Question

How does globalization increase systematic risk? How might globalization decrease systematic risk? Please, a very detailed answer will be very appreciated

Answer 1

Globalization in my view contributes to the convergence of market cycles. In this way, globalisation, like the global financial and debt crisis, will exacerbate economic crises. The global financial crisis, which erupted in mid-September 2008, was one example. It was then that one of the world's largest investment banks declared bankruptcy. Billions of USD of financial losses were created as a result of the inadequate credit risk management procedures. It turned out that the unwritten rule does not work any more, the "huge can not fall"

However, one of the main determinants of the economic globalization processes that have been evolving in recent years is the proliferation of ever larger multinational companies and financial institutions. Those processes are continuing. As a result of the merging of some of the biggest financial institutions through mergers and acquisitions, more and more banks are being established every few years. On the other hand, multinational operating manufacturing companies are moving their factories from country to country in search of cheaper workers and foreign trade and service companies are creating branches and selling outlets elsewhere.

The society in which we live is very different from that of just a few decades ago. Goods, utilities, people and ideas are transiting across borders faster than ever before. This integration has brought about exponential changes in the average quality of living and health. It has brought more knowledge, more options and more opportunities to our lives. It's also helped reduce international tensions. This remarkable cycle includes the end of the Cold War, the opening of China and the prolonged period of stability in Europe, as well as the collapse of authoritarian regimes in over 60 countries in Africa, Latin America and Asia. Connectivity has also speeded up the dissemination of technologies that have changed millions' lives for the better. Greater connectivity has been a blessing for much of the world's rising number of inhabitants.