Internationalization of Financial Markets

10 Key excerpts on "Internationalization of Financial Markets"

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  The Spanish Financial System

  Growth and Development Since 1900

  • José Luis Malo de Molina, P. Martín-Aceña, José Luis Malo de Molina, P. Martín-Aceña(Authors)
  • 2011(Publication Date)
  • Palgrave Macmillan

    (Publisher)

  These need not necessarily be aligned with the goals of the destination country: 4 Other authors who have recently analyzed and assessed the internationalization of financial systems, particularly banking systems, include Classens (2006), Goldberg (2009), McCauley, McGuire and von Peter (2010), and Papaioannou (2009). 352 Ángel Berges, Emilio Ontiveros and Francisco J. Valero a) If the funds exceed the country’s real needs this may lead to excess supply, with the risk of feeding bubbles in the prices of financial and other assets. b) If foreign investors lose confidence in the country they may all rush for the exit, with depressive effects on the country’s economy and financial markets. 2. Funds placed in other countries expose investors in the originating country to risks that differ from those they face in domestic markets. For example, if these countries use a different currency, they will be exposed to currency risk, which may be realized if any of the currencies is devaluated, and thus the equivalent in the national currency of origin is reduced in value. As noted previously, internationalization of the financial system is closely related to internationalization of the wider economy, although the pattern of development is not always the same, as we shall see in the Spanish case. The increasing internationalization that has been seen in various countries’ economies and financial systems in recent years has bound them all closer together. This can have negative repercussions for them in terms of risk transmission. As noted in the introduction, this is what has been happening since the crisis broke in August 2007, aided and abetted by the problems intrinsic to each country, such as an overdependence on the property sector, in Spain and other countries.

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  Government Intervention in Globalization

  Regulation, Trade and Devaluation Wars

  • C. Peláez(Author)
  • 2008(Publication Date)
  • Palgrave Macmillan

    (Publisher)

  The liberalization of financial markets consists of the elimination of con- trols on financial institutions, such as interest rate ceilings on deposits and loans, reserve and liquidity requirements on deposits, restrictions on assets and conditions to allocate loans to certain economic activi- ties. The liberalization of international capital flows consists of the elimination of controls on exchange rates and quantitative restrictions on foreign international transactions by domestic agents or foreign agents. Cross-borders movements of capital significantly increase during financial globalization. Globalization is the result of the interaction of four agents—governments, borrowers, investors and financial institutions. 21 Governments promote globalization by eliminating restrictions on domestic financial markets and institutions and by allowing free flows of capital. Borrowers and investors can borrow and invest overseas, respectively. The diversification of financial transactions can be very important to weather crises. Borrowers can enjoy lower rates of debt obligations and improved terms. Investors can tailor their investments to their risk appetites. Financial institutions constitute another important agent of globalization. International finan- cial institutions have actively engaged in financial sector FDI (FSFDI), with many favorable effects on host-country financial markets. FSFDI, for example, is the investment of a foreign bank in buying a share in a domes- tic bank, purchasing a local bank or establishing a wholly owned subsidiary. Citibank, the predecessor institution of Citigroup, established subsidiaries in many countries outside the US even before World War I. There is analysis of the benefits of FSFDI. 22 A group of benefits originates in institutional change of the acquired banks.

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  Critical Junctures in Mobile Capital

  • Jocelyn Pixley, Helena Flam(Authors)
  • 2018(Publication Date)
  • Cambridge University Press

    (Publisher)

