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GLOBALIZATION.
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Discusses the financial effects.... More...
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Paper Abstract:
Discusses the financial effects. Development of cross-border economic flows. International capital mobility, the internationalization of the American dollar, cross-border security purchases. Importance of the dollar in the new global economic era. International private and corporate investors. Impact on stock exchanges. Social and political effects of globalization.
Paper Introduction:
The Financial Effects of Globalization
Over the course of the past half century, technological and political changes have diminished the barriers separating nations, resulting in a world that has become increasingly integrated in terms of economic systems (Obstfeld, 2000). Though labor mobility remains low, cross-border economic flows have increased dramatically since World War II, leading to an era of “globalization” in which international capital mobility, the internationalization of the American dollar, and cross-border security purchases have become commonplace (Obstfeld, 2000). This brief report will examine the financial effects of globalization and will argue that these effects are likely to continue and increase in coming years.
Harper, Harper and Coronel (2002) pointed out that the process of “d
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economy, despite recent downturns) makes itappealing to countries with weaker currencies. ElSalvador, Panama, and Ecuador have adopted the dollar, and Mexico wouldlike to follow suit (Harper, et al, 2 2). This practice also allows a company toincrease its overall wealth and holdings and to spread its investment riskacross several different markets. Journal of Investing, 1 (3), 43-5 . Finance &Development, 39(1), 1 -13. Financial andnonfinancial entities are benefiting form this transformation. Harper, Harper and Coronel (2 2) pointed out that the process of"dollarization" in which individuals and companies prefer to deal indollars is increasing in popularity as globalization increases. The launch of the euro in January 1999 eliminated currency riskwithin the euro zone and made it possible for investors in one country inthe EU to place their funds in other countries. (2 2). The globalization of finance. (2 1). However, as Rafferty (2 ) suggests, it is going to be increasinglyimportant to develop accountability and regulatory mechanisms that improvethe functioning of markets in some countries or regions. Roche (2 2) also commented on the importance of the dollar in thenew global economic order. In the long run, Barnes,Bercel, and Rothmann (2 1) maintain that the integration of markets andthe creation of the dollar as the dominant currency of the world will helpto further expand the flow of capital across markets. Foreign Affairs, 78 (3), 18-19. (2 ). Another example of globalization was described by Kroll (2 2). Roche (2 2) believes that the strength of thedollar (and of the U.S. M. NBER Reporter,Fall, 18-22+. The need todiversify portfolios internationally is leading many investors to enhancetheir risk-adjusted returns. (2 2). (2 2). However, the standardization of accounting rules and securitieslaw tends to lag behind the flow of capital from one country to another.Hausler (2 2) believes that advances in information technology will beenormously helpful in creating seamless market systems and internationalfinancial institutions. Thiswriter pointed out that the stock exchanges themselves are going global.Over the course of the next five to ten years, transactions on the stockexchanges are expected to be between companies and investors from differentcountries. At the wholesale level, national financialmarkets are being integrated into a single global financial system. Regional exchanges are increasing in number and in tradevolume. Finance in general, says Rafferty (2 ), has developed a huge globalexistence beyond the limits of "national capital markets." The Eurobondmarket is an example of this integration, just as the European Union (EU)and its currency (the euro) are examples of the financial integration ofmarkets. Globalization is therefore an economic process withfar-reaching social and political effects. Banking systems in the major economic powerhouse countries have gonethrough a deregulation process which is also important in globalization.Hausler (2 2) stated that competition among the providers of financialservices has increased as a result of this process. Bidding without boundaries: Public manufacturingcompanies will need to reach out to a world of investors as stock exchangesgo global. Globalization and macroeconomics. H. Though labor mobility remains low, cross-border economicflows have increased dramatically since World War II, leading to an era of"globalization" in which international capital mobility, theinternationalization of the American dollar, and cross-border securitypurchases