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International Financial Markets

Essay by review  •  February 10, 2011  •  Research Paper  •  3,562 Words (15 Pages)  •  2,667 Views

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TABLE OF CONTENTS

FORCES FOR RAPID GROWTH OF INTERNATIONAL FINANCIAL MARKETS 2

DEREGULATIOIN 2

THE MORE LIKELY FUTURE OF DEREGULATION 3

INNOVATION 5

SECURITIZATION 9

BENEFITS OF SECURITIZATION 11

INTERNATIONALIZATION 13

REFFERENCES. 16

The following complimentary forces have been responsible for the rapid growth of the international financial markets.

International financial markets perform a vital function within the global economic system. The financial markets channel savings to those individual institutions needing more funds for spending than are provided by their current incomes. The financial markets are the heart of global financial systems attracting and allocating savings and setting interest rates and the prices of financial assets (stock, bonds etc)

FORCES FOR RAPID GROWTH INTERNATIONAL FINANCIAL MARKETS

A. DEREGULATION

This is the elimination of government regulations which have become important in shaping how financial service providers compete and perform and in order to serve the public.

The rapid intense of competitive rivalry has been fueled in part by major government around the world, especially in the United States, Japan, and Europe and freeing the financial sector from many government rules.

Financial service competition is increasingly taking the place of the government rules in the hope that the public will benefit in terms of more convenient service at lower cost.

The expanding competitive struggle in deregulated financial market place has given rise not only to new services and new financial instruments but also new types of financial institutions large, multi product; oriented organization that are designed to weather the risk is inherent in today's volatile financial market place.

Financial institution looks alike offering the same ways, traditional distinctions between one type of financial service institution and other are becoming hopelessly blurred the process of homogenization in creating real challenges for marketing professionals trying to convince the public that their particular financial institution is really different from its rivals.

More financial institution are establishing interstate operations expanding their marketing programs to cover whole regions and, in many instances the whole globe known as globalization, this is because of deregulation, falling geographic barriers to international competition and strong pressure to consolidate smaller financial service institution in larger ones.

More financial institutions are becoming stockholder owned corporation in order to open up new sources of capital to fund their expansion. Under intense competitive pressure and rising costs, the number of independently owned financial institution is declining, victims of merger or in some cases failure.

Government will be under continuing pressure to amend and relax regulation against product line and geographic diversification and to loft or liberalize any restrictions placed on the cost of credit (interest rate) and currency prices. If government don not act to free more completely the financial institution they supervise from today's product line and geographic restrictions, no regulated financial intermediaries will move in and eventually drive out the more regulated financial institution from one market to other.

The more likely future development of deregulation will be the following:

1. Reduced barriers to geographic diversification in order to allow financial institution to find new customers anywhere (as happened during the 1990's in the United States when interstate banking became permissible under federal and state laws).

2. Reduced restriction on the portfolio choices made by the financial institution expect as may be required to preserve public confidence in financial institution and the financial system, allowing the private market place to play a larger role in shaping a financial service firm's portfolio choices

3. Reorganization of regulatory agencies to avoid duplication and to minimize the burden of regulation of financial institutions.

4. Reduced barriers to product line diversification ( especially in securities underwriting and sales and in the underwriting of insurances, merchants banking, and real estate brokerage)

EXAMPLE

Within the United States, one of the most contentious regulatory debates will focus on the issue of what new services commercial banks, and other depository institution should be allowed to offer, consistent with the public 's interest is a sound banking and financial system. In the fall of 1999 the U.S congress lifted restriction since the 1930's and allowed banks and financial -service holding companies the power to combine menus of banking, insurance, and security underwriting service under the same financial service organization.

The Gramm- Leach - Bliley Act also allowed regulators to expand the permissible list of financial services for banks and financial holding companies as market conditions to change in the future. For example, in 2001 the Federal Reserves Board invited public comment on the possibility of allowing banking companies to provide real brokerage services.

Overall the pace of financial deregulation appears to be accelerating. For example, at the recent Uruguay round of the General Agreement on Tariffs and Trade (GATT), with 105 nations participating, both Australia and the United States crafted a free - trade agreement (NAFTA) parallel to the one signed by the United States and Canada in 1987. These moves towards freer trade in financial services have been accompanied by banking and securities deregulation in Britain; the phase out of foreign exchange restrictions in France, Italy, Greece, Portugal, Belgium, and Spain ; recent liberalization bank services throughout Western Europe as part of the continuing expansion of the European Economic Community

B. INNOVATION

This is the development of new financial products such as credit cards, debit cards, interest bearing chequing accounts, and money market funds.

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