Globalization of international financial markets

Abstract

Global financial market activity refers to the transactions and financial flows that occur within bond, equity, derivatives, banking, and exchange rate markets around the world. The importance of the globalization of financial markets lies in the fact that the financing process is an integral part of both commercial and non-profit making activities. In addition, the finance process is also affected by other sectors, such as economic activity, politics, and differing country cultures. The surge in financial market activity during the last years may be attributed to deregulation and technological improvements, which now allow access to worldwide markets at reasonable transaction and information costs. The trading activity taking place on organized exchanges and over-the-counter (OTC) markets is undertaken by participants who differ in terms of their foreseen investment horizons, return objectives and tolerance to risk. Globalization of financial markets has brought about higher efficiency and competition, yet one should not overlook the fact that the potential for the spreading of financial crises is higher in a global market place. It is therefore important to ensure that adequate systems are in place to deal with such eventualities, both at international and national levels as well as in individual organizations. Other concerns about the globalization of financial market activity, center on whether the current system is in fact channeling long-term funds to finance real business activities, especially in the case of less developed countries.