Question

True or False One of the factors responsible for globalization of financial markets and institutions is deregulation.

Answer 1

Deregulation

Deregulation refers to the elimination or reduction of regulation which hinder free competition and thereby, allowing the market forces of demand and supply to drive the economy forward.

Deregulation was responsible for globalization of financial markets and institutions.

In deregulation, the government does not interfere with businesses in day-to-day activities. Deregulation has acted as an agent of globalization. Important sectors in the US economy are unregulated. Deregulation allows free trade and competition. It allows foreign companies to enter local markets. It checks against monopoly. It enabled sharing of information and technology. Deregulation benefits the consumers as it gives them more choices.

Regulation in the financial sector prohibited free enterprise. The US financial sector was deregulated in the early 1980s and altered the composition of the market. It benefited commercial banks, allowing for formation of “megabanks”.

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