Discuss about the Impact of Financial Globalization on the Financial Markets. Explain in details.
Background on Financial Globalization and Its Effects
Background of the study
The growth and the development of the economy have mainly been due to the advent of globalization and it has been after the incorporation of globalization that there have been several changes in the economy and the global market as well (Broner, & Ventura 2016). One of the facets of globalization has been the incorporation of financial globalization. Financial globalization is looked upon to be the consequence of the technological developments that have been taking place and comprises of benefits that are in series like the extent of the deliverance of the services and the products of the companies. On the other hand, Claessens, & Van Horen (2015) addressed that there may arise an impact that they may be negative in nature and the effect can mainly have an impact on the countries that are economically backwards and the ones who were not ready to face these kinds of consequences. The financial market is looked upon to be one of the most extensive and vibrant market and Banerjee et al., (2016) cited that financial market has been the initiator of globalization during the time when the concept of globalization accomplished to become globally liberal. The main aim of the market has been to create profit without considering the components that are related to it. At the current time period, Philippon, (2015) addressed that financial globalization has been one of the most researched topic among the researchers.
The current aspect of the financial globalization that has developed during the mid-1980s has been addressed by a flow in the industrial nations and notably, among the developing and the industrial nations (Asongu, 2014). It is seen that inflow of capital have been related with the increased rate of growth in certain developing nations and it is seen that a number of them have faced periodic failures in the growth rate and the essential rise in the extent of financial crisis that has led to the rise in the social and the macroeconomic costs. As an outcome, an extensive argument has developed in both the policy and the academic circles on the impacts of the financial assimilation on the economies that are developing (Ahmed et al., 2017). However, it is seen that most of the arguments have been based on the limited and casual experiential evidences.
The concept of globalization looks to address the addition of the economic operations, political and social among the geographic borders. The rise in the level of globalization in the worldwide economy has been an extensive factor that has led to the several positive and negative effects. The process is featured by focusing on the pattern of mitigation and the extinction of the barriers and the limitations among the country based economics and attaining a relationship and bond among these kinds of economies (Bénétrix et al., 2015). The concept of financial globalization tries to establish a worldwide money market, a global based financial market and unified financial process, and the appearance and the enhancement of the same is dependent on the singularity of the deregulation of the national financial market, the creation and the introduction of new and improved financial tools and instruments and the development of the banks and other kind of financial organizations.
Objectives and Research Question
Claessens, & Horen (2014) explained that when there exists a time when people look to recognise the factors that have laid the bases for the current crisis, they require to notice attentively the function that is performed by globalization which has been an effective force for the transformations that are taking place in the financial markets
The financial globalization is assessing in accordance to the value chain that is global and to to subprime the mortgages and this is undertaken by making use of the Minskyian process. Galaz et al., (2015) addressed that with the advent of financial globalization, there has been an observation that there has been development of several impacts that are taking place in the financial markets and therefore it is essential for the government and the financial institutions to assess the same and construct strategies so that the positive impacts can be channelized properly for further development and the negative impacts can be mitigated by taking help of the strategies that have been constructed (Chaney, 2016). Therefore, the current thesis that has been taken into consideration will look to assess and explore the negative as well as the positive effects of financial globalization specifically in the financial market.
The problem statement comprises of the issues that have been identified and accordingly steps can be taken with the help of which these issues can be mitigated. The financial market is one of the extensive markets and there are several monetary transactions that are taking place (Telò, 2016). The development of financial globalization has increased the extent of transactions and has accordingly unified the financial markets of several nations. In this manner, there has been an observation that there have been several impacts and these impacts have been positive and negative and assessment of these impacts requires extensive analysis with the help of which the issues that have been discovered can be mitigated and the ones that are positive in nature has to be channelized accordingly for future developments (Thalassinos et al., 2015).
Objectives of the Research
The objectives of the research that has been taken into consideration are given as follows:
- To have knowledge about the present patterns in the financial markets
- To recognise the benefits and the threats that are related to financial globalization
- To have an understanding of the effect of financial globalization on the financial market
The question with regards to which the thesis would move forward has been given as follows:
Q: What is the impact of financial globalization on the financial market?
Rationale for the Study
In the current time period there has been a rise in the demand for the new financial products and services and therefore new and improved aspects have developed with the help of which the financial market and their participants are able to enhance their extent of work and performance (Haas, & Lelyveld 2014). In this manner, there has been an observation that financial globalization has simplified the level of work and has been able to develop the level of work and therefore implications of financial globalization have even developed. The impacts that financial globalization have on the financial market requires extensive research on the basis of which an understanding can be created as to the positive and the negative facets and thereafter recommendations for the future can be constructed (Bordo, & Haubrich 2017). Hence, the deliverance of effective outcome from this paper is expected in order to answer the impacts of financial globalization in the financial market.
Literature Review on Financial Globalization in the Financial Markets
This section of the thesis is prepared in order to create an idea about the financial globalization in the financial markets and accordingly have an idea about other researchers have viewed on this topic. The advent of financial globalization has explained the fact that there has been development in the financial market and accordingly there has been several issues that have developed on the basis of which financial market has gone through several changes and issues. An empirical analysis on the topic has been done with the help of analysis and the recommendations that have been provided by previous researchers (Meyer et al., 2015). The aspects on which the researchers have stressed upon can be looked down upon with the help of which the current thesis can move ahead with the task and accordingly can take steps and actions that would be helpful in creating a better result on this topic. There are several factors that would be explained in this section of the paper and accordingly better outcome can be attained. Therefore, the research that is taken into consideration will look to evaluate the impact of financial globalization on the financial markets in Australia.