  In contrast to other types of markets, financial markets tend to have a higher degree of fluctuations. They tend to build up higher and higher valuations over an extended period of time, before these valuations decrease in a very short period of time. Various cycles of boom and bust have been typical for the financial sector for centuries. Financia- lization has both increased the size of the financial sector as well as its interconnectedness. Thus, the cycle of the financial sector has much more severe repercussions on the rest of the economy than cycles in other economic sectors. Furthermore, financial booms and busts do not remain limited to one economy, but also affect other economies that are linked for example via inter-bank lending. Until quite recently, the discussion of financialization and its dangers described above had been limited to the OECD economies. The globalization of financial markets and the corresponding rise of mobile capital do not only affect the established economies, but also emerging markets. Correspondingly, we now see the emergence of a discussion on financialization in emerging economies (Correa et al., 2013; Tyson and McKinley, 2014; Isaacs, 2016; Kaltenbrunner and Painceira, 2016; Karwowski and Stockhammer, 2016; Lechevalier et al., 2016; McKinley, 2016; Reither, 2016; for an early predecessor Beware of Financialization! 157 see Grabel, 2003). In order to further this debate, my contribution will concentrate on the cross-border dimension of financialization – the issue of mobile capital – instead of following the usual focus on domestic financial deepening (financial sector, households) and its consequences with regard to increasing inequality. Arguably, at least with regard to emerging markets, “domestic financialization” is subordinated to “international financialization” (Kaltenbrunner and Painceira, 2016) and a strong focus on the non-financial company sector is warranted because of the desire for catch-up industrialization.

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  Internationalising China's Financial Markets

  • Svenja Schlichting(Author)
  • 2008(Publication Date)
  • Palgrave Macmillan

    (Publisher)

  Most important for the further analysis in this book, however, is the fact that state actors (regulators) and commercial actors (financial firms) are typically very closely linked in this setting, as are the regulation and reform of the financial markets. Regulators are not only regulating but often actively reforming financial markets. Conceptualising internationalisation Following Claessens and Glaessner (1998), internationalisation can be understood as, on the one hand, the elimination of discriminating treat- ment between foreign and domestic financial services providers, the removal of barriers to the cross-border provision of financial services, and the subsequent market entry of foreign financial firms in domestic markets. On the other hand, it also encompasses the broader processes of changing the market environment and incentives of domestic finan- cial market actors through the development of both new international contacts and interaction, and changes in business opportunities due to an increasingly international framework of action. This book follows this broader definition. Therefore, the market entry of external actors and less tangible processes such as the changing market environment of domes- tic actors and the inflow of new ideas, concepts, and new standards of operation are accounted for here. Transnational actors and international market forces are analysed, understanding the abstract concept of ‘mar- ket forces’ as those factors that create and change the incentives and constraints of domestic firms. In theories on financial markets, internationalisation is a controversial topic with regard to its impact on domestic financial markets. However, the academic discussion is unevenly split, with a majority of authors pointing to its (potential) benefits; financial market opening is predom- inantly expected to lead to the increased efficiency and stability of the host countries’ financial markets (Pomerleano and Vojta, 2001).

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  Financial Globalization

  Growth, Integration, Innovation and Crisis

  • D. Das(Author)
  • 2010(Publication Date)
  • Palgrave Macmillan

    (Publisher)

  Their macroeconomic implications were painful for the recipient economies. 96 Financial Globalization 5.3 Financial integration and the developing economies The advanced industrial economies and their financial markets took the lead and forged the way forward in the arena of financial globalization. They were and continue to be the principal players in this arena. Although not directly involved, developing economies could not remain impervious for long to the transformations in the financial markets of advanced industrial economies and in the global financial market. In a rapidly globalizing world economy, external economic and financial environments had changed profoundly. Devel- oping economies’ domestic financial and capital markets reacted to the forces of change in industrial countries as well as to ongoing finan- cial globalization and innovation. These forces had a demonstrative learning effect on the developing economies (Section 3). They deci- sively influenced and shaped the financial markets in the developing countries. Many developing economies unilaterally pursued extensive reform agenda to harmonize with the changes and advancements in the capital markets of advanced industrial economies. Consequently, after some time capital markets in many developing economies, albeit much smaller, began to look similar to those in the advanced industrial economies. The steady growth of global financial markets enhanced global finan- cial integration as well as led to boom conditions in the 1990s. This was a defining moment and reshaped the global financial landscape. At this juncture, the pace of financial intermediation expanded at a remarkable pace. This is clearly exemplified by the cross-border flows of gross financial assets and liability. At the end of the 1990s, the sum of cross-border financial assets and liabilities (in gross terms) exceeded the nominal GDP of advanced industrial economies by 200 percent.

