Globalization
Globalization in Financial Markets
Robert Dalphonse, Nicholas Missler, Aashti Sindhu, Kurtis Young
Embry-Riddle Aeronautical University
Authors Note
This paper was prepared for Strategic Management (MGMT 436), taught by Professor Maurice Stanley.
Globalization in Financial Markets
Globalization is defined by Merriam-Webster’s dictionary as “the development of an increasingly integrated global economy marked especially by free trade, free flow of capital, and the tapping of cheaper foreign labor markets” (Merriam-Webster, 2013) and by their concise encyclopedia as a “process by which the experience of everyday life, marked by the diffusion of commodities and ideas, is becoming standardized around the world” (Merriam-Webster, 2013). Globalization, a term known to be used as far back as 1951, allows companies to increase profits and reduce operating costs. Companies that wish to take advantage of new customers may move some of their infrastructure to another country. It could also be considered the opening of new world markets for investment opportunities as countries become more developed. One negative effect of globalization, that this paper covers, is the financial crisis that took place in 2008.
Leading up to 2008, many Americans were able to easily borrow money from banks in order to purchase real estate. Much of the real estate being bought was considered speculative investment as appraised values of property were increasing due to buyer demand. Many of the mortgages being underwritten by banks were considered “subprime” because they were being lent to people with low credit ratings. The result was an Adjustable Rate Mortgage (ARM) with an annual percentage rate that eventually increased to the point that it was impossible for the borrower to make the minimum payment on real estate that he owned.
The financial crisis of 2008 is widely believed to be caused by too many subprime loans being held by banks all over the world, and by borrowers that
Robert Dalphonse, Nicholas Missler, Aashti Sindhu, Kurtis Young
Embry-Riddle Aeronautical University
Authors Note
This paper was prepared for Strategic Management (MGMT 436), taught by Professor Maurice Stanley.
Globalization in Financial Markets
Globalization is defined by Merriam-Webster’s dictionary as “the development of an increasingly integrated global economy marked especially by free trade, free flow of capital, and the tapping of cheaper foreign labor markets” (Merriam-Webster, 2013) and by their concise encyclopedia as a “process by which the experience of everyday life, marked by the diffusion of commodities and ideas, is becoming standardized around the world” (Merriam-Webster, 2013). Globalization, a term known to be used as far back as 1951, allows companies to increase profits and reduce operating costs. Companies that wish to take advantage of new customers may move some of their infrastructure to another country. It could also be considered the opening of new world markets for investment opportunities as countries become more developed. One negative effect of globalization, that this paper covers, is the financial crisis that took place in 2008.
Leading up to 2008, many Americans were able to easily borrow money from banks in order to purchase real estate. Much of the real estate being bought was considered speculative investment as appraised values of property were increasing due to buyer demand. Many of the mortgages being underwritten by banks were considered “subprime” because they were being lent to people with low credit ratings. The result was an Adjustable Rate Mortgage (ARM) with an annual percentage rate that eventually increased to the point that it was impossible for the borrower to make the minimum payment on real estate that he owned.
The financial crisis of 2008 is widely believed to be caused by too many subprime loans being held by banks all over the world, and by borrowers that
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