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Globalization and finance
Globalization and the global integration of finance
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Introduction:
From the beginning of the 1990s, the global financial system has entered a phase of unprecedented restructuring, marked by the increasing integration of financial markets and increased economic interdependence. This process, known under the name of financial globalization allows companies better access to financing, offers investors a greater possibility of investment and thus increases the liquidity of the global economy.
However, this financial globalization has enormous risks. Indeed, creating an interconnection between national financial systems, it facilitates the transmission of shocks, contagion . Thus, a local imbalance turns immediately into a systemic crisis as shown by the recent financial crisis. Disruption in the financial system generates numerous losses to the economy. According to the IMF (2010), the financial crisis of 2007-2008 was the cause of a recession that resulted in a cumulative loss of production of about 25% of world GDP. The failure of the financial system further obliges governments to inject significant through bailouts resources. In particular, the North American and European governments spent an average of between 3 and 5 % of GDP to prevent the collapse of the financial system (Gottlieb et al , 2012).
In this context, the adoption of effective regulatory measures, able to address the vulnerability of the financial system becomes a major issue. In this idea, policy makers have been constantly developing and promoting measures to safeguard the financial system : this is called control . The latter has a twofold component, namely, a macro prudential perspective and micro perspective. The aim is to prevent systemic financial crises, to avoid losses in GDP for the first and limit indivi...
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...west 15% of all the quotes collected are eliminated. The remaining rates will be averaged and rounded to three decimal places. Euribor is determined and published at about 11:00 am each day, Central European Time. The Euribor rates are important because these rates provide the basis for the price or interest rate of all kinds of financial products, like interest rate swaps, interest rate futures, saving accounts and mortgages.
Bibliography:
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BLUM J.M. (2007),’’ Why ‘Basel II’ may need a leverage ratio restriction’’, Journal of Banking & Finance 32 (2008) pp 1699–1707.
BORIO C. (2003), ‘’Towards a macro-prudential framework for financial supervision and regulation?’’, Economic Studies, vol. 49, n° 2/2003, pp. 181-216.
In addition, the Federal Reserve did badly on supervision of the financial market. Many banks did not have enough ability to value their risk. The Federal Reserve and other supervision institution should require these banks to enhance their ability of risk valuing.
Shahrokhi, M. (2011). The global financial crises of 2007-2010 and the future of capitalism. Global Finance Journal, 22, 193-210. doi: 10.1016/j.gfj.2011.10.010.
The presence of systemic risk in the current United States financial system is undeniable. Systemic risks exist when the failure of one firm may topple others and destabilize the entire financial system. The firm is then "too big to fail," or perhaps more precisely, "too interconnected to fail.” The Federal Stability Oversight Council is charged with identifying systemic risks and gaps in regulation, making recommendations to regulators to address threats to financial stability, and promoting market discipline by eliminating the expectation that the US federal government will come to the assistance of firms in financial distress. Systemic risks can come through multiple forms, including counterparty risk on other financial ...
The seventh chapter asks, ‘Why Do Central Bankers Have Power over the Economy?’. In this chapter, the authors evaluate the power of central banks during normal and tough times and question whether central banks ‘have the power to control something as huge as the macroeonomy’ (p.74).
Eichengreen, Barry. Globalizing Capital: A History of the International Monetary System. Princeton, NJ: Princeton University Press, 1996.
In 2007-2008 there was Global Financial Crisis which started in the USA because of the ‘housing bubble’ appeared because banks started giving low interest rates subprime mortgages (for people who may have some difficulties with paying their debts: low income groups, unemployed, people with bad credit history an...
