“the Rapid Expansion of International Financial Market Since Early 1980s Have Integrated the World Economy”. Discuss.
“The rapid expansion of international financial market since early 1980s have integrated the world economy”. Discuss.
The international financial system is a structure of markets within which organizations and individuals trade to support economic commitments made across national borders where buyers and sellers participate in the trade of assets such as equities, bonds, currencies and derivatives. Financial markets are typically defined by having transparent pricing, basic regulations on trading, costs and fees and market forces determining the prices of securities that trade. The international financial market expands rapidly including money and derivatives since early 1980s. The increased integration of financial systems has involved
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International financial market indirectly integrated. The rapid expansion of international financial market will lead to volatility in most of financial products/ portfolios such as currency, interest rate, equities are larger. Moreover, the speed of trading will become very fast and in large scale. For example the new money fueled a level of inflation never before seen in modern Mexico; the inflation rate eventually surpassed 100 percent annually. The administration chose to ignore warning signs of inflation and opted instead to increase spending. Apart from that, movement of asset prices may relate to “herding behavior”, irrational behavior of investors and caused contagion in the markets. Contagion refers to the transmission of a currency crisis throughout a region. Contagion effect of international financial markets is more severe and fast than to commodity markets. In addition, if crisis emerged in major markets it spread quickly to other regions. For instance, any shocks to financial sector in developed countries let say New York Stock Exchange