Individual Assignment

"Globalization of finance; A Double-Edged Sword"

MBA/24/7044 : Sewwandi Jayarathna

Sub Group No. : 1

Course :MBA 513 Strategic Financial Management

Instructor : Dr. Ravi Edirisinghe

Term :Jan-Mar 2025

Postgraduate Institute of Management

University of Sri Jayewardenepura

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Word Count - 4825

Name : Sewwandi Jayarathna

Registration No : MBA/24/7044

Date : 03/04/2025

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 Table of Contents
1.Introduction ....................................................................................................................................... 1
2. Literature Review ............................................................................................................................. 2
3. Practical Applications and Learning .............................................................................................. 5
3.1 Practical Applications.................................................................................................................. 5
3.2 Lessons Learned .......................................................................................................................... 8
3.3 Case Studies ................................................................................................................................. 9
4. View Points...................................................................................................................................... 11
4.1 Positive Perspectives .................................................................................................................. 11
4.2 Negative Perspective .................................................................................................................. 14
4.3 Predictions on Financial Globalization .................................................................................... 15
5. Recommendations .......................................................................................................................... 15
6. Conclusion ....................................................................................................................................... 16
7. Reference ......................................................................................................................................... 17
8. Appendices ...................................................................................................................................... 18
Appendix 1 - Summary of Literature Review .............................................................................. 18
Appendix 2 - Most generous trades in international trade ......................................................... 19
Appendix 3 - FDI inflows in select developed economies worldwide from 2000 to 2023 ......... 19
Appendix 4 - The World’s Largest Sovereign Wealth Funds .................................................... 20
Appendix 5 - Case studies related to Globalization of finance ................................................... 20

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1.Introduction
In global finance: financers, corporations, institutions, and services are on a worldwide basis.
Unrestricted exchanges of funds and transactions characterize this. Such a phenomenon has its
basis in late 19th century's Gold Standard, and it is further developed in Bretton Woods
Agreement of 1944, instituting a system for international monetary cooperation. After
capitalistic policies were ratified which eased funds going or coming from the nation’s borders,
the level of globalisation witnessed a growth. Such financial globalisation trends were fêted in
the latter half of 1980.

The other types of capital mobility are cross border lending, FDI and portfolio investments by
multination enterprises and domestic financial service firms. In these transactions, the
exchange market has been grown dynamically and now forms the dominant market in which
trade occurs, with the influence of world currencies, such as the US dollar, Euro and Yuan. The
rapid spread of crypto currencies can be pinned to the fact that financial trading has been made
digitized and is aided by the blockchain technology. Globalisation has made both the traditional
and new financial technologies expanded accessibility and helped reduce the costs of cross
border transaction.

Various processes are at work that brings about an expansion of financial globalisation.
Advances in technology enable real time processing of international transactions across
different time zone permitting automation of the international transactions and trade. In this
regard, multinational corporations are a major global interdependence driver and stimulate the
requirement for cross-national financial services by way of the need to implement global
supply chains. Due to adoption of policies that would attract foreign investments, other
countries also integrated their financial systems. Moreover, the appearance of non-banking
institutions (like hedge funds and fintech companies) has made more competitive the
international financial markets.

Financial globalisation contributes notably by enhancing capital and foreign investment

mobility, and growth of the economy. It also however, promises several challenges. The ability
of foreign capital to increase volatility in the markets, to flee the country, to inflict inflation or
to cause the decline of currency value increases as the degree of freedom in financial
globalisation increases. On top of it, the 2008 global financial crisis vividly demonstrated that

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economically integrated regions are highly vulnerable to sudden series of shocks. Moreover,
there is also the issue of the ever-increasing income disparity due to the overconcentration of
wealth and capital resources in the developed economies exposing such smaller and emerging
markets. Also, the loss of sovereignty in the policy-making for countries that have overly
liberalized their financial markets is dramatic as global investors and institutions order
financial policy at the domestic level.

