What Is Financial International Market? Essay
Over the decades, integration among countries has continued to grow but currently, the breadth and depth are unprecedented. Through financial globalization, a nation’s domestic financial system is integrated with international financial institutions and markets. The governments all over the world are liberalizing the local financial sector and consequently, these countries are experiencing an increase in capital movement in and out of the country. Additionally, in most of the countries taking part in financial globalization, there is increased participation of local lenders and borrowers in international financial institutions and an extensive employment of worldwide financial agents.
An International Financial Market refers to a place where financial wealth is exchanged between persons as well as countries. It can be defined as a set of rules governing the trading of financial assets between agents and intermediaries in surplus with those in deficit and where those institutions involved put down the rules. The financial market comprises of other markets such as the bond market, the currency market, stock market, commodity market, derivatives markets and the money market. Institutions such as central banks, World Bank and the Ministry of Finance of different countries work hand in hand with the international financial market.
Benefits of Financial International Market
Economic theory states that free mobility of capital leads to a more efficient and effective international allocation of savings as well as directing resources, which are scarce, to their most suitable use. This mobility increases the level of welfare in both the receiving country and the sending, by creating new opportunities for portfolio diversification, inter-temporal trade, and risk sharing. Citizens of countries participating in the global financial markets have achieved improved standards of living as a result of capital mobility. This is after the level of investment increasing that in turn leads to the creation of employment. Furthermore, the GDP of a country goes up and consequently the government is in a position to offer better services and public goods to its people. In general, financial international market helps its participants to improve financially and economically.
The very well-known risk of financial international market is that it can bring about financial crises. Countries participating in international financial markets must implement the right financial infrastructure to avoid a crisis in the market. For this reason, they will achieve the set goals of their economies in the market. Before integrating global economies, policies and strategies have to be put in place as liberalizations together with capital inflows can weaken the local financial sector. Moreover, if the heat of the local market debilitates, speculative attacks occur with the out-flowing capital that is generated by the local and foreign investors. Therefore, it is fundamental for local economies to remain strong in order to succeed in the global markets. A good example is the financial problems that were witnessed in Uruguay in 2002, in Turkey year 2001 and the Asian and Russian crises that occurred in 1997-1998. The named countries caught the eye of the people globally. The reason behind the Asian financial crisis is the loss of confidence in the private sector, and this triggered great capital outflows (IMF). Thus, international financial systems tend to intensify the risk of experiencing a financial crisis by the local countries.
Despite the risks involved in the international financial market, maximum benefits can be achieved for both developing and developed countries. Nonetheless, measures must be put in place to curb a financial crisis.
Campbell, J.Y.,Lo, W.A, MacKinlay, A.C.,1997, The Econometrics Of Financial Markets, Princeton University Press, Princeton New Jersey.
IMF. (2014). IMF Global Financial Stability Report, A Report on Market Developments and Issues. Retrieved from https://www.imf.org/external/pubs/ft/gfsr/
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