The globalization of international finance

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Description:

Finance, which is also called the virtual economy, is related to the real economy. The real economy means economy activities which are production of materials, sales, and labors to serve them. It includes agriculture, industry, transportation, business, construction, and so on. While virtual economy means the movement of virtual capital such as stock, bonds and so on. With the development of technology and globalization of economy, the finance shows a trend of globalization.

Enablers:

  • The globalization of real economy

The underlying reason for the globalization of finance is the globalization of the real economy. As we can see that the real economy is the base of virtual economy used to serve the former one. To fit with the globalization of real economy, the international finance also becomes globally. To be specific, three economy factors influence the international finance.

1.The persistent growth of international trade. Since 2002, international trade began to rejuvenate which can be illustrated by the evidence that growth rate of international trade is one percent higher than that of international economy. The growth of international trade drives more and more countries to participate in the global market which laid a firm economy basis for globalization of finance.

2.The optimization of economy structure around the world. Modification and optimization of economy structure is the core part of global economy development. With the improving macro and micro economy system in almost all countries around the world, and the modernization of control and trade media, the economy development of each country relies more and more on economy structure, especially the modification of industry structure.

3.The international movement of factors of production.

  • The change of political structure around the world. After the cold war, the new situation of political structure made the globalization of finance possible. For example, many socialistic societies adopted the market economy which made the globalization of international finance possible. Another example in case is that countries nowadays spend more on development rather than on military rivalry.
  • he political basis for the globalization of finance is the profit that a county can gain. In order to develop, countries need to join in the globalization of economy to make use of more sources.

Inhibitors:

  • Countries want to control their own national economy. With the globalization of finance, the danger comes. For example, Asian finance crisis gave many countries a nightmare. In order to have more power of controlling, countries may establish laws to limit globalization of the finance in their own country.

Paradigms:

  • In the late 20th century, powerful forces drove the rapid growth of international capital flows, including the trend in both industrial and developing countries towards economic liberalization and the globalization of trade. Technologies have made it increasingly difficult for governments to control either inward or outward international flows. In this context, international finance are modified to be more global to help control the inward and outward international capital flows.
  • More and more stock, bonds, and futures are issued globally.
  • The appearance of multinational stock investment.
  • The growth of international currency market, capital market, and foreign exchange market.

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