Despite all these difficulties, globalisation of finance is the globalisation of trade flows and
services and will remain an important impetus of economic development. However, for this to
be attained, appropriate regulatory skeletal structures, harmonized policies and a strong
governance are needed so as to extract the utmost benefits while mitigating the risks involved.
For the sustainability of our development on the long term, one must attain equilibrium
between the openness to foreign contributions into investments and protecting the stability of
the economy. Financial globalisation enables an opportunity to realize the benefits of an
efficient global financial system, with disguised systemic risks, and a more equal global
financial system if, among other things, there is balanced regulation and prudent financial
management.

2. Literature Review
The term financial globalisation is defined as the process through which financial markets,
financial services and investors of different countries, and their capital mobility and economic
exchanges globally, become integrated. This phenomenon is studied by economists,
policymakers, and financial analysts because it has impacts in economic growth, stability,
income distribution, and investment activities of a given country or region.

Among other works in this area, the paper Financial Globalisation: A Reappraisal by Kose et
al. (2006) is one of the most important because it focuses on the consequences of financial
globalisation for the developed world. As the article argues, financial globalisation makes
capital inflows into developing economies deeper by means of more capital inflow, technology,
and productivity. Poor countries are thus able to finance infrastructural development, the
building up of industries and modernization of the financial system. The study does also advise,
however, of the downside, or indeed potential danger signs, for more vulnerable countries that
lack financial discipline. Countries with strong macroeconomic fundamentals and well-
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designed regulatory institutions can be well placed to maximize foreign fund acquisitions while
others may suffer by way of economic instability, capital outflows and exchange rate volatility.
The IMF piece on this actually serves to explain why some countries can use financial
globalisation for growth and of course other countries suffer from financial problems.

In a manner similar to his 2003 book Financial Globalisation: Gain and Pain for Developing
Countries, Schmukler examines the pros and cons of finance globalisation. He makes the point
that almost all developing countries are receptive to the chance to use foreign capital markets
and foreign investment to finance infrastructure and industrialization. Foreign direct and
portfolio investment have created numerous countries joining the global trading system.
However, the study also warns about some of the hazardous risks such as adverse external
economic conditions and capital flight during periods of hostile international financial
situations. The 1997 Asian Financial Crisis and the 2008 Global Financial Crisis afford the
evidence of how interconnected financial markets make economic recessions worse. Overall,
Schmukler argues that financial globalisation is important as it provides countries with
opportunities for growth, however, countries still need to manage the related risks with
regulation and capital controls in order to maintain their stability in the financial sector.

The approach taken in Managing Financial Globalisation by Wei (2018) is a policy-oriented

approach on how countries can handle the complexities in financial globalisation. Nonetheless,
he argues that financial integration is the outcome of advanced financial markets and capital
mobility that have increased income disparity. Financial globalisation proves beneficial for the
multi-national companies as well as the upper strata of the society whereas the lower social
classes face increased risk of employment and economic instability. In order to balance these
forces of openness and economic security, Wei puts forward the use of macroeconomic
stabilization policies, Prudential Financial regulation and selective capital controls. For
policymakers who want to ensure that the benefits of financial globalization are realized and
the risks of financial globalisation are contained, his conclusions presented in an NBER
Working Paper are useful.

The study of the correlation of financial globalisation with institution development was
performed by Prasad et al. (2006). Findings show effective impact of financial globalisation
depends on how quality the financial system is. For example, foreign countries can obtain

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inflows of foreign investment and make efficient use of them through countries with well-
developed financial markets, well established regulations, and independent central banks.
Finally, poor governance systems in countries instead will tend to lead to mismanagement of
foreign investment, which often leads to such economic distortions as speculative bubbles and
financial crises. It emphasizes that as far as financial globalisation may lead to economic
growth, supervision, and political order are required.