have become commonplace (Obstfeld, 2 ). dollar astheir own currency. Themajor financial centers serve borrowers and investors around the world.Borrowers and investors in various stages of economic and financialdevelopment can access capital in international markets. If one market becomes troubled, thecompany or the investor can still count on profits from another market.Relaxed rules governing the flow of capital from one market to another isseen by Rafferty (2 ) as facilitating this process. Both investors and the entities in which they invest are likely tobenefit from this process. Roche, Roche, D. For example, in mid-2 , the New York Stock Exchange announcedalliances with exchanges in Asia, Europe, Canada, and Mexico. Journal of International Business Studies,31(1), 193-195+. It would have the effect of slowing runaway inflation, aneconomic problem that negatively impacts upon many national economies. Obstfeld, M. The appealof the dollar as a currency of choice is that it is seen by many economistsas more stable than other currencies. Rafferty (2 ) believes it is increasingly difficult to separatethe "domestic" from the "international" element or presence in anyfinancial market. Barnes, Bercel, and Rothmann (2 1) claim that globalization isleading to a reevaluation of country and sector effects on securityreturns. Improvedelectronic telecommunications platforms are making this possible. Similarly, Kroll (2 2) believes that theestablishment of commonly accepted accounting standards is also helping todrive globalization and the development of regional or cross-borderexchanges. What this means, says Kroll (2 2), is that companies willneed to market their financial stories on the global level in order toaccess the global investor. Financial markets in transition - Globalization,investment and economic growth. Rafferty, M. The CPA Journal, 72(1), 58-6 . Congress by former Senator Connie MackIII, would allow (if passed into law) nations to adopt the U.S. As investors find it easier to directly buy and sell shares inbusinesses around the globe, it is likely that they will put more of theirmoney into those companies promising the greatest reward, regardless oftheir location. (2 2). Euromoney,January, 26-27. Michael Rafferty (2 ), in an analysis of the transitions occurringin financial markets, noted that from the 197 s on, globalization of suchmarkets has been constant. The International Monetary StabilityAct of 2 , introduced in the U.S. The bill was designed to extend the price stabilitythat has been characteristic of the American economy to other nationaleconomies. Edwards (1999) takes the position that all of these changes willultimately improve the status of economic systems in the developing world.Just as globalization is making it possible to send goods and servicesacross the world, market integration will also send capital across theworld. This will in turnrequire a greater degree of political cooperation between governments thanhas occurred thus far. Hausler, G. S., Harper, P., & Coronel, C. Countries that do not have avibrant capital market are beginning to court investors in order to growtheir economies. Edwards (1999) stated that globalization is making it necessary toput into place capital controls and regulations in markets that haveexperienced economic crises. Kroll, K. Cross-border transactions and interaction are creatinglinkages between a national economy or market and the rest of the world.Uniformity in the rate of return (ROI) on investments is anothercharacteristic of the new era identified by Rafferty (2 ). References Barnes, M. Dollarization:Making international trade seamless. Harper, B. American companies andsecurities are seen by Roche (2 2) as offering a safe haven for people'ssavings and therefore as attractive to international private and corporateinvestors. (2 ). Edwards, S. A., Bercel, A., & Rothmann, S. These factors are creating opportunities for new alliances betweenexchanges. A capital idea? Kroll (2 2) sees several forces driving stock market globalization.Institutional and retail investors want higher returns and won't hesitateto head to other countries to obtain it. Global equities:Do countries still matter? The ability of investors in one country to makemajor investments in the markets and securities of another country offersan opportunity for diversification. The Financial Effects of Globalization Over the course of the past half century, technological and politicalchanges have diminished the barriers separating nations, resulting in aworld that has become increasingly integrated in terms of economic systems(Obstfeld, 2 ). Reasons why the dollar rules. This brief report willexamine the financial effects of globalization and will argue that theseeffects are likely to continue and increase in coming years. (1999). Industry Week, 251(3), 73-76. Capital movements of thedollar add to its strength and appeal and are more important ininternational markets than trade deficits.
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