There is a constant flow of cash and funds through the financial system due to the financial institutions as they assist money movement among the borrowers and lenders (lecture notes, chapter 8, 9, 15) a financial institution is basically a firm like a bank which acts as a safe house for depositors to keep their money and also provide loan with interest to others and this how they expand the institution. This is the basic concept of the way the economics works in a country and also how a bank functions. All the banks are connected to one another and if there is a problem in one of the banks the bank looses it image in the minds of the people and if it’s a big problem it can cause disaster within the financial system of the country and this can only be caused due to shortage of liquid cash. To have a proficient system the bank has to be sure to be liquid to avoid any problems. (Chapter 1) To help avoid this problem the government lays down regulations for the banks through prudential supervision (Chapter 2). The Australian regulatory power is Australian Prudential Regulation Authority (APRA), whereas in Singapore it is Monetary Authority of Singapore (MAS). The key concept of their job is to assure the people that their money is in safe hands. Keeping the capital safe is essential as it assists the bank to expand and help them pay off any debts when needed (Chapter 2). In context to if there is an emergency as the government has some control on the banks it asks them to keep some money on the ...
Weiss, M.A. (2009) ‘The Global Financial Crisis: The Role of the International Monetary Fund’, CRS Report for Congress.
The recent Global Financial Crisis (GFC) initially began with the collapse of credits and financial markets, which caused by the sub-prime mortgage crisis in the US in 2007. The sub-prime mortgages were given to high-risk lenders (with bad credit history) who were in danger of defaulting, which eventually caused a global credit crunch, where the banks were unwilling to lend to each other. In October 2008, the collapse of the major financial institutions and the crash of stock markets marked the peak of this global economic slowdown (Euromonitor International, 2008).
In conclusion, we feel that the recommendation we have suggested in this report is a suitable foundation to build a sustainable and prudent financial system in this country. This will facilitate the financial industry both, withdraw out of this crisis and in the future avoid as much as possible inducing the scale of matters at present. As the report suggest, everyone contributed in their own miniscule way to this crisis, we feel that it’s up to every one of us to contribute to the overall recovery of this financial crises and recovery of the nation in general.
Prasad, Eswar S., et al. “Effects of Financial Globalization on Developing Countries: Some Empirical Evidence.” The National Bureau of Economic Research. National Bureau of Economic Research, 2003. Web. 10 Dec. 2013. .
Just imagine waking up in squalor, a once prominent society, now a desolate wasteland. All because foreign interest has raped your land of its natural resources and you seen not a cent in profit. Although, globalization is unifying the worlds developed nations and is bringing commerce to nations that have struggle in past years. True, globalization has many positive effects but do the pros outweigh the cons. In this essay I will discuss Globalization ruining the integrity of many countries and also is forcing many undeveloped nations into a bind, and is causing economic distress on some developed nations. Also, due to economic globalization the nations of the world are diluting their culture, sovereignty, natural resources, safety and political system. My goal is not to change your way of thought, but only to enlighten you of the negatives of global economic expansion.
The expression "globalization" is generally utilized as a part of business rings and matters of trade and profit to depict the expanding internationalization of businesses for merchandise and administrations, the budgetary framework, companies and commercial ventures, innovation, and rivalry. In the globalized economy, partitions and national points of confinement have liberally diminished with the departure of tangles to market access. Furthermore, there have been decreases in transaction expenses and layering of time and separation in global transactions.
Many researchers have pointed out that the global imbalances are the root of the recent financial crisis. Portes claims that “the underlying problem in international finance over the past decade has been global imbalances, not greed, poor incentive structures, or weak financial regulation, however egregious and important these may be.” (2). According to him, the global imbalances lead to “the increasing in dispersion of current account”, which “puts a burden on financial systems to intermediate.”
Asian financial crisis in 1997 is a good example to demonstrate the globalisation as a single issue in one country will motivate a domino effect on other countries. Since the crisis stared in Thailand because of the fail in banking system, a political upheaval was triggered in South Korea and Indonesia. At the same time, financial centres in New York, London, Hong Kong and Tokyo were also affected in this crisis. During the crisis, global news agencies utilised the Internet and telegraph updating news to their home countries. Such as the Economist, Reuters and the Financial Times which ar...