The issue of globalisation in finance raised in Claessens and Laeven’s (2004) work on
Financial Regulatory Harmonization is of regulation. One of these problems they point out is
regulatory arbitrage: a practice employed by multinational corporations and other financial
institutions of relocating to counties that have the least expensive compliance requirements
and therefore realize higher profits at lower operational costs. The implications of these
international regulatory imbalances are systemically dangerous, because we are more likely to
get economic instability from dangerous financial systems that are economically dangerously
unregulated. The paper suggests that international cooperation through such bodies as the IMF,
World Bank or the Bank for International Settlements (BIS) is in a better position to devise
holistic international financial rules. It also examines Basel Accords (BIs, II, and III), which
have already begun to govern international banking with stipulation of minimum standards on
risk exposure and management, and setting capital requirements. No matter how they may exist
these regulations are, however, not a prerequisite for the stability of the world financial system
since the control over their implementation is not actually uniform among different countries.

In turn, the phenomenon of financial globalisation has also been viewed by the World Bank,
and they have released reports to examine the positive role that it has in economic growth and
some negative implications towards financial sustainability. In this regard, these reports further
reinforce our familiar idea that financial globalisation has been related with economic growth,
yet only under specific conditions of control and risk controls and only when various states
from within the international financial system had acted in concert.

Summary of Literature Review (Appendix 1)

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3. Practical Applications and Learning

3.1 Practical Applications

3.1.1 Cross-Border Investment. The practices of globalization and technology
have given rise to new markets, products, and services that transcend national borders. The
emergence of offshore banking has fundamentally changed business operations, allowing for
a more unrestricted movement of capital and offering more diversified and expansive
investment options. Political boundaries are fast becoming irrelevant as systems around the
globe collapse and undergo integration.

As national and international barriers to investment have loosened, there has been a large
growth in international investments in foreign equities, bonds, and even financial real estate.
Offshore investments typically provide sizable returns, but one must exercise caution as these
investments may come with risks such as exchange rate volatility.

3.1.2 International Trade. Trade financing to trade more easily, which makes it
important for these economies. For these purposes, financial institutions grant letters of credit
and finance the export business, making travel of capital smoother and easier. This has helped
develop such companies as Alibaba or Amazon, which depend on trade finance tools to sustain
their global supply chains. (Appendix 2 - Most generous trades in international trade)

3.1.3 Global Banking and Financial Services. Globalization in banking and finance
has also made it easier to undertake cross border transactions. Though the one can grow further
into a new country with the help of banks and other lenders by purchasing a currency or sending
money via an international wire transfer, changing money and investing internationally, all of
which improves economic productivity.

3.1.4 Foreign direct investment. Multinational companies (MNCs) tend to set up FDI
operations in different countries for marketing and resources. While FDI promotes economic
development and creates new jobs, there are some obstacles like legal issues and cultural
barriers.

(Appendix 3-FDI inflows in select developed economies worldwide from 2000 to 2023)

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Below graphs express the FDI inflows and outflows of the world, then the developed
economies and developing economies;

Figure 1: FDI inflows and Outflows for the period of 1990-2020

Source: UNCTAD, World Investment Report 2024

3.1.5 Remittances. Pertain to money sent back home by overseas workers which,
together with family support, inflows into the economy. Remittances are vital for several
nations, such as India and the Philippine’s, where billions of dollars are received every year.
This is a significant source of foreign exchange reserves. Nevertheless, high transaction costs

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are a problem leading to uncontrolled expenses which have incentivized the emergence of
fintech solutions to lower costs, albeit with slower adoption rates. Below graph indicates the
top remittance receiving countries in the world.

Figure 3: Top remittance receiving countries (2020)

Source: International Monetary Fund (IMF)

3.1.6 Fintech: Fintech has enabled mobile money payments, the utilizing of lending
and other online financial servicing processors, and other digital remittance services. These
innovations have particularly fostered significantly enhanced financial inclusivity for poorer
nations. While emphasizing ease of transactions, illusive security and privacy features have
been an afterthought for the constantly evolving financial providers such as Paypal, M-Pesa,
and Wise.

