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One of the most and far-reaching financial phenomena in the late 20th Century and the forepart of this century is the explosive growth in international financial transactions and capital flows among various financial markets in developed and developing countries. The global village concept, which emerged during the late 1980s, is becoming a reality now due to the rapid development in advanced technical know-how and revolutionary progress achieved in communication. The global borders have now loosened and opportunities are now virtually at our doorsteps. The last one and half decades have witnessed a sea change in the global financial scenario. The change is perceptible in terms of growing global integration of markets for products in general and financial services in particular. The emergence India, China and Japan as powerful global economic players is a harbinger of growing importance of Asiatic countries in the global economy, at a time when US economy is slowing down.
In the current scenario, the global economy seems to be rebalancing in the right way, with growth in the US slowing and activity in the euro-zone, India, China and Japan compensating for it. Financial institutions, markets and instruments that constitute the financial sector, play a crucial role in the financial development and economic growth, especially, that of a developing country. One of the most important stock market development indicators which has gained a lot of importance in the recent years is the integration of domestic stock market with the global equity market. Until 1990s the international capital market focused on debt financing and the equity finances were raised by the corporate entities primarily in the domestic markets.
This was due to the restrictions on cross-border equity investments prevailing until then in many countries. Investors too preferred to invest in domestic equity issues due to the perceived risks implied in foreign equity issues either related to foreign currency exposure or related to apprehensions of restrictions on such investments by the regulators. Major changes have occurred since the 1990s as witnessed in the expanding and fluctuating trade volumes and patterns with various blocks. This was the period which saw the removal of exchange controls by countries like the UK, France and Japan which gave a further boost to financial market operations. In addition to this, the application of new technology to financial services, the institutionalization of savings and the deregulation of markets have played an important role in channelizing the funds from surplus units to deficit units across the globe. The international capital markets also became a major source of external finance for nations with low internal savings. In financially-integrated markets, capital should flow across borders in order to ensure that the price of risk—the compensation investors receive for bearing risk—is equalized across assets. The world's financial assets—including stocks bonds and other instruments, now total up to more than $140 tn. |