Incorporation of Financial Globalization
During the past few years, there has been a rise in financial mediation because of the financial innovations and it is seen that this has led to the minimisation of the level of transparency of the financial markets and this has not been desired by the economy (Borio, 2014). However, there has been significant amount of criticism about financial globalization as it has not tried to make any kind of efforts to construct strategies with the respect to which the countries that are looking to undertake financial globalization are not able to attain the global requirements and standards. by taking assistance of the financial innovations, the effectiveness of the several kinds of transactions can be ensured by making use of the financial tools and it is seen that markets that are impervious lead to instability, which addresses the risks that are systematic in nature (Fligstein, & Habinek 2014).
In the current time period of the deregulations, there has been development of the several products that are complex in nature with respect to the financial markets and it is seen that risks related to the same are yet unknown. The new and improved financial tools are created in order to lower the level of risks but it is seen that in reality they are constructed in order to virulent the regulators (Tchamyou, & Asongu 2017). The complexities that are associated to it lead to the rise in the level of risks. On the other hand, the financial markets are created for creating the products that are complex so that the level of transparency can be lowered without any violation of the rules that have been determined.
Criticism of Financial Globalization in the Financial Markets
The financial globalization procedure, which developed during the time of the 1980s, has been a contributing factor to the financialization of the economy and this has created the essential scenarios for the developments that have been loosed to be unprecedented for the organizational investors (Gilchrist et al., 2017). Furthermore, the introduction of the organizational investors within the share framework of the companies has comprised of a process with the help of which the development of the corporate governance of the financial entities, which has been promoted. The most precise issues that had direct and indirect impact and have associated to the corporate governance of the financial entities are inclusive of the economic financialization, financial globalization and the corporate governance (Yeyati, & Williams 2014).
The process of financial globalization is associated to the extensive integration of the various nationalized financial markets that leads to the development of the financial relations and the transnational financial out and inflows at a global extent (Karppi, & Crawford 2016). In addition, it comprises of a substantial transformation in the environment where the financial bodies enhance their businesses and accordingly it has significant amount of implications for the corporate governance of the financial bodies, which needs to be developed in order to familiarize to the new scenario. As this consequence is complex and vast, it is essential to break it down into several characteristics (Kodila-Tedika, & Asongu 2015). The key establishment within which the globalization has enhanced has been neoliberalism, deregulation and financial liberalization.
According to Ongena et al., (2015), neoliberalism in the initial case is known to the theory of the economic political practices that intends that welfare of the humans can be effectively developed by liberating the individual ownership independence and the skills that is within the organizational model that is featured by the string private rights for the property, free level of trade and free markets. The theory of neoliberal is founded within the researchers like Borio et al., (2016). This new aspect has led to the development of the key transformations in several aspects of the financial sector.
The development of the financial assets and the movement among the capital among several nations has been liberalised. Furthermore, there has been a developing alteration of the regulations that are public in nature by the process of self-regulation of the markets. These factors have influenced the developments and the developing complexities of the financial processes (Van der Zwan, 2014).
Corporate Governance and Financial Globalization
Within the area of the business, the organizational vision has been short term in nature and the process of remunerating the managers have altered, relying more on the outcomes that have been short term in nature and on the development of the share prices (Passari, & Rey 2015). Hence, the organizations have acted in a consistent manner with the outlook that has been projected in the market, looking for short term revaluations in the stock market rather than the investments that would provide better results in the longer term.
This theory creates several issues and the crises and specifically played an essential role in the present crisis scenario. Furthermore, Arcand et al., (2015) explained specifically that had an impact on the destabilization that has been created by the implication of the neoliberal approaches and this discredits this theory as it has been grounded in the concepts that are theoretical in nature that are not similar logically.
Some of the key projections of neoliberal capitalism, which comprises of the establishment of the current economic theory, have been doubted and the most essential debates have been that there exists a lack of essential data with respect to the decisions that have been undertaken by the agents that leads to a market that is ineffective and unfinished rationalization of the expectations (Aizenman et al., 2016). It is seen that as the underlying projections and the structure reliant on the projections are full of errors, which have been employed in order to address and estimate the development of the economy. In the same way, it is seen that the economic policies that is reliant on the estimations will be flawed equivalently.
For the enhancement of the financial globalization, it is seen that the financial markets need to be open towards the foreign markets and the movements of the capital needs to be permitted. This will then be followed by the termination of the limitations on the transfer of the capital and goods among the frontiers. This method was initiated in the 1980s and is currently existent as well. Fernandez, & Aalbers (2016) explained that liberalization enhances the extent of competition by permitting the new agents to come in the market who were earlier not able to do so.
The economic theory leads to several kinds of benefits to liberalization for the economies that incorporate it as liberalisation enhances the functioning and the effectiveness of the financial process, which is essential for stimulating the economic development.
Evaluation of Financial Globalization's Impact on the Financial Market in Australia
Liberalization leads to the development in the extent of competition and in the depth and the scope of the markets, and this leads to the rise in the level of effectiveness and thereby leads to a reduction in the rates of interest, both of which improves the economic development (Bruno, & Shin 2015).
The agents can make profits with the help of an extensive modification of the risks and even from the extensive possibilities of the entry to financing.
The financial bodies enhance their level of solvency and therefore the activities become even more transparent. The process of liberalisation favours the economic developments of the nations that are developing as it attracts more and more investments that are direct in nature, which looks to be accompanied by the transfer of the technologies.