3.1.7 Sovereign wealth funds. Government owned investment funds which allocate
capital in a variety of global opportunities, are also an influential constituent of the financial
globalization. For instance, the Norwegian Government Pension Fund is among the largest
SWFs and, as is known, tends to invest in diverse industries around the globe. It demonstrates
how the government seeks to utilize financial globalization to achieve economic stability in
the long run.

(Appendix 4 - The World’s Largest Sovereign Wealth Funds)

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3.2 Lessons Learned
Understanding economic integration, particularly its defining features such as interdependence
and systemic risk, remains a central pillar of financial globalization. The 2008 global financial
crisis is a profound example of how instability in one country’s finances can trigger havoc
globally. This created a positive response for increased cooperation across borders like with
the Basel III framework, strengthening regulations for banks internationally.

Traditional approaches to managing risk, such as currency hedging with forward contracts or
currency swaps, require substantial attention as the risks of exchange rate changes is always
present. Companies like Apple, which makes significant revenue across many currencies, uses
advanced hedging strategies to ensure the stability of the earnings realized.

Inadequate regulation is a good illustration of the out-of-control regulatory arbitrage and

financial crime that calls for global coordination. While the FSB and International Monetary
Fund have aided in establishing standards for global finances, the enforcement to comply with
them is still a challenge due to the differing legal jurisdictions.

Globalization of finance incurs certain prospects and hurdles for the developing nations.
Foreign investment tends to be focused on economic advancement; however, it could result in
capital flight and shock.

Fintech innovations of recent years have heightened productivity, and resulted in greater cost
efficiency, allowing for the automation of some traditional tasks. As these fierce innovations
gives rise to achievement of business objectives globally, traditional financial institutions are
forced to compete on a new level. As an illustration, integration of blockchain technology
across the world to safeguard and expedite transactions speaks volumes.

As the private and public sectors expand, the need to be cautious with finances and understand
the concept of proper planning becomes crucial. These two ideas are referred to as financial
literacy, and various programs have been launched in countries like Singapore or the UK to

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empower the citizens with the requisite skills. Understanding the forms and scopes of financial
risks and opportunities is vital for sound judgement for businesses and individuals.

Geopolitics has deep seated and well-rooted impact on global finance too. Brexit and US and
China trade disparities are among steep and sudden changes that have shaken the market and
the stock exchange giving rise to fresh opportunities for investments in other parts of the globe.
Investors and policymakers can reduce negative effects of these events by understanding these
risks

3.3 Case Studies

These case studies explain why international finance is so complicated and sometimes chaotic
at the same time. These crises illustrate the need for comprehensive reforms in financial
relations such as regulations, policies and international collaborations.

3.3.1 The 2008 Global Financial Crisis. The 2008 financial crisis illustrated the
backward forms of globalization where finance globalization had the potential to deepen and
worsen the existing economic shocks. Europe, Asia, and Latin America were at the crossroads
of economic recession because the origin of this crisis– The United States. This all began with
the bursting of the subprime mortgage bubble that led to the downfall of the banking sector
and a fierce contraction of credit. Lehman Brothers, a major global investment bank, declared
bankruptcy which resulted in a global economic meltdown. Due to the lack of credibility in
holding any assets, the wealth of nations shed by trillions. These governments were pushed to
take associated abrupt steps that were extremes. A vast number of nations poured money into
their central banks and enacted monetary aid in order to relieve the tortured economy. Based
on these attempts to rescue the economy, a massive stock market devaluation occurred which
resulted in abating unemployment rates. In order to avoid the failure of fiscal markets, an
obligatory fiscal market regulation was set up but still, it has to be established until today. The
excessive economic damage acting as collateral from the 2008 crisis highlighted the negative
impact caused due to a high level of dependence on finances.

