[Solved] The reasons behind the growth of financial markets globally (2024)

Key Points

Financial Markets

• Any location or system that gives buyers and sellers the ability to trade financial assets, such as shares, various international currencies, and derivatives, is referred to as a financial market.
• The connection between people with capital to invest and those who need capital is facilitated by financial markets.

Important PointsGrowth ofFinancial Markets Globally

• Before 1970, there were restrictions imposed on global trading as during the 1950s, there were restrictions imposed by the United States on capital movement at the international level.
• However, after the 1970s, there has been a rapid change in the beliefs and massive financial flows across international borders were produced by the interaction of multiple strong forces.
• Nowadays, the global financial markets are highly integrated and transactionshave become extensively complicated.

Reasons for Such Growth in Global financial markets

Deregulation

• It decreases entry barriers into industries, which helps to enhance innovation, entrepreneurship, competitiveness, and efficiency.
• This results in reduced pricing for customers and better quality.
• Hence, it leads to more capital flow beyond geographical boundaries and more trade at the global level.

Information Technology

• Innovation in technologies has made it facile to collect, analyze and manage financial risk, price, and trade the sophisticated new financial instruments that have emerged recently,
• Managingsizable books of transactions across international financial centers in the whole world has been made easier which led to the development of global financial markets.

International Banks

• International banking facilities have emerged as a result of globalization and expanding economies worldwide.
• Foreign banks are verycrucial for trade.
• They can make external financing more accessible to exporting businesses and aid in overcoming information asymmetries which leads to more trade at the global level.

Hence,the factors contributing to the growth of global financial markets areDeregulation, International Banks, andInformation Technology

Additional Information
Currency fluctuations-False

• In international financial markets, there is always a risk of currency fluctuation.
• Currency exchange rates are constantly changing, which can be a significant barrier to commerce because the buyer may have to paymore than they expected.
• Hence, it brings losses to the buyers of securities and cannot bring growth in financial markets.