MBA (General)IV – Semester, International Business Unit III
Definition of Globalisation of Financial Merket
Business houses no longer restrict themselves to domestic sources of financing. The search for capital does not stop at water edge.
Globalisation of Financial Merket
Business houses
no longer restrict themselves to domestic sources of financing. The search for capital
does not stop at water
edge. With the pursuit of policies of liberalization
and globalization, the distinction between domestic and foreign financial
markets is becoming increasingly blurred.
With the lifting
of regulatory systems
in 1980s become
one vast connect4ed market. Deregulation,
internationalization and innovations have created such a market.
In 1980 the stock of international bank lending was $324 billions.
By 1991 it had rise
to $7.5 trillion. Between 1980 and 1990 the volume of world 2wide cross boarder transitions in equities rose from $120
billion to $1.4trillion a year. Between 1986 and 1990 outflows of foreign direct
investment (FDI) from U.S.A., Japan,
West Germany, France
and Britain increased from $61billionm a year to $156 billion. In 1990,
there were roughly 35000 multinational corporations with 147000 affiliates, which account for a major share in direct foreign investments. In 1982 the
total international bonds outstanding was 259
billion. It went up to $1.65 trillion by 1991. In 19870 America
securities transitions with foreigners
amounted to 3% of the GDP. In 1990 it was 93% of GDP. West Germany, Japan and England
have also had similar trend.
International
financial centers have developed as extension of domestic centers. Those domestic centers, which have greatest convenience of international
communications, geographical locations, financial
services etc., came to be recognized as “International financial centers”. In the process major financial cities in the
workload have become the international financial centuries. The most important among them are London, Tokyo,
New York, Luxembourg, Singapore, Honkong etc.,
In international
finance centers or markets, the type of transactions occurring are 1.between foreign lenders and domestic borrowers; 2.between domestic
lenders and foreign borrowers; 3. Between foreign lenders and foreign borrowers.
The third type of transiting
is called entrepot or
offshore transactions. In this case the financial centers merely provide facilitating services
for foreign lending
and borrowing.
Until the
development of the Euro market in late 1950s, international financial centers were principal suppliers of
capital to foreign borrowers. In the post 1960 Euro market,
entrepot type and offshore financial transactions became increasingly
predominant. Hence the traditional nature of financial
centers was altered
radically. With the int3ernationalisation of credit transitions, it was
no longer necessary for an international center to be a net supplier of capital. Thus small
and relatively unknown parts of the world become important banking centers- Nassau (Bahamas),
Singapore, Luxembourg, etc. the worlds
financial centers as a group provide
three types of international services
Traditional capital exports,
Entrepot financial services, and
Offshore banking.
The traditional financial centers were net exporters
of domestic capital.
Thus functions have been performed
through foreign lending
by commercial banks, the underwriting and placement of marketable securities for foreign issuers
and the purchase
of notes and
obligations of non-resident entities of domestic investors in the secondary market.