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Figure 4: Mortgage Crisis

Source: www.vedantu.com /commerce/global-financial-crisis-2008

3.3.2 The Phenomenal Growth of China in Global Finance. As illustrated by China’s

increasing role not he global economy, Chinese integration into global finance reveals the
advantages of financial globalization. Foreign direct investment (FDI) in China skyrocketed
from 40 billion dollars in 1995 to more than 150 billion in 2022, facilitating the rapid growth
of industry, infrastructure, and modern technology. Along with the liberalization of China’s
markets came the expansion of its financials division, and the expansion of Chinese domestic
firms into other regions of the world. Chinese companies acquired interest in various industries
such as technology, infrastructure, and finance. The Chinese firms have been enabled to
increase their economic foothold as well as contribute to the economic integration of China
into the world economy. Nevertheless, to reap the -benefits of financial integration while
maintaining economic stability, the Chinese authorities have heavily regulated capital
movements out of the country. These steps serve the purpose of alleviating the threat of
financial calamity, limiting uncontrolled emigration of capital, and making certain that
globalization takes place in a way that benefits sustainable economic development. China’s

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case is of great importance in demonstrating that globalization can be made more beneficial
for the country by the effective management of finances.

3.3.3 Cryptocurrencies and Globalization. An Intertwined Relationship. Bitcoin and

Ethereum provide the best examples of cryptocurrency’s globalizing impact of creating a new
mode of transacting that provides more financial freedom across borders. A cryptocurrency’s
working mechanism is based on blockchain technology, which obviates the need for
intermediaries while transferring the funds whereas, a traditional banking system is dependent
on centralized institutions with government regulations. It has completely disrupted the
existence of developing economies that have no access to availability of the basic banking
services. In this part of the globe, more of this population is going digital with currencies,
exactly to reduce bank dependence and increase global commerce. However, the uncontrolled
growth of cryptocurrencies creates great regulatory challenges. The blockchain is a
decentralized system, which makes it fundamentally hard to control digital money and finance
because the transactions are hard to track and financial regulations impossible to carry out. The
efforts to establish regulatory frameworks have heightened over the concerns on fraudulent
activities and money laundering. Still, addressing the new world of digital finance requires
managing the balance between innovation and control of finance.

However, the main challenge for us in the future is to find out an efficient way to
respond to the increasing pace of the technological development and the financial market as
well.

4. View Points

4.1 Positive Perspectives

The globalisation of finance aids in the globalisation of the world’s economy through economic
growth, better operational energy, and broader financial veld. The other main benefit is the
capital can move across the national borders. International capital markets are now accessible
to developing as well as developed countries, which further triggers economic activities,
increases the number of employment opportunities, and innovates technology. Further,
international capital markets have the means of integration that allows companies to expand,
innovate and compete internationally.

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Alternative helps reduce transaction costs, create competition, and thus promote the
development of new financial services and products. This higher efficiency results in lower
costs of borrowing for both businesses and consumers, as well as better financial services.
Another profound advantage of financial globalization is enhancing international trade as well
as cross-border transactions. Enterprises now conduct financial market activities with little
difficulty correlated to the availability of foreign exchange, which lowers the expenses of doing
business and enhances global trade. Consequently, there is greater economic dependence
among nations, which makes these economies stronger and more active. Moreover, financial
globalization fosters portfolio risk diversification by allowing investors to shift blames to other
regions. Domestic and institutional investors can invest in foreign nations’ economies, thus
lessening their overload from the condition of one economy while increasing the return on
investment possibilities.

More than any other development, technology has accelerated financial globalization. The
growth of Fintech has changed the face of banking, payments and investment opportunities.
Transactions in finance become easier because of digital finance platforms, blockchain
technology and mobile payment systems. Fintech has also enhanced financial inclusiveness by
integrating the unbanked sector of emerging economies into the Global market. Thus, financial
globalization has not only advantageous to incorporated and rich investors, multi-national
corporations, but also small business people and ordinary citizens by providing them with
access to credit, facilitating cross border transactions and allowing them to save or invest in
the international financial markets.