It is even seen that liberalization is inclusive of the negative outcomes, especially with respect to the increase in the level of instability as Georgiadis, (2016) made it precise after the assessment of liberalization that is existent in several nations.
Jauch, & Watzka (2016) discovered that in the time period of globalization, there has been a rise in financial instabilities. There have been several attempts in order to associate this extent of instability to liberalization, but it is seen that there have not been results that would be conclusive. While there are several researches that relates to the concepts that have been discussed, other research have explained that this relation that has been explained has not been existent. In general, it is granted that the financial liberalization is regarded to be one of the factors that are underlying behind the development of instability and the financial issues.
Rey, (2016) explained that financial deregulation is the law set and the regulations that explains controlling of the risks, functioning and other characteristics of the financial operations and it has become essential to assess the attitude of the financial institutions and their impact on the financial globalization. The management have the authority to create these rules and make it accountable that the financial companies conform that the bodies behave in a prudent manner as they look to take care of the capital that has been deposited by the depositors.
The regulations look to create financial instability and guarantee that the credit would effectively designated in order to give out investment assistance, which is one of the extensive services that is offered to the economy by the financial organizations. During the time of the 1970s, with the incorporation of the neoliberal standard, a process that is deregulating initiated that looked to move ahead towards a free market and enhance better economic developments and thereby providing remunerations to the savings that are private and even to the extent of competition (Shahbaz et al., 2016). It is a method that is associated to the withdrawal of the regulations on the operations of the company and on the extent of the contracts.
The supporters of these aspects have debated by relying on the discovery of an enhanced economic effectiveness with the help of the freedom of the market or in the decline of the ineffectiveness that takes place when the private and the public sectors compete in order to attain capital and therefore producing distortions of prices (Erel et al., 2015). The supporters have even regarded to the fact that the regulations would lead to answers that have been given out by the experts and the technicians, who have been equipped better in order to answer to the scenario.
During the time of the 1990s, the tendencies of deregulatory have risen and the key regulatory transformations were incorporated. In the year 1994, there have been deregulations of the banking operations among several states within United States and they have been in the form of the “Riegle- Neal Act”.
Financialization of the economy
With the advent of globalization, which has been prejudiced by neoliberalism and forced by deregulation and liberalization, it is seen that the economic environment in which the banking companies undertake their business have seen a transformation in the market and this known as the financialization of the economy, which is an event that is effective for gaining an understanding of the development of corporate governance (Gilje et al., 2016).
Within the three decades that came before the current financial crisis, the financial sector has increasingly undertaken more burdens. For instance, in United States, the profit percentage in the financial sector in comparison to the overall profit for the business has been 27% in the year 2007 and in the year 1980; it hardly reached to 15%. The transactions that have been financial in nature have even experienced he amount of development.
After the assessment of the explanations of financialization the overall definition explains that financialization has been looked upon to be the process in which there is a rise in the significance of the financial sector within the economy (Bekaert et al., 2014). The financial organizations, financial markets and financial motivations lead to rise in the relevance within the national economies.
The process of globalization and accordingly financialization has led to a series of alterations in the international market of finance. Out of all the changes that have been discovered, it is seen that four of them have contributed essentially in the development of the issues that are currently present (Fratzscher et al., 2016).
The limitations in the financial markets have sustained and in this aspect, they are related with the data asymmetries among the debtors and the creditors and have been the reason for the financial issues within the economy. Distinctively, the financial infection issues and the uncertainties within the financial decisions and the financial unpredictability could be the outcome of the remunerations in these asymmetries (Desbordes, & Wei 2017).
Due to the fact that the financial markets have been globalised, the representatives perform in several markets and have the benefit to move the capital swiftly and reasonably from one location to the other (Guan, & Yam 2015). The significance and the preciseness of the organizational investors have increased.
In the distinct scenario, with respect to financial organizations, it is seen that financialization have led to decisive after effects within which the bodies operate internally, which means that the alterations have taken place in the corporate governance of the companies and within their models as well.
The corporate governance that is seen within the financial bodies is one of the factors that have led to the current issues and problems. Therefore, this issue has been handled descriptively with the stress on the several aspects of governance that have influenced the crisis.
Corporate governance has essentially caught the actions that have been discovered in the literature that are academic and even from the insolvencies of the business that have taken place in the current time period. There have been several researches that have been based on this issue and series of principles, laws and codes have been incorporated in order to enhance the standards that manage corporate governance and explain the limitations that have been discovered (Samargandi et al., 2015). In spite of the contributions that have been made in the last few years in order to enhance corporate governance, it is seen that the issues associated with corporate governance has been sorted out as vital for addressing what is happening during the issue.
Asongu, (2015) explained corporate governance to be the process with the help of which the organizations are controlled and managed. In this manner, it associates to the series of the associations among the different parties who are interested within the firm and the ones that administers it and surrounds to the agreements, techniques and the processes for the purpose of making decisions that tries to make sure that the management implied within the firm by the managers are in accordance to the objectives of the shareholders and the parties who are very much interested.
It is seen that more than one aspect can be taken into consideration in order to take a decision about which engrossed entities needs to be regarded within the management of the firm. There has been an opinion based on the orientation of the shareholders that look to create the goals of corporate governance and it is seen that the interests of the shareholders need to be taken into consideration.
The stakeholder orientation incorporates a bigger point of view and discovers that there are several associated collectives which comprises of the suppliers, employees, society, customers, investors etc needs to be provided with the opportunity to safeguard their interests by undertaking participation in the governing bodies of the financial entities and it is seen that without the stakeholders the organization may not be successful.