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  The Contemporary Global Economy

  A History since 1980

  • Alfred E. Eckes, Jr.(Authors)
  • 2011(Publication Date)
  • Wiley-Blackwell

    (Publisher)

  Chapter 8 Internationalization of Finance

  The world of finance is a complex one that ordinary people contact when they routinely cash a check or use a credit card, buy a stock or bond, obtain a home mortgage, or exchange currencies for their foreign travel. Few consumers seek to master the intricacies. The mysteries of finance are usually left to bankers, traders, investors, and other professionals whose occupations require a higher level of understanding. Many of the most successful financial professionals work in a few of the world’s money centers – London, New York, Tokyo, Frankfurt, and Hong Kong among others. In this interconnected world, it is possible for sophisticated investors to play the global markets from almost any location where there are cell phones and computers with internet access.

  Introduction to International Finance

  So what is international finance, and why has it become so volatile and controversial in recent years? The Bank for International Settlements (BIS), which is a bank for central bankers, based in Basel, Switzerland, compares the financial system to the plumbing on a home. When it works, it is taken for granted, but when it doesn’t the results can be highly disruptive. Just as a plumbing system depends on a steady flow of water, an economic system relies on available financing and dependable intermediaries like banks, credit unions, stock brokers, insurance firms, and the like. These institutions serve the important function of funneling money from persons who wish to save a portion of earnings to those who need to borrow to finance business activities or make large purchases. And these institutions, and their instruments, help shift the risk of failure to those better able to assume it.1

  But when these intermediaries – banks, brokerages, and insurance companies – lose trust in one another, perhaps because they cannot assess risks and value assets properly, the financial system clogs up, like a home’s plumbing. Without trade financing, exporters and importers cannot conduct business. Without credit, businesses cannot borrow to purchase needed materials and meet payrolls. And, in instances where banks cannot meet the demands for cash of their depositors and become insolvent, irrational behavior (panic) may ensue, paralyzing the whole economic system.

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  Trade and Development Report 2015

  Making the International Financial Architecture Work for Trade and Development

  • United Nations Conference on Trade and Development (UNCTAD)(Author)
  • 2015(Publication Date)
  • United Nations Publications

    (Publisher)

  Financialization and Its Macroeconomic Discontents 27 The growing influence of financial markets and institutions, known as “financialization”, affects how wealth is produced and distributed (UNCTAD, 2011). Consequently, the increasing integration of develop-ing and transition economies (DTEs) into the global financial system, and the acceleration of capital flows into these countries since the turn of the millennium, have fuelled discussion about the links between open-ness, financial deepening and economic development. Increasing financial integration has the potential to enhance access to external financing for develop-external financing for develop-ment. However, this chapter argues that there has been only a weak link between the integration of most DTEs into global financial markets and their long-term development. This link has experienced further strains in recent years due to overabundant liquidity generated by central banks in developed countries. While several DTEs have exhibited strong growth and current account surpluses (or lower deficits) over the past decade, accumulating, in aggregate, consid-erable external reserve assets, their greater openness to increasingly large and volatile international capital flows, especially short-term speculative flows, has exposed them to the risks of financial boom-and-bust cycles. 1 This chapter details the implications of such risks from a macroeconomic perspective. Financial flows to DTEs in the period since the 2008–2009 crisis reflect a previously established pattern of macroeconomic drivers that started to emerge in many countries beginning in the 1980s: a long-term deterioration in the global wage share and reduced public sector spending in the developed economies, which have contributed to the dampen-ing of global demand. Global growth has been based mainly on expanding financial liquidity and the generation of credit and asset booms.

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  Turbulent Waters

  Cross-Border Finance and International Governance

  • Ralph C. Bryant(Author)
  • 2004(Publication Date)
  • Brookings Institution Press

    (Publisher)

