Internationalization of financial markets

The growing internationalization of financial markets has become an important trend. Before the 1980s, US financial markets were much larger than financial markets outside the United States, but in recent years the dominance of US markets has been disappearing. The extraordinary growth of foreign financial markets has been the result of large increases in the pool of savings in foreign countries such as Japan and of the deregulation of foreign financial markets which has enabled them to expand their activities. American corporations and banks are now more likely to tap international capital markets to raise needed funds, while American investors often seek investment opportunities abroad. Similarly, foreign corporations and banks raise funds from Americans, while foreigners are becoming important investors in the United States.

World Stock Markets and Euroequities. Until quite recently, the US stock market was by far the largest in the world, but foreign stock markets have been growing in importance. Now, the United States is not always number one. Starting in the mid 1980s, the value of stocks traded in Japan has at times exceeded the value of stocks traded in the United States. American investors now not only pay attention to the Dow Jones Industrial Average, but also to stock price indices for foreign stock markets such as The Nikkei Average (Tokyo) and the Financial Times-Stock Exchange 100-share Index (London).

The globalization of stock markets in the mid-1980s has prompted an innovative development in stock offerings. Euroequities are new stock issues that are sold primarily to institutional traders abroad. The increasing willingness to purchase foreign securities has stimulated spec­tacular growth in this market. By 1987, new issues in the Euroequities market, which was just three years old, exceeded $20 billion, and many experts predict that Euroequities will soon have a larger volume than new stock offerings in the United States. The internationalization of financial markets is having profound effects on the United States. Foreigners, particularly the Japanese, are not only providing funds to corporations in the United States, but they are also helping to finance a significant fraction of the federal government’s huge budget deficit in the 1980s. Without these foreign funds, the US economy would have grown far less rapidly. The internationalization of financial markets is also leading the way to a more integrated world economy in which flows of goods and technology between countries are more com­monplace.

1. Answer the questions:

1. How do inter­national factors influence the economy?

2. In what ways is information about companies available to public?

3. Which information about the companies’ activity is to be disclosed?

4. What are the requirements to a private person or an institution who are willing to be a financial intermediary?

5. How do you understand globalization of financial markets?

6. Why does the economy need the internationalization of financial markets?