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.
The Dodd-Frank Wall Street Reform and Consumer Protection Act brought the most significant changes to financial regulation in the United States since the reform that followed the Great Depression. It made changes in the American financial regulatory environment that affect all federal financial regulatory agencies and almost every part of the nation’s financial services industry. Like Glass-Steagall, the legislation passed after the Great Depression, it sought to regulate the financial markets and make another economic crisis less likely. Banks were deregulated in 1999 by the Gramm-Leach-Biley Act, which repealed the Glass-Steagall Act and essentially allowed for the excessive risk taken on by banks that caused the most recent financial crisis. The Financial Stability Oversight Council was established through the Dodd-Frank Wall Street Reform and Consumer Protection Act and was created to address the systemic risks in the United States financial system and to improve coordination among financial regulators.
The large-scale multinational financial giants are probably represented by the renowned investment banks such as Goldman Sachs, UBS, D...
The first is greed. This greed is what drives the bankers and the executives within the Wall Street. It is because of such greed that there was a form of irresponsible risk taking within the markets. The second cause of market change is the advancement of market values and norms into aspect so life where they are not needed. An example of such advancement is the use of markets in order to provide services, which can be considered as basic needs, such as; schools hospitals, environmental protection, criminal justice, procreation, recreation and national security. Allocation of such public goods using market mechanisms is a resent development, within the last few decades. The final cause of such changes is the cold war, which saw most of the countries adopt market mechanisms in order to attempt improving on development and
Flawed financial innovations: the implementation of innovations in investment instruments such as derivatives, securitization and auction-rate securities before markets. The indispensable fault in them is that it was difficult to determine their prices. “Originate to distribute securities” was substituted by securitization which facilitated the increase in ...
One of the strongest arguments against cross-border listing of a stock would be that it can sometimes be very costly to meet the disclosure and listing requirements that are imposed by the foreign exchange and regulatory authorities of the country that it is being cross-border listed in. This can be seen here in the United States. Many foreign companies choose not to cross-list in the U.S. because of the SEC and the rules and regulations that are imposed on stocks listed on the NYSE. The second major argument against cross-listing a stock would be that once a company’s stock is made available to foreigners, the foreigners might acquire a controlling interest and challenge the domestic control of the company. In fact because of this fear, some governments in both developed and developing countries have imposed restrictions on the maximum percentage ownership of local firms by foreigners. Some examples would be India, Mexico and Thailand where foreigners are only allowed to own up to 49 percent of the outstanding shares of a local firm.
Ross, S.A., Westerfield, R.W., Jaffe, J. and Jordan, B.D., 2008. Modern Financial Management: International Student Edition. 8th Edition. New York: McGraw-Hill Companies.
If financial markets are instable, it will lead to sharp contraction of economic activity. For example, in this most recent financial crisis, a deterioration in financial institutions’ balance sheets, along with asset price decline and interest rate hikes increased market uncertainty thus, worsening what is called ‘adverse selection and moral hazard’. This is a serious dilemma created before business transactions occur which information is misleading and promotes doing business with the ‘most undesirable’ clients by a financial institution. In turn, these ‘most undesirable’ clients later engage in undesirable behavior. All of this leads to a decline in economic activity, more adverse selection and moral hazards, a banking crisis and further declining in economic activity. Ultimately, the banking crisis came and unanticipated price level increases and even further declines in economic activity.
Technology is a huge part of today’s society and it is helping the world come together in many ways. Because of technology, and what it is capable of, our world is becoming globalized. Because of globalization, multinational corporations are quickly changing how they do business and this is impacting how financial management is conducted. For a better understanding, this report will discuss the pro’s and con’s that technology has on the globalization of multinational corporations, as well as how it is changing MNC’s financial management. First, the definition of globalization.
During the 1920s, approximately 20 million Americans took advantage of post-war prosperity by purchasing shares of stock in various securities exchanges. When the stock market crashed in 1929, the fortunes of many investors were lost. In addition, banks lost great sums of money in the Crash because they had invested heavily in the markets. When people feared their banks might not be able to pay back the money that depositors had in their accounts, a “run” on the banking system caused many bank failures. After the crash, public confidence in the market and the economy fell sharply. In response, Congress held hearings to identify the problems and look for solutions; the answer was found in the new SEC. The Commission was established in 1934 to enforce new securities laws that were passed with the Securities Act of 1933 and the Securities Exchange Act of 1934. The two new laws stated that “Companies publicly offering securities must tell the public the truth about their businesses, the securities they are selling and the risks involved in the investing.” Secondly, “People who sell and trade securities must treat investors fairly and honestly, putting investors’ interests first.”2
Howells, Peter., Bain, Keith 2000, Financial Markets and Institutions, 3rd edn, Henry King Ltd., Great Britain.