Christiaens et al., (2015) explained that the first point of view is the general orientation that is implied within the organizations and within the last few years this has been applicable in the financial entities. There have been researches that have recommended that in a general point of view only a part of the management of a firm is based on the orientation of the shareholders. Therefore, the actual orientation of the management is very hard to explain in accordance to a vigorous experiential point of view.
The other feature of the present corporate governance has been that their main goal has been to explain the limitations that roots from the separation among the control and the ownership of the organization. In the same way, the intention of governance should be arrangement of the managerial actions with the objectives of the firm and this has been to optimise the wealth and the income of the shareholders. Johnson, & Barnes (2015) cited that by looking at the approach of the shareholder orientation, towards the corporate governance of the companies, they become very much sensitive towards the desires and the rights of the shareholders and hence the corporate governance looks to generate processes that assures that the management is controlled by the agreements, requires certain amount of mechanisms and undertakes decisions that would be beneficial to the interests of the proprietors of the firm.
Summary of the Literature
The literature that has been constructed has looked to address the financial globalization and how it had an impact on the financial market and therefore several aspects related to financial globalization has been explained. The aspects that are related to financial globalization are helpful in creating an understanding how financial markets have been developing and the issues that are existent within the financial market and the actions that can be taken in order to mitigate these issues. The literature is helpful in creating an idea about the kind of data that would be essential for this research and therefore the methodology of the research can be constructed accordingly.
The methodology section consists of addressing the viewpoints and the processes that have been implied in order to attain true and fair data and accordingly assess the data with the help of which effective results can be obtained. It is essential to understand the sort of data that is relevant to the research and thereby collect that kind of data. The approach that is used in order to collect the data is even addressed so that the readers can gain the source of the data. The researcher has undertaken several steps with the help of which the understanding of the relevant data has been gathered and accordingly steps and actions that are undertaken in order to collect the data for the purpose of analysis is even known.
The approach of the research constitutes of the model, structure and frameworks that would be used by the researcher in order to gather the data that is relevant to the current topic. There are two sorts of approaches that are available to the researchers and it is seen that the approach that would be taken into consideration would be in regards to the topic in this paper. The researcher in this paper has chosen deductive approach because of the fact that the secondary data would be used and therefore data from several internet sources and articles (Cerutti et al., 2015). The researcher has therefore implied the theories and the models that are already existent and therefore deductive approach is ideal for this paper. The researcher has not selected the inductive approach because of the fact that the new sets of theories and models will not be constructed by the researcher and therefore this approach is not suitable.
The design of the research would be based on the style and the strategies that would be used on order to come out with effective and desirable results. The design is constructed so that the researcher can have an idea of the course that would be maintained in order to complete the paper in an effective manner. There are three sorts of designs that are available to the researcher and they are descriptive, explanatory and exploratory. The design would be based on the current topic and as the researcher would take assistance of the studies that have been undertaken previously and even gather data from the internet and the website sources, therefore descriptive research design would be selected (Caprio Jr et al., 2014). It is seen that the researcher has the aim of creating a new result by making use of the data that is already available and therefore description of the data becomes essential.
The methodology of the paper addresses the process with the help of which the researcher can collect the data and accordingly undertake the analysis process. The researcher in this paper has applied qualitative methodology because of the fact that qualitative data analysis has been undertaken. The researcher has tried to undertake qualitative data analysis by constructing a thematic analysis with the help of which effective results can be attained. The thematic analysis would be undertaken by taking assistance of the theories and the models that are available in the market and accordingly undertake the assessments and reach the desired outcomes.
The researcher in this paper has decided to make use of secondary data simply because of the impact of financial globalization would be understood with the help of the results and the information that are already available in economy so that an understanding can be attained with respect to the impacts it had earlier the issues that are still pertinent at the current time period. The secondary data has been collected from the several internet sources and the data that is related to financial market and financial globalization has only been taken into consideration. The researcher has even expanded the vision of collecting data and therefore has taken assistance of many articles and journals that have been published by several researchers in order to have an understanding of what other researchers have recommended and even have an idea about the changes that have taken place in accordance to the changes in time (Chang, 2015). Qualitative data would be used by the researcher in order to attain effective results and this is the kind of data that is ideally suited for this kind of topic.
The data analysis plan and the methods are required to be explained in order to have an understanding of the assessment process that would be used in order to have positive and conclusive results. It is known that secondary data would be used for this paper and therefore qualitative data analysis would be undertaken. The qualitative data analysis that would be used by the researcher would comprise of thematic analysis with the help of which the researcher would unveil certain themes and aspects that are in relation to financial globalization and its impact and accordingly would explain the same in order to attain the results that is desirable from the aspect of the researcher (Fang et al., 2015). The thematic analysis would bring out the essential facts that are related to this topic and thereafter would discover the results that would be helpful in explaining the impacts of the financial globalization in the financial market of Australia.
Ethics is regarded as the one of the most essential factors that every researcher takes into account in order to deliver effective and conclusive results. There are several codes of ethics that have been laid down by the researchers and the researcher takes into account the codes that are generally acceptable. Therefore, true and fair data and data collection resources have been used by the researcher in order to collect precise and effective level of data with the help of which the results that would be obtainable would be valid and relevant (Brown et al., 2015). The consideration of the ethics would be effective in creating satisfaction among the readers as well as they feel the research that is conducted is genuine and the results that would be gathered would be effective as well.
The data analysis segment of the research paper has the idea of providing extensive knowledge on the aspects that are related to the financial globalisation and accordingly create an idea about the aspects so that extensive results can be attained. The thematic analysis that would be prepared in this section of the paper would try to highlight on the aspects and the areas that are related to financial globalization and accordingly attain the results that would be helpful in the creation of effective results.
