Globalization is a supporting, edifying and ideological configuration in order to build an utterly material process. However, within the financial perspective globalization refers to product market and labor distribution respectively (Rybiński, p. 1). This essay seeks to analyze the benefits of globalization on financial markets.
The benefits of globalization in financial markets
However, with the aid of the Google search engine that is applicable within the global scope, globalization interconnected countries and states, in order to be engaged in an income-generating activity. Due to the global concern, it was necessary to settle on one language that is common in order to financially respond to the challenging language barrier (Rybiński, p. 4). The global society came up with a summary of information and rules to cover the misinterpretation of the information that would lead to better communication and self-discipline. Nonetheless, globalization processes enhanced labor productivity in a more effective way.
However, through globalization, the partner country is also informed on the strategies, which will balance the market. Globalization is part of a wider phenomenon in the financial market with respect to the national economies. Conversely, proper communication resulted in rapid growth in trade for both goods and services that simultaneously led to the increase in capital flaws. Through proper communication between the local and the international traders, interested counties came together in order to discuss how best they could increase their market financing (Rybiński, p. 6).
In addition, globalization is responsible for the financial market growth, in case of change in trade governing policies within the specific country, it will still be cost-effective. Not every country is specialized in the manufacture of technological and communicational equipment, but through the interconnection in globalization, other sources of the financial market would arise. The introduction of the euro has eliminated the FX risk and contributed to the abolition of investment limits related to the items of securities portfolio denominated in foreign currency. This has lowered the cost of raising capital from 0.5 to 3 percentage points.
The risks of globalization in financial markets
Globalization in the financial market is never safe; however, the investors in most cases risk their products and services. When investors have low expectations, then the corresponding rates of return are likely to be low which is very risky to the investor. However, the shareholder, management and supervisory teams should be closely monitored in order to avoid the shortcomings that may taint the reputation of the organization as this would increase the risk of having low returns, while the aim of the financial markets is to maximize profits. Lack of worldwide incorporation of financial markets enabled worse risk diversification. Also, asymmetry due to lack of simplicity increased the risk of tentative bubbles and direct conduct of shareholders.
The risk of uneven access to the world markets surroundings might lead to a negative perception during the financial selection of the enterprise division having the moral hazard is a situation that can be jeopardized by the bankruptcy of a given institution in the banking sector. In addition, global links of institutions and the speed at which information is transferred among the market to streamline communication can result in a great risk to all the stakeholders in the financial markets, hence withdrawing their interest in the business. Moreover, financial liberalization lowers the figure of apparatus, which regulates the banking activities. Unfavorable globalization effect acts as the centralization of dangerous supervision and from time to time, even the liquidity administration at the bank collection level might be affected as well (Rybiński, p. 19).
Owing to the experience obtained from the developed world, the developing countries may modernize faster than ever before. However, both the manufacturers and customers in developed countries often take advantage of access to a huge global labor market, which lowers the manufacturing costs in order to enhance efficiency and lower the prices of most of the goods and services. The producers and consumers are beneficiaries of the globalization of financial markets, which offers a variety of products and services to enable better risk adjustment and expected return to the interest of the borrowers and investors (Rybiński, p. 24).
Rybiński, Krzysztof, Globalization Versus Financial Markets. Cracow University of Economics, 2006.