbolism of Turkey under the Ottoman Empire, personified centralized rule. The Empire’s leadership served as a vessel to better manage relations with foreign superpowers such as Britain and France. The European powers had a vested interest in the region, especially Britain, who by 1914 was particularly fearful of the protection of the Suez Canal and protection of the Gulf. They were vital to Britain due to their link to India and Abadan region of modern day Iran. After the fall of the Ottoman Empire and soon after the Caliphates in 1926, the sense of a single unifying force around which the Islamic world could rally around was non-existent. Thus resulting in a nationalist movement developing amongst post Ottoman Turkey and other Arab Nationalist movements, which was fast becoming the Nationalist wave sweeping through the new Middle East. â€Å"The primary factor forming the basis of the Arab system is the element of nationalism† (Gause, 1999). Until recently scholars identified two types of nationalism. One idea, first proposed by Ernest Renan and later reiterated by Arnold Toynbee and Hans Kohn, is that nationalism, â€Å"like all great forces in life is nothing material or mechanical, but a subjective psychological feeling in a living people† (Gershoni amp; Jankowski 1997). The second idea of nationalism is to emphasize its political character. Ernest Gellner believes, â€Å"Nationalism is primarily a political principal which holds that the political and the national unit should be congruent† (Gershoni amp; Jankowski 1997). Recently academics have identified contrasting theories to pre-existing ideas of nationalism, the primordialist or perennialist model and the modernist interpretation. The former views modern nations as adaptations of existing ethnic communities, while the latter believes nations are modern creations if not inventions as a result of the massive process of change in the last two centuries. Other models such as the realist interpretation of nationalism do exist. Realists believe that â€Å"nationalism is produced by and anchored in objective socioeconomic conditions material interests† (Gershoni amp; Jankowski 1997). Various forms of imagined communities have competed for Arab loyalties: territorial nationalism, nation state nationalism and a broad range of Islamic nationalism. â€Å"However, none have been successful in proselytizing Arab communities as a nationalism based on the cultural linguistic dimension of Arabness, crossing geographic and religious boundaries† (Gershoni 1997). Arab nationalism remains an integral part of identity and ideology even though it is a modern notion to believe that pan-Arab nationalism is declining. Defining the Middle East is a strenuous task; because of its unique features it defies general analyses, and therefore needs a combination of several conceptual approaches to international relations. The Middle East is â€Å"constituted around an Arab core, with a shared identity but fragmented into multiple territorial states; the core is flanked by a periphery of non-Arab states – Turkey, Iran and Israel- which are intimate part of the region’s conflicts and an integral part of its balance of power† (Hinnebusch 2003). What is the realist paradigm? Realism is the belief that power is the most important component of the international system. There are various types of realists, who have different views on state interaction and the need for state power. As previously explained, Classical realists such as Hans Morgenthau believe states want power simply because it is a part of human nature. Structural realists on the other hand believe human nature has nothing to do with it, they maintain that states want power because of the architecture of the international system. They ignore cultural differences and regime type, mainly because the international system creates the same basic incentives for all regime types. Defensive realists, such as Kenneth Waltz, believe it is foolish for states to try to maximize their power because the system will punish them if they exceed certain limitations. â€Å"They believe the pursuit of hegemony is fool hardy† (Mearsheimer 2006). Structural realists perceive five assumptions why states want power. They believe great states operate in an anarchic system, not in the sense of chaos. It simply means there is no centralized authority or ultimate arbiter that stands above the state. The second assumption is that every state has some offensive military capability. Thus implying that a state can always be under attack by another. Structural Realists also believe that ultimately all states want to know if the other is a revisionist or status quo state. The intentions of the state are of primary knowledge to its neighbors. However, intentions cannot be empirically verified, they are in the minds of the leaders. The fourth assumption is that the primary goal of any state is survival. Each state will seek to maintain its territorial integrity and will therefore place survival above any other goals. The fifth assumption is states are rational actors; they are capable of coming up with beneficial strategies that will maximize their prospects of survival. Mearsheimer believes these assumptions if examined individually will not explain why states want power. However, if one were to combine all five together circumstances would arise â€Å"where states not only become preoccupied with the balance of power, but acquire powerful incentives to gain power at each other’s expense† (Mearsheimer 2006). Mearsheimer believes Americans and Europeans think Realism has been rendered obsolete. In his opinion after the Cold War, the world has entered a stage of little prospect of security competition. Other critics of Realism, for instance John Muller believe great-power wars no longer serves a useful purpose, much like dueling or slaves. Theorists such as Kenneth Waltz agree that new times call for new concepts. However, he believes that the basic structure of the international system has remained the same; states are still the key actors in world politics. He claims the biggest change within the system that has taken place in history is the invention of nuclear weapons. Nuclear weapons decisively change how some states provide for their own and possibly for others’ security; but nuclear weapons have not altered the anarchic structure of the international political system† (Waltz 2000). This anarchic nature is what allows Realism to be the dominating theory of International Relations. Not many scholars will consider the UN to be a coercive force or have any power to leverage. Moreover, there is no plausible replacement for the state in the horizon, and even less interest to change the system and find a suitable alternative. Many believe that security competition between states is now an antiquated notion. However, if