Economic and political globalization are further strengthened by geopolitical power and
economic diplomacy as a result of financial globalization. Major financial centers like New
York, London, and Hong Kong have strengthened their position as global financial centers
while increasing the dependence on reserve currencies such as the U.S. dollar and the euro.
This means that governments can further themselves financially through the use of trade
agreements, foreign direct investment (FDI) policies and economic sanctions. The emergence
of regional financial powers, like China also illustrates the effect of the globalization of finance
on the international balance of economic power.

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Lastly, and as a result of globalisation of finance, the responsibility of the investment behaviour
and the shift towards sustainability is distributed. The growing interest in ESG matters has
prompted the development of green bonds and socially responsible investment fund. Ethical
issues are getting more attention of investors and their decision to invest considers environment
and social sustainability. It can be argued that with the companies gaining the attention in
embracing the responsible financial measure, then financial globalisation is a force that
sustains transparency and business activity.

Figure 5: Advantages of Financial Globalization

Source: Author (2025)

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4.2 Negative Perspective
While globalisation gives the markets the opportunities for the growth, it also introduces some
serious challenges to the markets. The source of maximum concern with globalisation of
financial markets is the systemic risk and financial instability it brings. The higher the degree
of interconnectedness amongst financial markets, the quicker the economic shocks from one
country will ripple throughout the world.

And there is another very significant negative characteristic in particular of financial

globalisation manifested in emerging economies, unpredictability of the volume of capital
investment. On one hand, foreign investors bring in their funds speeding up development,
while on the other; a sudden capital flight that comes as a result of uncertainty in the economy
destabilizes that economy. The most common result of this turbulence is a devaluing of the
currency, subsequent inflation and even a collapse of banking institutions. Those countries
which are not self-reliant will need to get themselves ready for a roller coaster ride of
unpredictable economic situations which cannot be followed by a stable economic growth.

Yet another important barrier to the discussion of financial globalisation is the regulatory
impediments. The multi-faceted nature of global financial systems makes it hard for world to
regulate the global economy. There is regulatory arbitrage, when institutions deliberately avoid
compliance with regulations in a country and thus endanger financial stability. Large
multinational corporations and banks can relocate their operations to countries where legal
restrictions are not so strict and so avoid paying tax or financial supervision.

It is often that financial globalisation produces mixed benefits for developing countries. On
one side, it facilitates expenditure on investment and development of better opportunities of
infrastructure development, while on the other it exacerbates income inequality and financial
exclusion. Foreign Investors avoid one another, and tend to concentrate on projects with high
profit margins and neglect other sectors, resulting also in unwanted consequences to the people
at large. Moreover, a drop in investment in emerging economies because of financial
downturns in developed countries also has a tendency to increase economic inequality.

The peril is geopolitical risks that come with globalisation. Certain countries control too much
power in financial markets in part because of the dominance in central financial hubs and
reserve currency issuance. Economic sanctions, restrictions on trade, and capital control can
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seriously damage an economy causing an irreconcilable collision between the countries.
Nations that rely on international financial systems are thus victims of geo political attention
and hostility and hence at threats to their economic independence, stability and sovereignty.
(Appendix 5 - Case studies related to Globalization of finance)

4.3 Predictions on Financial Globalization

Fintech and AI financial model integrations will reshape the global economy by improving
decision-making, efficiency, and risk management. AI and machine learning alongside
blockchain technology will enhance the accuracy of financial forecasts, the automation of
trading strategies, and the optimization of risk management due to faster operations.
Furthermore, blockchain technology will increase the level of security provided for
transactions, minimizing fraud attempts. As the systems advance, governments will put in
place stronger regulations to ensure stability within the economy and avert unsought crises.
There will be tighter controls placed on the operations of financial institutions while the
International Monetary Fund (IMF) and Bank of International Settlements (BIS) will assume
greater responsibility for defending international financial stability. The monetary regulation’s
approaches are evidence of the move towards a more secure, transparent, and technology-
oriented financial picture.

