Financial Markets Deregulate Essay

Financial Markets Deregulate Essay

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Thanks to deregulation & technological advances, Financial Markets are all interlinked. Funds can thus be raised overseas, not only domestically.

Deregulation is the process by which rules and regulations are removed or reduced in order to make markets increasingly efficient. The rationale behind this is that deregulation will promote competitiveness, and therefore result in lower prices and a more efficient marketplace.

To realise the effect of deregulation and technological advances on financial markets, we first have to understand what financial markets are. Basically, a financial market is a mechanism that allows people to buy and sell financial securities, commodities and other fungible items of low value at low transaction costs and at prices that reflect the efficient market hypothesis . Deregulation and technological advances go hand-in-hand; as deregulation became increasingly common, technology was also quickly advancing to become what it is today.

One highly regulated financial market before the 1980s was Japan. However, due to an agreement between the US and Japan in 1984 to liberalise Japanese financial markets, the rapid deregulation helped to strengthen the Japanese Yen and in turn helped to sustain capital flows to the US market and prevented an unwarranted weakening of the US dollar. Another huge instance of deregulation was the introduction of the Euro on 1 January 1999. The capital market was given a massive boost by reducing the costs and risk of transferring money between the European countries that adopted the currency.

With technological advances and the increasing use of the Internet, financial information on foreign investments and markets is accessible at the touch of a few keys. Financi...


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...them to have a larger reach of shareholders. Investors also can diversify their portfolios with stocks from companies in different countries, increasing the chances that the other stocks in the portfolio are able to buffer a loss due to a drop in the stock prices in one country.

However, all this does not come without its demerits. Because information is transmitted so quickly, it can reach some faster than others. Technology is not perfect, and this is when arbitrage opportunities can occur. When stocks are dual-listed, the risk of these arbitrage opportunities can increase.

In conclusion, I feel that financial deregulation, coupled with the rapid advancement in technology has opened up many doors to the expansion of the financial sector. Without the deregulation, markets will not be as advanced and as efficient as they are today.

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