Financial Globalization enhance development of the financial market in Australia
This section is looking to address the theoretical opportunities of financial globalization for economic development and thereafter examine the empirical evidence. In principle, the financial globalization can increase the level of development in the developing nations with the help of several mediums. There are certain aspects that impact directly the determinants of the economic development (O’Connell, 2015). The indirect mediums, certain scenarios can be even more vital than the ones that are direct and is inclusive of the rise in the level of specialised production and this has been due to enhanced level of management of risk and the developments that are seen in the macroeconomic organizations and the policies that are induced by the competitive burdens or the disciplinary impacts of globalization.
Cakan et al., (2015) explained that the average per capita income for the section of more financially open economies develops at a more extensive rate than that of the sections of economies that are not financially open. The fact that this is actually a causal relationship and whether the correlation is vigorous to the management of the other factors, but has remained questions that has remained unresolved. There have been several results that have not provided results that is conclusive. There have been few researches that have discovered positive impact of financial combination on the development. The mainstream results have significantly have recognised that either no impact or at the optimum the mixed impacts. Therefore, results have explained that there exists no strong, vigorous and uniform assistance for the theoretical debates that financial globalization provides increased rate of the economic development.
As explained by Salahuddin et al., (2015), most of the differences in the cross country in the stem of the per capita income and not from the variations in the capital labour ratio but from the differences in the overall productivity factor, which can be addressed by the “soft” features like governance and the regulation of law. In this scenario, even though taking in financial globalization may lead to increased inflow of the capital, it would be unlikely to be itself that would lead to an increased level of development. Furthermore, it is seen that some of the nations that have incorporated liberalization of the capital account have gone through output downfalls associated to the expensive banking or the crisis of the currency. The substitute possibility as addressed previously is that financial globalization nurtures enhanced organizations and the nationalised policies but the indirect mediums cannot be attained within the framework of standard regression.
It can be said that even though financial globalization theoretically can be helpful in promoting economic developments with the help of numerous mediums, there is no conclusive empirical evidence that this causal relationship is quantitatively very vital (Enowbi Batuo, & Asongu 2015). This leads to an interesting differentiation among the financial candidness and the trade candidness as an extensive majority of the previous research have discovered that the latter has an optimistic impact on the economic development.
Financial Globalization on Macroeconomic Volatility
Dijkstra et al., (2015) explained that financial globalization can assist the developing nations to effectively take care of the consumption and the output volatility. There have been several researches that have explained that consumption volatility relative with respect to the output would decline as the extent of the financial assimilation rises, the principle of global financial diversification is that a nation has the ability of shifting some of the income risk towards the global market. As it is seen that most of the developing nations are rather experienced in their output and the factor endowment frameworks and this can in theory gather even better profits and gains than the developed nations with the help of international consumption of the risk sharing and this is done by efficiently selling out the stakes within their internal output in order to gather a stake in the worldwide output. There has been a question that is relatively associated to gaining an understanding of the fact that in spite of the volatility in the output that is faced by the developing nations who have gone through financial issues, it is seen that financial assimilation has safeguarded them from the volatility of consumption (Miyajima et al., 2015). It is seen that distinctively even though the volatility of the development of the output on an aggregate has fallen in the year 1990s, which is relative to the earlier decades, it is seen that the consumption development volatility in accordance to the income development has on an aggregate has developed for the developing market economies during the year 1990, which was effectively the time frame of a fast rise in the extent of financial globalization.
Starkey, (2015) explained that looking at the data precisely would lead to an understanding of the impacts that take place in the beginning. At the lower level of the financial assimilation, a rise in the extent of the financial integration is related to a rise in the relative consumption volatility. At the time when the financial integration goes past the threshold, the relativeness becomes negative. It can even be said that nations that are adequately financially open, it is seen that relative volatility of consumption starts falling down. This discovery has been consistent potentially with the idea that the integration of the international finance can be helpful in developing the national financial sector and this in turn can be helpful in moderating the volatility within the macro economy. It is seen that these benefits and the profits of financial integration have looked to take place essentially in the industrial nations.
In this aspect, the propagation of the financial issues within the developing countries is generally looked upon to be as a natural outcome of the “developing pains” related with the financial globalization. This can several kinds of forms like for instance, the international investors have the habit of undertaking momentum herding and trading, which may be destabilizing for the developing and the developed economies (Park, & Mercado 2014). The international investors may undertake hypothetical occurrences on the currencies of the developed countries and thereby creating instability that is not desired reliant on their policy and the economic fundamentals.
There are certain empirical assistances for the speculative impacts. For instance, there are several evidences that have discovered that international investors gets engaged in increased momentum and herding trading in the developing markets than the developed nations (Loutskina, & Strahan 2015). There have been current researches that even recommend that the presence of the infections in the capital markets look to gather unsustainability in the increased level of outside debts.
Role of the Governance and Institutions in effects of Globalization
Even though it becomes hard to discover an easier relationship among financial globalization and development or the volatility consumption, there are certain evidences of the threshold and the nonlinearities impacts within the relationship. Financial globalization with the combination with effective macroeconomic regulations and effective governance looks to be beneficial to the development (Chavas et al., 2014). For instance, the nations with effective level of human capital and the governance look to be better in influencing the foreign direct investment that plays a key role in development. To be more, precise, the current researches explain that corruption has strong and negative impacts on inflow of foreign direct investment.
