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Globalization of the world capital market.
Globalization of the world capital market refers to the integration and
interconnectedness of financial markets across borders, where investors can buy and
sell financial assets from anywhere in the world and companies can raise capital by
issuing securities in international markets. This integration allows for greater efficiency
in allocating capital across countries, as well as increased opportunities for risk
management and diversification.
According to a report by the IMF(International Monetary Fund) , the
globalization of capital markets has continued to progress over the past few decades,
with international capital flows increasing rapidly in the 1990s and early 2000s before
slowing down following the global financial crisis of 2008-2009.
The globalization of world capital markets is driven by three main factors and
these factors have enabled investors to move capital more freely across borders,
facilitating the integration of financial markets around the world. Three factors are
advances in information and computer technologies, the liberalization of trade policies,
The growth of multinational corporations.
Advances in information and computer technologies: such as high-speed internet
and mobile devices have made it easier for market participants and country authorities
to collect and process the information they need to measure, monitor, and manage
financial risk, access information and execute trades from anywhere in the world; This
has led to increased cross-border investment flows and the emergence of new financial
instruments and investment vehicles.
The liberalization of trade policies. Trade policies that reduce or eliminate
barriers to the movement of goods and services across borders increase competition and
create new opportunities for businesses, especially those that operate in industries with
high capital requirements. As a result, these firms require more capital to grow and
expand, which drives up demand for financing from global capital markets. Trade
policies that provide greater legal protection to foreign investors encourage investment
flows and increase confidence in cross-border financial transactions. This results in lOMoARcPSD| 50032646
more funds being channeled into global capital markets as investors seek higher returns.
Differences in regulatory frameworks across countries can impede the efficient
allocation of capital. Therefore, trade policies that promote harmonization of regulations
and standards facilitate the integration of capital markets across borders.
The growth of multinational corporations (MNCs) has been a key driver of the
globalization of the world capital market. MNCs often invest in foreign markets to
expand their operations and access new customers, leading to increased cross-border
capital flows. MNCs have greater access to global financing due to their size and
presence in multiple markets, allowing them to tap into the world's capital markets for
funding. MNCs have significant technological capabilities, which they leverage to
enhance their production processes and compete more effectively in global markets.
These advancements have contributed to the development of new financial instruments
and trading platforms that facilitate cross-border capital flows. They have significant
political influence and often advocate for policies that promote open markets and free
trade, which can improve access to global capital markets.
c. Increased emergence of new financial market
Globalization of the world capital market has greatly increased the emergence of
new financial markets by creating a larger pool of investors and facilitating the flow of
capital across borders. As more investors from different countries participate in the
global capital market, it creates diversity in investment opportunities and increases the
demand for new financial instruments. The globalization of the world capital market
has also led to the development of new financial products and services, such as
derivatives and structured finance products, which enable investors to manage risk more
effectively and access financing at lower costs. Additionally, the increasing
interconnectedness of financial markets around the world has made it easier for
companies to raise capital on an international scale, leading to the rise of cross-border
listings and the creation of new financial centers.
One example of how globalization of the world capital market has increased the
emergence of new financial markets is the growth of emerging market economies. As
more investors from developed countries seek to diversify their portfolios and access lOMoARcPSD| 50032646
higher returns, they have turned to investing in emerging market stocks and bonds.This
increased demand for emerging market investments has led to the creation of new
financial products and services, such as exchange-traded funds (ETFs) and mutual funds
focused on investing in emerging markets. This has facilitated the flow of capital into
these markets, enabling them to finance their economic growth and development.
Another way in which the globalization of the world capital market has led to the
emergence of new financial markets is through the growth of cross-border listings.
Companies in emerging markets are now able to list their shares on exchanges in
developed countries, giving them access to a larger pool of investors and greater
visibility in global markets. The increasing interconnectedness of financial markets has
led to the rise of new financial centers around the world, such as Shanghai, Dubai, and
Sao Paulo. These centers have emerged as hubs for international finance, providing a
range of financial services to investors and companies operating in different parts of the world.
The globalization of the world capital market has enabled the emergence of new
financial markets by creating opportunities for investors to access new investment
opportunities, facilitating the flow of capital across borders, and promoting the growth
of cross-border listings and new financial centers.
d. Increasing investment diversification/ The growth of international portfolio investment.
Globalization has led to an increase in investment diversification by encouraging
investors to seek out opportunities beyond their domestic market. This has resulted in a
growth of international portfolio investment, which refers to the investment in a variety
of assets such as stocks, bonds, and other financial instruments across different
countries. One example of this growth can be seen in the increased allocation of assets
towards emerging markets. Emerging markets refer to economies that are in the process
of becoming more developed and offer attractive investment opportunities due to their
potential for high economic growth. With the rise of globalization, investors have been
increasingly investing in emerging markets such as China, India, Brazil, and other Asian
and South American countries. The growth of international portfolio investment can be lOMoARcPSD| 50032646
seen in the increasing popularity of index funds. Index funds allow investors to easily
invest in a diversified portfolio of assets across different markets, providing exposure
to international markets with minimal effort and cost. With the growth of technology
and access to information, it has become much easier for investors to identify and invest
in international opportunities, further driving the growth of international portfolio investment.
Globalization has facilitated the growth of international portfolio investment by
providing investors with access to a wider range of investment opportunities, along with
increased transparency and efficiency in global financial markets.