Transcription of Chapter 1 International Financial Markets: Basic Concepts
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Chapter 1 International Financial Markets: Basic Concepts
Chapter 1 International Financial Markets: Basic ConceptsIn daily life, we find ourselves in constant contact with internationally traded goods. If youenjoy music, you may play a manufactured CD of music by a Polish composer througha Japanese amplifier and British speakers. You may be wearing clothing made in China oreating fruit from Chile. As you drive to work, you will see cars manufactured in half a dozendifferent countries on the visible in daily life is the International trade in Financial assets, but its dollar volumeis much greater. This trade takes place in the International Financial markets. When inter-national trade in Financial assets is easy and reliable due to low transactions costs in liquidmarkets we say International Financial markets are characterized byhigh capital capital was highly mobile in the nineteenth century.
Financial innovations, such as the Eurocurrency markets, undermined the e ectiveness of capital controls.1 Technological innovations lowered the costs of international transactions. These factors, combined with the liberalizations of capital controls in the 1970s and 1980s, led to the development of highly integrated world nancial markets.
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