5. Recommendations

Strategic adjustment at the country, corporate, and individual levels is necessary for
successfully engaging with global finance. For countries, a sound macroeconomic policy and
robust domestic financial markets, as well as a reliable and transparent regulatory ecosystem,
are essential preconditions. Modern financial infrastructure, along with an educated workforce
and skillful capital flow management to moderate openness against stability, are imperative as
well. Corporations are required to devise global strategic plans, which are to include
comprehensive risk management diversification and hedging along with remaining proactive
with regard to financial transparency and technological innovation. Individuals are encouraged
to adopt strategies that enhance decision-making, risk mitigation, and protecting their portfolio
through investment tracking. Embracing innovations such as digital banking and currencies
and staying alert to changes in the global economy has become imperative.

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5. Conclusion
Financial globalisation has helped the world environment both prosper and suffer. Financial
integration has created economic growth and global investment and capital allocation, as it has
made the individual details clear. Introduced new technologies necessitated the further
intensification of trade relations, cross border investments and competitiveness due to their
inherent interconnectedness of global markets. International capital market financing access
has provided job opportunities and financial inclusion to the extent that credit and digital
finance capture have been increased thanks to fintech.

In short, the thesis asserts that globalisation of finance is akin to a two-edged sword. Surely
there has been dramatic growth in economic growth, technological development and
international relations, but it has torn down stability, equity and governance. Ethics related
issues have also arisen namely those of environmental and social responsibility and corporate
governance. Financial freedom and protection has to be balanced in a way that the rich cannot
impoverish other economies without taking risk themselves. The further complication is that
policy, trade and financial sanctions dictate a direction of capital and investment, complicating
financial globalisation.

Conversations indicate that financial globalisation can be sustainable in policy frameworks and
regulatory coordination, among other factors, to reap the benefits and avoid the risks involved.
The future is likely to be characterized by more acceleration towards more financial
globalisation that will in turn lead to a more access to available financial service.

Further studies should study how risks can be confined while a developing nation’s integration
into global finance unfolds, the effect of fintech on financial globalisation and whether ESG
investing is effective. In addition, the proposed examination could call forth a redefinition of
stabilizing and innovation containing approaches for current regulation. Regrettably, greater
efforts to decelerate the financial globalisation I will not slow down, and, as a result,
governments around the world will have to act in order to develop and uphold systems of
economy which are financially and socially inclusive and open in addition to econometric
progress and integration of all.

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6. Reference
Claessens, S., & Laeven, L. (2004). Financial regulatory harmonization and the globalization
of finance. World Bank Policy Research Working Paper, (3413). Retrieved from
https://openknowledge.worldbank.org

International Monetary Fund. (2023). Exchange rate volatility and global financial
integration. IMF Reports. Retrieved from https://www.imf.org/en/Data

Kose, M. A., Prasad, E. S., Rogoff, K., & Wei, S. J. (2006). Financial globalization: A
reappraisal. IMF Working Paper, 06/189. Retrieved from
https://www.imf.org/external/pubs/nft/op/220/index.htm

McKinnon, R. I. (1973). Money and capital in economic development. Brookings Institution.

Mundell, R. A. (1961). A theory of optimum currency areas. The American Economic

Review, 51(4), 657–665.

Prasad, E. S., Rogoff, K., Wei, S. J., & Kose, M. A. (2006). The role of financial
globalization in economic development. IMF Working Paper. Retrieved from
https://www.imf.org/external/pubs/ft/wp/2006/wp06189.pdf

Razin, A., & Sadka, E. (1991). International tax competition and gains from tax
harmonization. Economics Letters, 37(1), 69-76. https://doi.org/10.1016/0165-
1765(91)90147-D

Schmukler, S. L. (2003). Financial globalization: Gain and pain for developing countries.
World Bank Policy Research Working Paper, (30141). Retrieved from
https://documents1.worldbank.org

Shaw, E. S. (1973). Financial deepening in economic development. Oxford University Press.

