Impact Of Globalization On Financial Markets

With the advent of the 21st century, the business world has seen an evident increase in globalisation. The competitive boundaries have blurred. Furthermore, a number of domestic markets now interact with each other to form a broader global market. This situation is not limited to the markets of goods and services only but is applicable to financial markets as well. Globalisation has changed the face of financial markets in a number of ways. Some of these include:

  1. Disintermediation of Financial Services
  2. Due to globalisation, the banks in a number of major countries have gone through disintermediation. This means that intermediation now takes place through tradeable securities rather than bank loans and deposits. As a result, the banking system has been facilitated to reduce the degree of risks, specifically credit risk, in their operations.

  3. Increase in International Investment Activities
  4. One of the major effects of globalisation is the increase in cross border financial activity. The investors, because of relaxation in regulatory requirements, can now diversity their investment portfolios. An increasing number of investors are now buying and selling financial securities in international markets.

  5. Development of Intense Competition Among Banking and Non-Banking Financial Institutions
  6. The increase in globalisation has led towards the initiation of a variety of non-banking financial institutions, such as mutual funds. These institutions are now intensely competing with the banking institutions to grab a larger share of savings of the general public. Most of these institutions have been successful in garnering the attention of a large number of investors. This is because the non-banking financial institutions are known for providing people with higher returns and better diversification of risks.

  7. Increase in the Types and Scope of Banking Operations
  8. The increase in cross border trading and financial activities has caused the investors to move to different markets, and reduced savings in banks. In addition to that, the enhancement of the competitive rivalry among banking and non-banking financial institutions has also reduced the profit margins of the banking system.

All of the above has, as a result, has caused the banks to diversify their operations. This diversification of banking operations has been facilitated by the relaxation of the laws and regulations that govern financial markets. The banking system, in the present era, does so much more than just taking deposits and forwarding loans. The banks now work in the areas of funds management, asset management, as well as insurance. This is how the international finance market has globalized itself.