International Financial Markets and Institutions Essay

  • Length: 10 pages
  • Sources: 10
  • Subject: Economics
  • Type: Essay
  • Paper: #90999610

Excerpt from Essay :

due to changes in the economical, financial, political and technological changes, the capital markets across the world are highly influenced by the changes. As compared to the past, the development in the financial sector has been observed to be at the highest rates. In order to understand and analyze the changes in the global capital markets the below report has been constructed.

Based on the theme idea, which is the change in the capital market due to many factors and elements, the report below tends to discuss and analyse the impacts of financial deregulation and capital control on financial globalization and international diversification. This will allow understanding of how these two elements are supporting the financial globalization. A part from this, the report will also analyze the role of financial innovation and advancements and technologies on international investments. Moreover, the risks and benefits that are associated with the carry trade strategy will also be defined in the below report. In the end, the report will also discuss and analyse the view that by borrowing in the international capital markets, whether or not a company can increase its share prices and reduce the cost of capital.

The Impacts of Financial Deregulation and Capital Control on Financial Globalization:

International Diversification: Within the last couple of decades the countries and economies across the world have become more devitrified. Especially when it comes to the financial and economical context, there are many new approaches and techniques that have been adopted by the countries to ensure that they efficiently manage to support their economies and produce the effective results and outcomes. Since the economies have adopted the international diversification mode, this has allowed the economies to reduce the level of risks in the context of investments (Collier & Dollar, 2002). The international diversification enables the countries to invest their capital into more than one country and minimize the risks and threats (Buch, 2004).

Analysis: While assessing the theoretical aspects of the capital control, it has been noted that long discussions are already done on the same topic. Some analysts declared the capital control approach very efficient and effective. According to them the capital control method reduces the level of risks and threats and provides the stronger and efficient bases to work on (Panitch & Leys, 2005). At the other some of the analysts declared that the capital control approach does not create any differences at all. But the concluded point that has been noted in all the researches and report is that when it comes to control the affects, the capital control approach impacts in short-term and sue to the passage of time, the control does not produce the results and become less result oriented (Panitch & Leys, 2005).

At the other end, the capital control has also observed to been influencing on the financial globalization and international diversification. The basic idea of the capital control is to reduce and minimize the effects of the fluctuation and rapid changes in the stock markets across the world (Collier & Dollar, 2002). Therefore the elements and fundamental points that have been described under the regulation of capital control restrict the internal capital markets to operate in appropriate manner and these defined elements allow them to minimize the risks and threats that may influence the investors (Buch, 2004).. According to the Frankel (1999), the proposals can simple be divided into four different classes; (a) control the transactions that are performed in the foreign exchanges, (b) control the short-term inflows, as this allows to reduce the risks and threats associated with the short-term debts, (c) control the outflows, to restrict the investors to take the capital investments outside the countries and (d) control and manage the collective inflows, because this allows the capital markets to maintain and retain the foreign investments rather than taking them back to their own or other countries (Collier & Dollar, 2002).

Impacts of Financial Deregulation: While assessing the impacts of the financial deregulation in the financial globalization and international diversification, it has clearly been observed that the banks and financial institutes across the world may easily come into off limit businesses which may include asset management, insurance, financial securities etc. (Buch, 2004). The financial institutes that are not involved in the traditional banking operations are in efficient before the traditional banks but since the financial deregulation has come into implementation, these financial institutes are now able to understand, analyze and adopt the most effective and efficient approaches, techniques and methods that are purely for the risk management and these innovative approaches and techniques mainly include the bridge loan and syndication of loans through new developed financial models and techniques and approaches (Buch, 2004).

Especially when it comes to the developing countries i.e. Iran, India and China, the financial deregulation has been creating many opportunities and chances for the potential international and global organizations to expand their business operations and contribute towards the development of the local economies (Buch, 2004).. The most important and benefited element that has been observed is that since the financial institutions are being privatized across the world, the foreign investment banks have also been enjoying the benefits of it and expanding their operations into local financial markets. These important elements lead the financial and economical systems towards the more development mode, create more advanced and developed business environment and create many opportunities and generate the key and stronger fundamentals that can attract the potential foreign investors (Sundaram, 2011).

Financial Innovations and Technology on International Investments:

Technology and Business: The advancements in the technology sector has boosted the business sector as it promises to provide the organization with effective and efficient business methods, and this is applicable to every business sector even the financial sector across the globe. Moreover in past few decades it can be observed that the financial markets are driven by the enhancements in the technological factors (Panitch & Leys, 2005). The term innovation is usually referred to bring the change; the change in the financial sector means to have more efficient and effective methods to conduct activities in the financial sector. Since the innovative methods provide the business the opportunity to be more effective and efficient in the business processes, which means that the company can reduce the cost and the number of resources can be saved too, and on the other hand the profits rises, therefore such market attract huge investments, and similar can be observed in the financial sector (Fabozzi, 2002).

Technology and Financial Sector: The innovation in the financial sector is triggered from the hurdles and the barriers that the banks usually face in order to adopt their goals and objectives, the hurdles can be further categorized into competition and regulations. The most appropriate example which can be observed is the innovation and development of the ATM machines throughout the world, the core reason behind this machine was the implications of regulations forced by the authorities for the branch banking. First this was initiated in the U.S. And soon captured the entire world. In the shape of ATM, the banks gained some great benefits like low cost human teller, machine which can transact and work all day and night, accurate and also the machine could work on without the support of any branch. From this perspective it can be observed that due to the innovation, the target market become attractive, and moreover the country can than target investments from international resources.

Analysis: It can also be observed that the enhancements and advancements in the technological factors across the globe enables the organization and banks to have more appropriate and adequate steps in order to increase the profitability. One more example can be observed as the Citibank made its way in the Indian Market despite having strict rules against the expansion of business in the country. The organization in India wanted to increase the market share and therefore it needed to have more branches which is prevented by the rules, and also the world's 2nd largest democratic population is the hurdle, and for any organization these can be the most threatening factors in order to attain the company objectives. The central bank of the country holds very strict and tight policies against the expansion of foreign banks in the country and the regulations also focuses on the distribution of the bank networking system.

But as the development in the technological factors have enabled many of the businesses sector to initiate the process which provides the organization more profit. Similar approach was adopted by the Citibank which has more than 40 branches and more than 450 ATMs across the country. The organization initiated a complete program with the country's famous telecommunication company enabling the consumers to conduct different nature of transactions from their cell phones. The bank has tested this technology in the city of Bangalore and seeks to target more than 60 million mobile consumers without expanding the business network in the shape of branches.

Moreover the development in the technological factors has…

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