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Chapter 30: Problem 1

What were the main factors behind the globalization of capital markets in the 1980 s and 1990 s?

Short Answer

Expert verified
The key drivers behind the globalization of capital markets in the 1980s and 1990s were technological advancements, Free Trade Agreements, deregulation of financial markets, and increased economic interdependence.

Step by step solution

01

Understanding Capital Markets

Capital Markets are platforms where savings and investments are channeled between suppliers who have the capital and those who are in need. They provide a place where entities can raise capital and generate investment opportunities.
02

Understanding Globalization of Capital Markets

Globalization of capital markets refers to the integration of these markets across different countries. They allow capital to flow freely across borders, enhancing the interconnection and interdependence of various international financial markets.
03

Identify Factors

The 1980’s and 1990’s were periods of significant economic and technological change. Key factors include: 1. Technological advancements 2.Free Trade Agreements 3.Deregulation of Financial Markets 4. Increased Economic Interdependence.
04

Explain Technological Advancements

Technological advancements in telecommunications and information processing capabilities had a profound impact on the globalization of capital markets. They reduced transaction costs and increased the speed and efficiency of financial transactions.
05

Explain Free Trade Agreements

Proliferation of Free Trade Agreements like NAFTA, EU and MERCOSUR removed restrictions on the movement of capital, goods and services across countries.
06

Explain Deregulation of Financial Markets

Deregulation of Financial Markets allowed capital to flow more freely across borders and made it easier for foreign companies to list on domestic exchanges.
07

Explain Increased Economic Interdependence

Due to increased economic interdependence, a boom in one country could lead to a boom in another, encouraging the globalization of capital markets.

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Most popular questions from this chapter

In January \(2007,\) before the financial crisis, the exchange rate was \(\$ 1.30\) per euro. In July 2008 , during the financial crisis, the exchange rate was \(\$ 1.58\) per euro. Was this change in the dollar-euro exchange rate good news or bad news for U.S. firms exporting goods and services to Europe? Was it good news or bad news for European consumers buying goods and services imported from the United States? Briefly explain.

The United States and most other countries abandoned the gold standard during the \(1930 \mathrm{~s}\). Why would the 1930 have been a particularly difficult time for countries to remain on the gold standard? (Hint: Think about the macroeconomic events of the \(1930 \mathrm{~s}\) and about the possible problems with carrying out an expansionary monetary policy while remaining on the gold standard.)

Although it is a member of the European Community, Denmark is not part of the euro zone; it has its own currency, the krone. Because the krone is pegged to the euro, Denmark's central bank is obliged to maintain the value of the krone within 2.25 percent either above or below the value of the euro. According to a 2017 article in the Wall Street Journal, the Danish central bank was forced to intervene in foreign currency markets "to keep the krone from strengthening too much." a. If the krone was strengthening, did it take more kroner to exchange for a euro or fewer kroner? Briefly explain. b. Given your answer to part (a), was the Danish central bank intervening by buying kroner in exchange for euros or selling kroner in exchange for euros? Briefly explain.

What does it mean when one currency is "pegged" against another currency? Why do countries peg their currencies? What problems can result from pegging?

On page 1074 , the text states that "the globalization of financial markets has helped increase growth and efficiency in the world economy." Briefly explain which aspects of globalization help to increase growth in the world economy.
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