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Fall out of Globalization

on
Financial Markets
Group 07
MMS C Div
BySr.no.
22. Ayesha Shaikh
35. Krutika Sutar
40. Pearl Thomas
44. Kamlesh Varma
11. Lovenish Ruhela
01. Aditya Phatak

INTRODUCTION
What is Globalization?
- Globalization refers to increasing economic interdependence of
national economies across the world through a rapid increase in
cross-border movement of goods, service, technology and capital.

- Two components:
1.
The globalization of markets.
2.
The globalization of production.

Globalization of markets

The merger of National and International Markets.

Tastes and preferences.

Standardized products.

Significant differences still


exist between national
markets on many relevant
dimensions

Different marketing and operating strategies.

Countries are different, cultures vary.

Complex range of problems.

Government intervention in trade and investments.

Financial Market
Definition:

In economics, a financial market is a mechanism that allows people to


buy and sell (trade) financial securities (such as stocks and
bonds), commodities (such as precious metals or agricultural goods), and
other fungible items of value at low transaction costs.

Factors that affect


Financial markets

Inflation
Interest rates
Company mergers
Oil/Energy prices
War/Terrorism
Crime/Fraud
Natural Disasters
Serious domestic political unrest

Working of financial markets

Working of financial
markets

Financial Markets PreGlobalization


Restrictions on inter-convertibility of currencies.
Lot of Government intervention in the working of financial markets.
In Indian economy,
-Rupee was inconvertible.
-High tariffs and import licensing.
-High restrictions on private companies.
-Low annual growth rate.

Change in Government
Policies

De-regularization of financial markets in U.S (repeal of US 1933


Glass- Steagall act)

In India, Government policy of LPG Liberalization, Privatization,


Globalization helped increase in foreign investment ,reduce poverty
and unemployment which eventually contributed to the rise of
financial markets in India.

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Financial Markets postGlobalization


Positive impacts
- Emergence of worldwide financial markets.
- Easy flow of Capital worldwide.
- Better access to external financing for borrowers.
- By the early part of 21st century, more than $1.5 trillion in
national currencies were traded daily.

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Financial Markets postGlobalization


Negative impacts
- Markets became more and more riskier.
- Numerous bank frauds.
- Subprime mortgage crisis.
- External factors like terror attacks and natural calamities
affected financial markets.

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The Sub prime Mortgage


Crisis

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The Players in the market


By the 2000s, the financial industry
was dominated by five investment
banks (Goldman Sachs, Morgan
Stanley, Lehman Brothers, Merrill
Lynch, and Bear Stearns), two
financial conglomerates
(Citigroup, J.P. Morgan),
three securitized insurance
companies (AIG, MBIA,AMBAC) and
three rating agencies
(Moodys, Standard & Poors, Fitch)

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Immediate Effects
On

March 2008, Bear Stearns ,one of the major investment bank, ran
out of cash.
Two

days later, Lehman Brothers collapsed. Merrill Lynch was now


on the edge of collapse and was acquired by Bank of America.
On

September 17, the insolvent AIG was taken over by the


government.
On October 4, 2008, President George Bush signed the $700 billion
bailout bill, but stock markets continued to fall globally.

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After Shocks from the Financial


Markets Crash

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World map showingreal GDP growth


ratesfor 2009. (Countries in brown were
in recession)

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The effects it had on India

Share markets were falling.

The Indian currency got weakened against dollar.

Banks faced huge shortage of funds and soon collapsed.

This cycle started affecting companies and institutions in different


fields as well.

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World Trade Centre attack


September 11th 2001

Stock exchanges did not open on 11th Sep 2001 and were closed till 17th Sep.
After reopening ,DJIA declined by 684 points or 7.1% decline.
By the end of the week ,DJIA declined by 1369.7 points (14.3%).
U.S dollar fell sharply against Euro, British pound and Japanese Yen.
Next day, European markets fell sharply.

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Latest economic downfalls

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Japan Earthquake
(11th March 2011)

Japans Nikkei index declined by 1.7%

Investors around the world were rattled after a massive earthquake


and tsunami struck Japan, adding another layer of uncertainty to
markets that were already jittery about oil prices and the volatile
political situation in the Middle East.

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The latest major downfall in stock markets


throughout the world after U.S market ratings
were dropped from AAA to AA+ rating. (4th August
2011)

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4th- 6th August 2011

The benchmark Shanghai Composite Index slumped 3.79 percent.

In Japan, the benchmark Nikkei-225 index closed 2.18 percent down,


while Seoul's Composite Stock Price Index dropped 74.30 points, or
3.82 percent.

Europe soon followed suit, with the blue-chip Euro STOXX 50 index
dropping for the 11th session in a row. Britain's FTSE 100 Index went
down by 1.8 percent, adding to last week's severe 9.7 percent fall.
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U.S NATIONAL DEBT COUNT


(as of 12st September 2011)
$14,714,039,456,671

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Future

Fickle nature of markets, insecure and volatile.

Surveying agencies found risks to be in Turkey and South Africa, with


a 38-40 percent possibility of recession in these countries.

Survey says these indicators forecast a 67 percent probability of


recession in the Czech Republic and 58 percent in Israel, followed by
Poland and Turkey.

Emerging markets: Soft patch or recession?


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May be on the verge of another


downturn?
Double Dip?

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THANK YOU !

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