The extent of vulnerability of the developed countries towards the risk factors related to financial globalization is not independent from the macroeconomic regulation policies and the corporate governance that is existent within the business (Foley, & Manova 2015).
Therefore, the capability of a developing nation has been to gain the opportunities from financial globalization and its associated vulnerabilities to the international capital flow volatility which can be affected significantly by the quality of organizations and the macro-economic model.
The results that have been attained from financial globalization has explained that there are certain positive and negative impacts that are related to financial globalization and therefore these aspects have an impact on the financial markets and therefore the companies related to the financial market constructs strategies with the help of which they can mitigate the negative impacts and accordingly make use of the positive aspects in order to enhance their operational activities.
Conclusion, Recommendation and Future Work
The current paper has looked to create an idea about financial globalization and how it has an impact on the financial market. The background that has been constructed for this paper is with reference to the history of financial globalization and how it has been a significant factor in the past and the current financial scenario. The background has even explained the transformations that have taken place with the advent of financial globalization with respect to the financial activities that have taken place with the use of the traditional process. The background has even given out a brief understanding of the financial market in Australia. The problem statement has looked to highlight the issues that are pertinent in the financial market in accordance to the incorporation of financial globalization. The issues that are pertinent to the topic are specifically highlighted and the issues that are mostly significant would be taken into consideration. The justification for undertaking the research is even highlighted so that the reader can have the idea about the significance of the topic and how development of the answer with regards to the topic would provide significant amount of results. The aims and the objectives of the paper is constructed in order to have a clear idea about the elements and the aspects with respect to which outcome of the paper can be attained. The literature that has been constructed is based on the aspects and the elements that have been discovered by the several other researchers and explanation of these variables in accordance to financial globalization have been put forth as well. Empirical analyses of the variables that have been explained by the researchers have been explained in order to have a proper understanding on financial globalization. The assessment of these aspects have been helpful in improving the understanding with the help of which outcome of the current paper has been attained.
The methodology that has been constructed has looked to explain the data that would be collected and the kind of data that is ideally suited with the help of which the data analysis process can be undertaken. The thematic analysis is undertaken in order to explicitly address the issues that are pertinent and accordingly extensive understanding of the topic can be attained. Secondary data has been used with the help of which impact of financial globalisation on the financial market can be understood. The deductive approach has been used along with descriptive design has been undertaken in order to undertake an effective level of outcome of the paper. The results that have been obtained is in accordance to the objectives that have been addressed earlier. It is seen that efficiency of the result can be determined only when the outcome is able to address the objectives of the paper. Therefore, understanding of the result would be done in an effective manner.
Objective 1: To have knowledge about the present patterns in the financial markets
The results that have been gathered with the help of the thematic analysis has explained the fact that financial market in the current time period has maintained an extensive pattern with the help of which the financial market would be able to maintain a comprehensive structure with the help of which all the aspects of the financial market can be covered and accordingly the interaction among the international economies and the domestic economies can be developed.
Objective 2: To recognise the benefits and the threats that is related to financial globalization
This objective has been extensively explained as it is seen that all the benefits and the threats associated to financial globalization has been explained and in the same way how these benefits and threats have an impact on the financial market has been addressed in an effective manner. Hence, the outcome has been competent enough in explaining the threats and the benefits of financial globalization.
Objective 3: To have an understanding of the effect of financial globalization on the financial market
The explanation of the benefits and the threats related to financial globalization has been helpful in addressing the impacts it has on the financial markets and the results have been able to explain that positive impacts of financial globalization is higher than the negative ones. Therefore it can be said that the financial globalization has been able to enhance the activities of the financial market and in the same way has led to the development of the economies. The level of impact has been higher for the developed countries with respect to the countries that are still developing.
The explanation of the objectives in accordance to the outcome of the paper has been able to explain the fact that the outcome is successful in addressing the objectives and therefore the gathered outcome is precise and authentic.
The results that have been gathered has been helpful in the creating an idea regarding financial globalisation and accordingly take create suggestions that would be effective enough in creating a better structure for the financial market. It is recommended that the financial market and the parties associated to the financial market construct effective strategies and plans with the help of which they are able to effectively utilise the benefits of financial globalization and simultaneously are able to mitigate the issues that are associated to financial globalization. It is even suggested that the activities related to financial globalization is assessed from time to time in order to understand the changes that are taking place and accordingly change their plans and policies as well. The incorporation of these recommendations can be helpful in the development of better and effective financial market and optimum usage of financial globalization.
Future work on this topic is possible as there would be changes in the financial market as well with the advent of time. The development of the financial market would be lead to incorporation of new and improved tools and therefore the impact on these tools by the financial globalization can be assessed in a better manner. It is even seen that future research on this topic would create different results with the help of which a comparison can be made with the current research and the effectiveness of the research and the changes of the impact of financial globalization in the financial market would be understood in a better manner.
Ahmed, S., Coulibaly, B., &Zlate, A. (2017). International financial spillovers to emerging market economies: How important are economic fundamentals?. Journal of International Money and Finance, 76, 133-152.
Aizenman, J., Chinn, M. D., & Ito, H. (2016). Monetary policy spillovers and the trilemma in the new normal: Periphery country sensitivity to core country conditions. Journal of International Money and Finance, 68, 298-330.
Arcand, J. L., Berkes, E., & Panizza, U. (2015). Too much finance?. Journal of Economic Growth, 20(2), 105-148.
Asongu, S. (2014). Financial development dynamic thresholds of financial globalization: evidence from Africa. Journal of Economic Studies, 41(2), 166-195.