that is the case it is hard to describe conflicts such as Iran and Iraq, India and Pakistan and interstate conflicts within Africa. These prove that security competitions are not out dated. Also the fact that America maintains over hundred thousand troops in Europe and North East Asia. One can see a cluster of great powers in this district, even though they maintain peace with one another, the question of American troops brings up the notion of whether America can trust the Europeans not to go to war again. Another region where security competition and anarchy are effervescent is the Middle East. Inter state conflict; religious sectarianism, religious fundamentalism, terrorism, human rights violation and other such atrocities regularly take place within this ‘imagined community’. The Middle East â€Å"is arguably the epicenter of world crisis, chronically war prone and the site of the world’s most protracted conflicts† (Hinnebusch 2003). Realism best describes the anarchic situation currently prevailing in the Middle East. The greatest strength of Realism in this region is that it holds most relevance when describing the areas tumultuous political system. Structural realists believe the primary goal of any state is survival. How does a state survive? It must have the military capabilities to protect itself from any attack. This notion is reiterated by Iran’s recent threat to build a nuclear weapon. Even though it has delayed this process by a few months, the effects have begun to ripple. World leaders such as David Cameron have claimed that it could instigate an arms race in the region. I think it could trigger a nuclear arms race across the whole region. That would make the Middle East a more dangerous, more unstable part of the world. † Another aspect of Realism that could be a strength if implemented is the Realist theory in the ethnic realm. This theory simply argues that when ethnic communities become extremely hardened by conflict, â€Å"ethnic separation, both physical and politica l, is necessary to prevent endemic bloody ethnic conflict and chronic instability† (Ben-Porat 2008). Had this theory been implemented with the Shia Sunni divide, years of conflict and terror may have been avoided. Realism has a number of strengths, however, in relation to the Middle East, I believe the points mentioned earlier are the only positive traits. On the other hand, there are a number of weaknesses in the Realist paradigm that can be explored. For instance Realism has a narrow a-historic conception of the state. The main problem with neo-realism – a primary facet of the Realist paradigm – is a reliance on a preoccupation with the Great Power relations. It has a Eurocentric, neo-colonial epistemology that privileges the global North over the global South, the powerful minority over the weak but numerous majority† (Ayoob 1998). For Realism the state is the most important actor in International Politics. However, this is problematic, as realists perceive the state to be a monolithic, unchanging entity. This is particularly troublesome for the Middle East states as they are by and large the result of foreign domination, and are struggling with the legacy of imperialism. The neorealism theory is limited when conceptualising the state, as it does not account for agency. It does not take into consideration the internal factors that effect state behaviour. For instance â€Å"the decline of pan Arabism undoubtedly contributed to the movement towards Arab-Israeli peace. The rise of transnational Islamist politics helps explain the Iraq-Iran war and alignment behaviour in the region more generally since the Iranian revolution† (Gause 1999). The realist theory is also incapable of adequately explaining and analysing conflict (therefore resolving conflict). Even a perfunctory inspection of conflict in the Middle East contradicts the fundamental neo-realist assumption regarding the predominance of systemic factors in explaining state behaviour. Fred Halliday believes neo-realism does not posses a sufficient explanatory and predictive capacity, especially in the arena of managing and alleviating the majority of conflicts in the Middle East. â€Å"Their inability emerges out of the fact that these conflicts are inextricably enmeshed with the process of state building and the formation of political communities that both of the theories do not address† (Halliday 2005). Mohammed Ayoob says, â€Å"Neorealist theories neglect domestic variables affecting conflict and order. This explains their inability to account for the origins – in both senses of that word, as beginnings and causes – and evolution of the large majority of current and previous conflict in the region† (Ayoob 1998). The Iran-Iraq war is a good example of this point since one could argue the Iraqi regime was pushed into conflict with Iran by its fear of the demonstration effect of the Iranian revolution on the Iraqi population and the consequent Ba’athist regime. The sad fact is International Politics has always been a ruthless and dangerous business and it is likely to remain that way† (Rourke 2005). This rather cynical statement comes from a Classical Realism theorist. One who I presume believes in the inherent dark side of humanity, as many other realists do. Many will agree with this school of thought, each state has one agenda, to survive, and wil l therefore go through any means to make that happen. However, there are others who believe there may be more to human nature and more to state agenda than Realism describes. For the purpose of this essay, I have studied the strengths and weaknesses of the Realist paradigm, and have come to find that even though both sides have compelling arguments, the weaknesses outweigh the strengths. The Middle East is a complex region, hence it is difficult to analyse its international relations through the implementation of one theory. Realism over looks a number of aspects that contribute towards Middle East politics. For instance it does not pay enough attention to domestic politics. â€Å"Domestic conflicts in postcolonial states are a result of imperial imposition. They can easily spill across political boundaries into contiguous states, whose populations may aid one side in such conflicts thus involving neighboring populations and eventually neighboring states in these conflicts† (Ayoob 1998). To understand International politics of the Middle East, one must â€Å"combine the fundamental insights of classical realism with an appreciation of the dynamics of conflict currently clearly visible in large parts of the international system† (Ayoob 1998). This will result in a paradigm that can properly examine and analyse international politics in the region.  As for the Realist paradigm, I believe it does not help us to fully understand the depth of the Middle East international system.