Tuesday, March 12, 2019
Ã¢â¬Åthe Rapid Expansion of International Financial Market Since Early 1980s Have Integrated the World EconomyÃ¢â¬Â. Discuss.
The rapid expansion of orbit-wide monetary mart since early 1980s develop integrated the world economy. Discuss. The world-wide fiscal formation is a structure of groceryplaces within which organizations and individuals change over to acquit economical commitments made across national borders where buyers and sellers participate in the trade of assets such as equities, bonds, currencies and derivatives. Financial trades are typically defined by having transparent pricing, basic regulations on trading, costs and fees and market placeplace forces de marchesining the prices of securities that trade.The multinational monetary market expands rapidly including money and derivatives since early 1980s. The increased consolidation of pecuniary systems has involved great cross-border s wholesome flows, tighter links among pecuniary markets, and greater presence of outside monetary firms around the world. The expansion in multinationalistic fiscal market also means tha t establishment and expansion of international investment banks/ firms such as Crosby, Morgan Stanley, JP Morgan, UBS, Franklin, Templeton, Barney & Smith, Union Bank in Swiss etc.Such firms created varieties of investment fund such as hedge fund and unwashed trusts. The expansion of such investment funds has enhanced volume of foreign policy initiative (FPI) in the world economy. The fiber of short term (mainly portfolio majuscule) increased in world economy. Capital in the international fiscal market can be classified into two types, which is short-term Intra-Bank Loan, which due project less than one year and portfolio investment (investment in money, bond, stock and derivatives). Mobility of these investment very high, outflow and influx very debased.Besides that, volume of short-term capital mobility (STC) also increased dramatically in the world economy. Currency utilise in trading in international capital market which dominated by industrial/rich nations are in US s awhorse (US$), DM/Euro and Yen. US dollar is the main vehicle coin utilise in the market (above 55%). There are few reasons wherefore STC/FPI dominated international economy. The first factor is elimination of capital and currency controls or liberalisation of capital account of Balance of Payments. This has stimulated inflow of STC to international capital market including capital market in develop countries, i. emerging economies. Next, technology development information increases the rapid development of international market and the speed of transaction in the market. The technology enables a withdraw done within a minute. Furtherto a greater extent, no international financial and architecture (IFA) to supervise or control trend of portfolio capital including activities and expansion of financial institutions is an other determinant of domination of STC/FPI in the economy. The rapid expansion of financial market is due to parity established at Bretton Woods in 1960s this c risis marked the breakdown of the system.An attempt to revive the fixed supercede rates failed, and by March 1973 the major(ip) currencies began to float against each other. The inquisitive pressure force closure of international foreign exchange markets for nigh two weeks, the market reopen on floating rate for major industrial countries. The Jamaica Agreement by IMF further legalizes the floating exchange system and increased the role of US currency in international economy. As a result, gold is demonetize as a reserve asset, the role of US$ in international economy increased thereafter.International financial market factors enable expanding and creation of discordant instruments or product of financial market including derivative (swaps, option, future, forward). At the aforementioned(prenominal) time, many countries have encouraged inflows of capital by dismantling restrictions and controls on capital outflows, deregulating domestic financial markets, liberalizing restricti ons on foreign direct investment, and improving their economic environment and prospects through with(predicate) the introduction of market-oriented reforms The rapid expansion of international financial markets had brought several impacts to the world economy.International financial market indirectly integrated. The rapid expansion of international financial market impart lead to volatility in most of financial products/ portfolios such as currency, interest rate, equities are larger. Moreover, the speed of trading allow become very fast and in large scale. For example the stark naked money fueled a level of inflation never forward seen in modern Mexico the inflation rate eventually surpassed 100 pct annually. The administration chose to ignore warning signs of inflation and opted instead to increase spending.Apart from that, movement of asset prices may relate to herding behavior, irrational behavior of investors and caused transmission system in the markets. Contagion refer s to the transmission of a currency crisis throughout a region. Contagion effect of international financial markets is more severe and fast than to commodity markets. In addition, if crisis emerged in major markets it spread quickly to other regions. For instance, any shocks to financial sector in developed countries let vocalize New York Stock Exchange drop will affect or bring other stock bourses around the world.Furthermore, transmission from the financial market to the real sector will be affected subsequently. The expansion of financial markets have bring benefits which are rapid spreading of technological advances, financial innovation as salutary as, more generally, financial performance to the various parts of the globe. In a global financial market, technological advances in payment, settlement and trading systems as well as in financial information systems can be made available to all market participants instantaneously.And advances in financial technology such as trades and other derivatives have made it possible to take advantage of many new financial support opportunities. Reductions in the costs of transport and transmission of data as well as the cost of acquiring, processing and storing information have played a significant role in furthering the process of globalization. Besides that, the expansions of financial market will led financial institutions compete with each other to raise benefits to the domestic financial market.The bigger, more robust the market, the more attractive it will be to competitors. There are still many competitors large luxuriant to attempt to secure a prominent position in the market, though the identity of these competitors has changed considerably over time. Therefore, in open financial markets the penetration of foreign financial institutions into domestic financial markets can bring hefty benefits, as increased competition can help to enhance expertness in the financial sector. In conclusion, a new global e conomic and financial system is evolving at a rapid pace undecomposed before our eyes.Financial integration has given access to world capital markets to more people, providing for a better allocation of savings and investment as well as more and sophisticated instruments to better manage risks. At the same time, however, it has also brought new global challenges. It can be overcome in two dimensions on the internal side, by strengthening its macroeconomic fundamental principle and continually revising its legal and regulatory frameworks and, on the external side, by adopting a more active role within the global fellowship of central banks, regulators and other uthorities to improve the international financial architecture. References Stijn Claessens and Sergio L. Schmukler. (2007). IMF Working constitution International Financial Integration through Equity foodstuffs Which Firms from Which Countries Go orbicular? Retrieved from http//www. imf. org/external/pubs/ft/wp/2007/wp07 138. pdf Otmar Issing. (2000). The globalisation of financial markets. Retrieved, from http//www. ecb. int/press/key/date/2000/html/sp000912_2. en. html Fukao. M and Hanazaki. M.Internationalisation of Financial Markets and The Allocation of Capital. Retrieved from www. oecd. org/dataoecd/21/19/35589290. pdf Roy C. S. Globalisation of Financial Market. Chapter 1 Integration of World Financial Markets Past, Present, and Future. Retrieved from http//media. wiley. com/product_data/ choose/10/04712292/0471229210. pdf Rodrigo, d, R. (2007) International Monetary fund. Economic Growth and Financial Market Development A Strengthening Integration. Retrievedfrom http//www. imf. org/external/np/speeches/2007/082207. htm