Asongu, S. (2015). Liberalisation and financial sector competition: a critical contribution to the empirics with an African assessment. South African Journal of Economics, 83(3), 425-451.
Asongu, S. A., & De Moor, L. (2017). Financial globalisation dynamic thresholds for financial development: evidence from Africa. The European Journal of Development Research, 29(1), 192-212.
Banerjee, R., Devereux, M. B., & Lombardo, G. (2016). Self-oriented monetary policy, global financial markets and excess volatility of international capital flows. Journal of International Money and Finance, 68, 275-297.
Bekaert, G., Ehrmann, M., Fratzscher, M., & Mehl, A. (2014). The global crisis and equity market contagion. The Journal of Finance, 69(6), 2597-2649.
Bénétrix, A. S., Lane, P. R., &Shambaugh, J. C. (2015). International currency exposures, valuation effects and the global financial crisis. Journal of International Economics, 96, S98-S109.
Bordo, M. D., &Haubrich, J. G. (2017). Deep recessions, fast recoveries, and financial crises: Evidence from the American record. Economic Inquiry, 55(1), 527-541.
Borio, C. (2014). The financial cycle and macroeconomics: What have we learnt?. Journal of Banking & Finance, 45, 182-198.
Borio, C., Disyatat, P., & Juselius, M. (2016). Rethinking potential output: Embedding information about the financial cycle. Oxford Economic Papers, 69(3), 655-677.
Broner, F., & Ventura, J. (2016). Rethinking the effects of financial globalization. The Quarterly Journal of Economics, 131(3), 1497-1542.
Brown, L. D., Call, A. C., Clement, M. B., & Sharp, N. Y. (2015). Inside the “black box” of sell?side financial analysts. Journal of Accounting Research, 53(1), 1-47.
Bruno, V., & Shin, H. S. (2015). Capital flows and the risk-taking channel of monetary policy. Journal of Monetary Economics, 71, 119-132.
Cakan, E., Doytch, N., & Upadhyaya, K. P. (2015). Does US macroeconomic news make emerging financial markets riskier?. Borsa Istanbul Review, 15(1), 37-43.
Caprio Jr, G., D’Apice, V., Ferri, G., & Puopolo, G. W. (2014). Macro-financial determinants of the great financial crisis: Implications for financial regulation. Journal of Banking & Finance, 44, 114-129.
Cerutti, E., Hale, G., & Minoiu, C. (2015). Financial crises and the composition of cross-border lending. Journal of International Money and Finance, 52, 60-81.
Chaney, T. (2016). Liquidity constrained exporters. Journal of Economic Dynamics and Control, 72, 141-154.
Chang, S. C. (2015). Effects of financial developments and income on energy consumption. International Review of Economics & Finance, 35, 28-44.
Chavas, J. P., Hummels, D., & Wright, B. D. (2014). Introduction to" The Economics of Food Price Volatility". In The Economics of Food Price Volatility (pp. 1-11). University of Chicago Press.
Christiaens, J., Vanhee, C., Manes-Rossi, F., Aversano, N., & Van Cauwenberge, P. (2015). The effect of IPSAS on reforming governmental financial reporting: an international comparison. International Review of Administrative Sciences, 81(1), 158-177.
Claessens, S., & Van Horen, N. (2015). The impact of the global financial crisis on banking globalization. IMF Economic Review, 63(4), 868-918.
Claessens, S., &Horen, N. (2014). Foreign banks: Trends and impact. Journal of Money, Credit and Banking, 46(s1), 295-326.
Desbordes, R., & Wei, S. J. (2017). The effects of financial development on foreign direct investment. Journal of Development Economics, 127, 153-168.
Dijkstra, L., Garcilazo, E., & McCann, P. (2015). The effects of the global financial crisis on European regions and cities. Journal of Economic Geography, 15(5), 935-949.
Enowbi Batuo, M., & Asongu, S. A. (2015). The impact of liberalisation policies on income inequality in African countries. Journal of Economic Studies, 42(1), 68-100.
Erel, I., Jang, Y., & Weisbach, M. S. (2015). Do acquisitions relieve target firms’ financial constraints?. The Journal of Finance, 70(1), 289-328.
Fang, L., Ivashina, V., & Lerner, J. (2015). The disintermediation of financial markets: Direct investing in private equity. Journal of Financial Economics, 116(1), 160-178.
Fernandez, R., & Aalbers, M. B. (2016). Financialization and housing: Between globalization and Varieties of Capitalism. Competition & Change, 20(2), 71-88.
Fligstein, N., & Habinek, J. (2014). Sucker punched by the invisible hand: the world financial markets and the globalization of the US mortgage crisis. Socio-Economic Review, 12(4), 637-665.
Foley, C. F., & Manova, K. (2015). International trade, multinational activity, and corporate finance. economics, 7(1), 119-146.
Fratzscher, M., Duca, M. L., & Straub, R. (2016). ECB unconventional monetary policy: market impact and international spillovers. IMF Economic Review, 64(1), 36-74.
Galaz, V., Gars, J., Moberg, F., Nykvist, B., &Repinski, C. (2015). Why ecologists should care about financial markets. Trends in ecology & evolution, 30(10), 571-580.
Georgiadis, G. (2016). Determinants of global spillovers from US monetary policy. Journal of International Money and Finance, 67, 41-61.
Gilchrist, S., Schoenle, R., Sim, J., & Zakrajšek, E. (2017). Inflation dynamics during the financial crisis. American Economic Review, 107(3), 785-823.
Gilje, E. P., Loutskina, E., & Strahan, P. E. (2016). Exporting liquidity: Branch banking and financial integration. The Journal of Finance, 71(3), 1159-1184.