  5 The Progressive Internationalization of Finance hapters 2 and 3 reviewed fundamental ideas about financial activ-ity and its collective governance, but with the cross-border dimen-sions suppressed. Those fundamentals must now be adapted to the actual messy, intermediate world of heterogeneous nation states but increasingly integrated national economies described in chapter 4. The adaptation starts by sketching some historical background and extending the discussion of geographical variations in financial activity to multiple nations and the cross-border capital flows that increasingly knit national financial systems together. The chapter then provides a brief empirical overview of the last five decades. It concludes by explaining how and why the cross-border dimensions of financial activity are today so much more important than in the past. National Reservoirs in an Increasingly Integrating World World War I, the global depression of the 1930s, and then World War II caused severe disruptions in world economic activity. At the end of World War II, cross-border transactions in goods and services were thus greatly hampered by frictions and obstacles. Financial transactions among nations were impeded even more. In numerous cases, exchange and capital controls 132 C Internationalization of Finance 133 prohibited cross-border financial activity altogether. Individual national economies were partially isolated from each other. For most practical purposes, the financial system of each nation was a separate reservoir. Participants in international trade or finance at that time did not think in terms of a world financial system. Nor would they have found it revealing to describe the conglomeration of national financial sys-tems as a single global reservoir. Within each national reservoir, savings flows were somewhat viscous. Savings and investment transactions in some sectors or subnational regions were significantly impeded by market imperfections.

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  What Do We Know About Globalization?

  Issues of Poverty and Income Distribution

  • Guillermo de la Dehesa(Author)
  • 2009(Publication Date)
  • Wiley-Blackwell

    (Publisher)

  210 Chapter 9 More Integration of Trade and Finance The Interrelationship between Trade Openness and Financial Openness Growing globalization is giving rise to increasing integration between two basic pillars, trade and finance, which are becoming ever more closely interrelated and tend to feed off each other. International trade is always accompanied by international financial flows. Trade flows tend to increase the demand for financial instruments to hedge against the risks arising from such transactions. Financial flows give rise to increased trade, particularly intra-industrial and intra-firm trade. As analyzed in the preceding chapter, international direct investment tends to boost the imports and exports of the host country. If it is a new investment, it increases imports of capital goods and physical capital while new production plants are being built. If it is not, it does so while the company that has been bought develops and improves its production. It also increases exports once the plants have come on stream. Financial development also facilitates specialization and economies of scale, which are linked to trade as they enable companies in develop-ing countries, which are heavily dependent on external financing, to overcome their liquidity problems and obtain trade financing and longer-term funds to invest in the expansion and upgrading of their production facilities. The International Monetary Fund (2002b) con-ducted a study on this growing integration. The study includes impor-tant analyses and empirical findings that are explained below. 211 More Integration of Trade and Finance Growing integration is measured by calculating the total trade and financial flows as a percentage of GDP. “Trade openness” is measured by taking the sum of imports and exports of goods and services and dividing it by GDP.

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  Institutions and Market Economies

  The Political Economy of Growth and Development

  • W. Garside(Author)
  • 2007(Publication Date)
  • Palgrave Macmillan

    (Publisher)

  264 The Institutionalization of Neoliberalism 11.2.4 Financialization and dollarization in developing countries In developing countries, financialization is occurring with a damaging twist. Over the 1990s they have experienced a strong trend towards 'dollarization', that is to holding wealth in foreign currencies, mainly the US dollar and the Euro. ('Dollarization' does not refer only to dollars.) For example, average foreign currency deposits to total deposits in South America (excluding Mexico) rose from 46 per cent to S6 per cent in just five years, from 1996 to 2001; in Africa, from 28 per cent to 33 per cent; and in the 'transitional' economies, from 37 per cent to 48 per cent (Nicolo et al., 2003). These figures reflect the declining competitiveness of national curren- cies in developing countries relative to the US dollar and the Euro. Why? Average inflation rates are still much higher in developing countries (six per cent) compared to developed countries (two per cent), even though they have fallen substantially. The risks of currency devaluation are significant. Hence private wealth holders try to move out of the national currency into one that will better hold value. 8 The result of currency competition of this kind is a global hierarchy of currencies: those at the top fulfil both domestic and international functions; those in the middle fulfil domestic but not international functions; those at the bottom (the majority) fulfil neither domestic nor international functions. 9 No central bank can ignore the non-acceptance of its currency, which means that the domestic currency is not fulfilling basic (domestic) functions. The costs of non-acceptance (or 'dollarization') include the limited effectiveness of monetary policy, and amplified impacts of currency changes. Central banks supervising uncompetitive currencies (most developing countries) therefore try to keep interest rates high in order to induce people to hold the domestic currency.

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