Becoming a small fish in a gigantic pond creates a new series of problems. There is no such thing as a local problem in a global market. A problem overseas can spread like wild fire scaring stock holder and investors around the world.
Capital markets are markets "where people, companies, and governments with more funds than they need (because they save some of their income) transfer those funds to people, companies, or governments who have a shortage of funds (because they spend more than their income)" (Woepking, ¶3). The two major capital markets are stock and bond markets. Capital markets promote economic efficiency by moving funds from those who do not have an immediate need for it to those who do. Individuals or companies will put money at risk if the return on the intended investment is greater than the return of holding risk-free assets. An example of this would be those that invest in real estate or purchase stocks and bonds. Those that invest want the stock, bond, or real estate to grow in value or appreciate. An example of this concept would be if an individual or company invested an amount saved over the course of a year. While investing may be riskier, these individuals hope that the investment will yield a greater return than leaving the money in a savings account drawing nominal interest. In this example the companies that issue the stocks or bonds have spending needs that exceed their income so the company will finance their spending needs by issuing securities in the capital markets. This is a method of direct finance because the "companies borrowed directly by issuing securities to investors in the capital markets" (Woepking, ¶5).
...MENT ENCOURAGEMENT OF GLOBAL BUSINESS FOREIGN GOVERNMENT ENCOURAGEMENT Governments also encourage foreign investment. The most important reason to encourage investment is to accelerate the development of an economy. An increasing number of countries are encouraging investments with specific guidelines toward economic goals. MNCs may be expected to create local employment, transfer technology, generate export sales, stimulate growth and development of the local industry. US GOVENRMENT ENCOURAEMENT The US government is motivated for economic as well as political reasons to encourage American firms to seek opportunities in the countries worldwide. It seeks to create a favorable climate for overseas business by providing the assistance by providing the assistance that helps minimize some of the troublesome politically motivated financial risks of doing business abroad.
The Business Dictionary defines a financial center as a city or district that has a heavy concentration of financial institutions that offer a highly developed commercial and communications infrastructure and where great number of domestic and international trading transactions are conducted. Moreover, a global financial center is a concentration of an extensive variety of international financial businesses and transactions in one location. With there being many financial centers around the world competing to be the prevalent and most predominant of its counter-peers, one must consider the factors that wean out the leaders. A report written by the Centre for the Study of Financial Innovation comprised factors such as regulatory competence, tax regime, skilled labour, government responsiveness, regulatory “touch” and living environment as the six main elements a leading global financial center must keep precedent. Recently, innovative technology and improved communications infrastructure have minimized the need to be close to financial markets and companies are becoming more skilled at managing operations remotely. According to the Global Financial Centres Index, the world’s premier financial centers as of 2013 are London (United Kingdom), New York (United States) and Hong Kong. (Asia). Known as International Financial Centers “IFCs”, the IMF has defined London, New York and Hong Kong as large international full-service centers with advanced settlement and payments systems that support large domestic economies, have deep and liquid markets where both sources and uses of funds are diverse, and where legal and regulatory frameworks are adequate to safeguard the integrity of principal-agent relationships and supervisory functions.
The biggest stock exchanges are the New York Stock Exchange and NASDAQ. The New York Stock Exchange is a large building in Lower Manhattan that does auction-style trading with a lot of face to face interaction through specialists, brokers, and buyers. There are upper floors in this exchange on which specialists determine the prices of all the stocks. This information then travels to the brokers who work auctions face to face with buyers in order to sell the stocks. America’s biggest companies, like Coca-Cola and McDonald’s, sell their stocks through this exchange. NASDAQ is a virtual stock exchange with no physical building. This exchange was created during the 1970s but began thriving during the tech boom of the 1990s. The tech boom helped this exchange become the home of more technological companies li...