Importance of a globalized economy?
Facilitates growth, efficiency, and cross-border operations.
Markets for goods/services — role?
Enable international trade and specialization.
Financial markets — function?
Buy/sell assets like currencies, bonds, stocks.
Foreign exchange risk — definition?
Risk from unpredictable future exchange rates.
Exchange rate fluctuations — impact?
Affect profits and investments internationally.
Political risk — example?
Expropriation or sudden policy changes.
Expropriation of assets — meaning?
Gov't seizure of foreign assets without compensation.
Market imperfections — causes?
Legal restrictions, transaction costs, info asymmetry.
Expanded opportunity set — benefits?
More choices in production, finance, and diversification.
Goals of international finance?
Maximize global efficiency, risk management, shareholder wealth.
Globalization of markets — drivers?
Deregulation, innovations, tech advances.
Multinational corporations — role?
Operate cross-border, leverage economies of scale.
Privatization — definition?
Selling state-owned businesses to private sector.
Trade liberalization — meaning?
Reducing barriers to international trade.
Comparative advantage — principle?
Countries benefit from specializing in low-cost goods.
Financial innovations — examples?
Currency futures, options, multi-currency bonds.
2008-2009 crisis — trigger?
Subprime mortgage collapse and securitization.
Securitization — role in crisis?
Distributed risk, but obscured true risk levels.
Interconnected markets — effect?
Rapid spread of financial shocks worldwide.
Shareholder wealth goal?
Maximize owners’ value through efficient decisions.
Market imperfections — key types?
Legal restrictions, transaction costs, info asymmetry.
Why diversify internationally?
Reduce risk and increase returns.
Role of trade agreements?
Facilitate freer, predictable international trade.
Impact of tech in finance?
Enhances market connectivity and efficiencies.
Test your knowledge with 12 questions on Global Finance and Market Dynamics.
1. When were fixed exchange rates abandoned, leading to increased currency volatility and further globalization of financial markets?
2. Who is credited with developing foundational theories that highlight the significance of managing risks, such as foreign exchange risk, in international finance?
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