Globalization In Financial Markets Robert Telephone, Nicholas Missile, Shasta Sinned, Curtis Young Embryo-Riddle Aeronautical university Authors Note This paper was prepared for strategic Management (MGM 436), taught by Professor Maurice Stanley.
Globalization in Financial Markets Globalization is defined by Merriam-Webster dictionary as “the development of an increasingly integrated global economy marked especially by free trade, free flow of capital, and the tapping of cheaper foreign labor markets” (Merriam-Webster, 2013) and by their concise encyclopedia as a “process by which the experience of everyday fife, marked by the diffusion of commodities and Ideas, Is becoming standardized around the world” (Merriam-Webster, 2013). Globalization, a term known to be used as far back as 1951, allows companies to increase profits and reduce operating costs.
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Companies that wish to take advantage of new customers may move some of their infrastructure to another country. It could also be considered the opening of new world markets for investment opportunities as countries become more developed. One negative effect of globalization, that this paper covers, is the financial crisis that took place In 2008. Leading up to 2008, many Americans were able to easily borrow money from banks In order to purchase real estate. Much of the real estate being bought was considered speculative investment as appraised values of property were increasing due to buyer demand.
Many of the mortgages being underwritten by banks were considered “supreme” because they were being lent to people with low credit ratings. The result was an Adjustable Rate Mortgage (ARM) with an annual percentage rate that eventually increased to the point that it was impossible for the borrower to make the minimum payment on real estate that he owned. The financial rills of 2008 Is widely believed to be caused by too many supreme loans being held by banks all over the world, and by borrowers that were unable to make payments on these loans.
Since banks all over the world were lending back and forth due to globalization, our supreme mortgage market collapse here in the U. S. Severely damaged other countries’ banks’ lending capabilities, and as a result. Their economies. A trillion dollar stimulus package and bail out from the U. S. Federal government Is the only thing that prevented an economic collapse from happening. Unfortunately, the crawls had spread to Europe. In the Rezone, a financial crawls was happening as “a complex network of financial derivative products held globally, started to UN-ravel” (Sinuously, 2013).
Banks In Europe were investing in the U. S housing market and ended up losing a lot of money. The failure of the global trading company Lehman Brothers during the U. S. Crisis also played a part in the European crisis. The failure of Lehman Brothers lead to global re-pricing of risks and caused a temporary freeze on global trading. Overextension of debt and inability to repay is a central theme In the global financial crawls. There Is a tremendous lack of regulation guarding how much debt can be obtained. And therein lies the central truth of globalization ay we’re all connected Ana NOAA Is In change” (Freeman, 2 The current trend of globalization, in regards to financial markets, appears to be slowing and is actually in a form of retreat for now. Banks are no longer free and easy with their credit. “The European banking shock and its aftermath have sent finance and investment running for home, a process that could hurt world growth, globalization and developing economies for years to come” (Dolan, 2012). Companies are thinking twice before expanding or building new infrastructure overseas.
Investors are also demonstrating increasing home-country bias, disproving the theories that emerging economies would be immune to global weakness” (Harsh ; Davis, 2012). While globalization has shown to be profitable for companies that were able to go global financially, the practice has nearly bankrupted more than one country. Globalization has the potential to link the entire world together, although problems arise when different countries are totally reliant upon each other economies and financial markets. When one economy fails, it has the potential to drag the rest of the world with it.