Globalization Of Financial Market

Capital crosses boarder of a country more easily than labor. The growth in the flow of foreign capital has become possible only because investment policies in the western countries have changed to allow higher investments, including portfolio investments abroad.  The structural adjustments, following economic reforms, minimization in budget deficits, restructuring of public sector, relaxation of exchange controls and trade etc., have created a favorable climate for capital inflows into developing countries like India, United States, etc.  Capital owners are, first and foremost looking for good returns and at the same time they are deeply concerned with risks. The attractions for them are: (i) good in fracture (ii) a reliable and skilled lab our force, (iii) guarantees of their right to repatriate both income and capital (iv) social and political stability. (v) A culture of prudent fiscal management. Globalization of financial markets during the, 80’s has been driven by two underlying forces. Growing (and continually shifting) imbalance between savings and investment within individual countries, reflected in their current account balances, has necessitated massive cross-border financial flows.  The other motive force is the increasing preference on the part of investors for international diversification of their asset portfolios. This would result in gross cross-border financial flows even in the absence of current account imbalances though the net flows would be zero. Many investigators have established that significant risk reduction is possible through global diversification of portfolios.  Capital markets of the newly industrializing South East Asian economies e.g. Korea and Taiwan permit only limited access to foreign investors. Even in an advanced economy like that of Germany, the structure of corporate financing is such that most of the companies rely on loans from domestic banks for investment and investors do not appear to show much interest in foreign issues.  All these reservations, it can be asserted that the dominant trend is towards globalization of financial markets.