Financial Market Integration

Topics: Financial markets, Financial market, Bond Pages: 14 (3935 words) Published: May 13, 2013
In the field of financial securities, the integration concept has now become a crowding issue. Because due to the vast introduction of various securities the people are becoming, specially the investors and issuer of different securities, confused with various securities. They want all those items in a single place. Not only this, if the integration can be done in a real sense, there are variety of advantages with lower cost of dealing with those items. But to drive with those advantages the integaration precess need to be dealt which holds variety of forms with complex process of integration. Which ultimately brings huge benefit for the both issuer and the investors.

Financial market integration:
Financial integration is the process through which a country’s financial markets become more closely integrated with those in other countries or with those in the rest of the world. It implies the elimination of barriers for foreign financial institutions from some (or all) countries to operate or offer cross-border financial services in others. This may imply linking banking, equity and other types of financial markets. For example, a country with uniform tax laws and regulation usually has an integrated financial market because there are no circumstances where one's return will be reduced because of tax restrictions or different regulation. In other words, in an integrated financial market, investments of the same risk always have exactly the same expected return. The European Union is an example of an integrated financial market.

Movement of financial market integration:
The integrated stock market movement has got the momentum during 1980s where financial linkages among developed economies have grown stronger and have opened up additional channels for cross-border relation. Market liberalization/deregulation, technological advances and removals of statutory controls are the reasons of rapidly increase of the integrated stock market movement. Many of these factors have interlinked economies and have given a higher degree of stock market integration during the volatile period like as explosion of a financial crisis, war, or political instability.


Financial Market Integration

The waves of financial liberalization since the middle of the 1980s and the subsequent deregulation of financial markets had facilitated massive capital inflows to the Asian economies. These inflows helped these economies to take off, but the accumulation in massive foreign positions and the significance of valuation effects arising from exchange rate fluctuations constituted the core issue of global imbalance that caused subsequently the Asian financial crisis. However, The Asian financial crisis had not deterred the global development of financial liberalization and integration. After the Asian financial crisis, various arrangements have been established to promote regional financial cooperation in Asia. These initiatives have been driven by a number of reasons. The inadequate response to the Asian crisis of 1997–98 and its associated contagion effects could be profound. Therefore, coordinated effort is believed to limit damage of financial shocks. The trend for development in regionalism, including the rise of Asian giants such as China and India that might have altered the global economic order, has also facilitated the need for Asian economic cooperation and integration. Moreover along side the Asian crisis the historical financial crises, including the latest one in 2007-2008 global financial crisis, have opened up a tremendous interest for determining the underlying factors that might explain how stock markets are correlated with one and other for better understanding the causes of the sudden and simultaneous deterioration of wealth that occurs during crises periods. To investigate the propensity of one country to be affected by global shocks have enormous value for preventing future crises. As our countries become...
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