Guan, J., & Yam, R. C. (2015). Effects of government financial incentives on firms’ innovation performance in China: Evidences from Beijing in the 1990s. Research Policy, 44(1), 273-282.
Haas, R., &Lelyveld, I. (2014). Multinational banks and the global financial crisis: Weathering the perfect storm?. Journal of Money, Credit and Banking, 46(s1), 333-364.
Jauch, S., & Watzka, S. (2016). Financial development and income inequality: a panel data approach. Empirical Economics, 51(1), 291-314.
Johnson, J., & Barnes, A. (2015). Financial nationalism and its international enablers: The Hungarian experience. Review of International Political Economy, 22(3), 535-569.
Karppi, T., & Crawford, K. (2016). Social media, financial algorithms and the hack crash. Theory, Culture & Society, 33(1), 73-92.
Kodila-Tedika, O., & Asongu, S. A. (2015). The effect of intelligence on financial development: a cross-country comparison. Intelligence, 51, 1-9.
Loutskina, E., & Strahan, P. E. (2015). Financial integration, housing, and economic volatility. Journal of Financial Economics, 115(1), 25-41.
Meyer, S., Wagener, M., & Weinhardt, C. (2015). Politically motivated taxes in financial markets: The case of the french financial transaction tax. Journal of Financial Services Research, 47(2), 177-202.
Miyajima, K., Mohanty, M. S., & Chan, T. (2015). Emerging market local currency bonds: diversification and stability. Emerging Markets Review, 22, 126-139.
O’Connell, A. (2015). European crisis: a new tale of center–periphery relations in the world of financial liberalization/globalization?. International Journal of Political Economy, 44(3), 174-195.
Ongena, S., Peydró, J. L., & Van Horen, N. (2015). Shocks abroad, pain at home? Bank-firm-level evidence on the international transmission of financial shocks. IMF Economic Review, 63(4), 698-750.
Park, C. Y., & Mercado Jr, R. V. (2014). Determinants of financial stress in emerging market economies. Journal of Banking & Finance, 45, 199-224.
Passari, E., & Rey, H. (2015). Financial flows and the international monetary system. The Economic Journal, 125(584), 675-698.
Philippon, T. (2015). Has the US finance industry become less efficient? On the theory and measurement of financial intermediation. American Economic Review, 105(4), 1408-38.
Rey, H. (2016). International channels of transmission of monetary policy and the mundellian trilemma. IMF Economic Review, 64(1), 6-35.
Salahuddin, M., Gow, J., & Ozturk, I. (2015). Is the long-run relationship between economic growth, electricity consumption, carbon dioxide emissions and financial development in Gulf Cooperation Council Countries robust?. Renewable and Sustainable Energy Reviews, 51, 317-326.
Samargandi, N., Fidrmuc, J., & Ghosh, S. (2015). Is the relationship between financial development and economic growth monotonic? Evidence from a sample of middle-income countries. World Development, 68, 66-81.
Shahbaz, M., Mallick, H., Mahalik, M. K., & Sadorsky, P. (2016). The role of globalization on the recent evolution of energy demand in India: Implications for sustainable development. Energy Economics, 55, 52-68.
Starkey, K. (2015). The strange absence of management during the current financial crisis. Academy of Management Review, 40(4), 652-663.
Tchamyou, V. S., & Asongu, S. A. (2017). Information sharing and financial sector development in Africa. Journal of African Business, 18(1), 24-49.
Telò, M. (2016). Introduction: Globalization, new regionalism and the role of the European Union. In European Union and New Regionalism (pp. 25-46). Routledge.
Thalassinos, I. E., Pintea, M., &Ra?iu, I. P. (2015). The Recent Financial Crisis and Its Impact on the Performance Indicators of Selected Countries during the Crisis Period: A Reply. International Journal of Economics and Business Administration, 3(1), 3-20.
Van der Zwan, N. (2014). Making sense of financialization. Socio-economic review, 12(1), 99-129.
Yeyati, E. L., & Williams, T. (2014). Financial globalization in emerging economies: Much ado about nothing?. Economía, 14(2), 91-131.
To export a reference to this article please select a referencing stye below:
My Assignment Help. (2020). Impact Of Financial Globalization On The Financial Market Essay.. Retrieved from https://myassignmenthelp.com/free-samples/bs1054-accounting-for-managers/impact-of-financial-globalization-on-the-financial-markets.html.
"Impact Of Financial Globalization On The Financial Market Essay.." My Assignment Help, 2020, https://myassignmenthelp.com/free-samples/bs1054-accounting-for-managers/impact-of-financial-globalization-on-the-financial-markets.html.
My Assignment Help (2020) Impact Of Financial Globalization On The Financial Market Essay. [Online]. Available from: https://myassignmenthelp.com/free-samples/bs1054-accounting-for-managers/impact-of-financial-globalization-on-the-financial-markets.html
[Accessed 10 December 2023].
My Assignment Help. 'Impact Of Financial Globalization On The Financial Market Essay.' (My Assignment Help, 2020) <https://myassignmenthelp.com/free-samples/bs1054-accounting-for-managers/impact-of-financial-globalization-on-the-financial-markets.html> accessed 10 December 2023.
My Assignment Help. Impact Of Financial Globalization On The Financial Market Essay. [Internet]. My Assignment Help. 2020 [cited 10 December 2023]. Available from: https://myassignmenthelp.com/free-samples/bs1054-accounting-for-managers/impact-of-financial-globalization-on-the-financial-markets.html.