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 7. Appendices

Appendix 1 - Summary of Literature Review

# AUTHOR YEAR PUBLICATION SOURCE FINDING

Financial globalization can be

boost developing economies
through the capital inflows,
technology, and productivity,
Kose, Financial but requires strong
Prasad, Globalization: A macroeconomic fundamentals
1 Rogoff, Wei 2006 Reappraisal IMF and regulatory institutions.
Developing countries can
benefit from international
Financial capital markets and foreign
Globalization: investment for infrastructure
Gain and Pain and industrialization, but face
for Developing risks like adverse external
2 Schmukler 2003 Countries Book conditions and capital flight.
Financial globalization leads to
advanced financial markets and
capital mobility but can widen
Managing NBER income disparity and expose
Financial Working lower-income classes to
3 Wei 2018 Globalization Paper economic instability.
The effectiveness of financial
globalization depends on the
quality of a nation's financial
system. Strong institutions
Financial enable productive use of foreign
Prasad, Globalization Journal of investment, while poor
Rajan, and Institution Economic governance leads to economic
4 Subramanian 2006 Development Perspectives distortions.
Regulatory arbitrage by
multinational corporations due
to varying international
Financial regulations poses systemic risks
Claessens, Regulatory Review of and can lead to economic
5 Laeven 2004 Harmonization Finance instability.

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Appendix 2 - Most generous trades in international trade

Source: The global enabling report 2016

Appendix 3 - FDI inflows in select developed economies worldwide from 2000 to 2023

Source: UNCTAD, World Investment Report 2024

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Appendix 4 - The World’s Largest Sovereign Wealth Funds

Source: World SWF (2023)

Appendix 5 - Case studies related to Globalization of finance

Type of Case Impact Lessons Learned
1. The Asian * Collapse of Thai baht. *Rapid capital inflows without
Financial Crisis * Capital flight, currency strong regulations can lead to
(1997) devaluations, economic crises. * IMF
contractions. austerity measures can worsen
* IMF interventions with economic conditions.
austerity measures. * Countries built reserves and
adopted capital controls.
2. The Global * Insolvency of major financial * Unregulated financial
Financial Crisis institutions. globalization led to risky
(2008) * Collapse of stock markets, loss products.
of global wealth. * Lack of oversight in shadow
* Government bailouts, banking and derivatives.
quantitative easing, fiscal * Regulatory reforms like Basel
stimulus. III were introduced.

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 3. The European * Loss of investor confidence in *Sovereign debt crises can
Sovereign Debt European bonds. contaminate the global
Crisis (2010-2012) * Multiple IMF and EU bailouts economy.
for Greece. * Eurozone governance
* Eurozone recession and high weaknesses were exposed.
unemployment. * Stronger fiscal rules and the
ESM were introduced.
4. China’s Financial * Inclusion of CNY in IMF’s * Controlled financial
Opening & Capital SDR. globalization balances growth
Controls * Expansion of Stock Connect. and stability.
* Tightened capital outflow * Currency management and
restrictions. capital flow regulations prevent
shocks.
5. The Collapse of * Massive losses for LTCM. * Sophisticated models can fail
Long-Term Capital * Federal Reserve coordinated under extreme conditions.
Management $3.6 billion bailout. * Interconnectedness meant
(LTCM) - 1998 LTCM's failure could cause a
broader crisis.
6. Iceland’s Banking * Collapse of major banks. * Small economies must be
Collapse (2008) * Government refused to bail cautious about excessive
out foreign creditors. financial liberalization.
* Letting banks fail can avoid
moral hazard.

Source: Author

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