Question

Why are countries willing to open their financial markets, and what are the disadvantages of financial globalization?

Answer 1

Financial markets help to efficiently channel savings and investment flows within the economy in ways that promote capital accumulation and goods and services production. The combination of well-developed capital markets and banks, as well as a range of financial products and instruments, is geared to the needs of borrowers and lenders, and thus the economy as a whole.
The United States financial system is widely considered to be the world's most well-developed. Regular financial-market transactions both money (short term, a year or less) and capital (over a year) markets are immense. Numerous financial assets are liquid; some can face secondary markets

The financial system is progressing by financial globalization. An improved framework for the commercial sector means that debtors and investors function through a simpler, more efficient and more successful financial system. The problems of unbalanced statistics are that in this setting, and credit is that. As a result, financial globalization decreases unfavorable choice and moral hazard, thus increasing credit accessibility. This may also have some negative consequences, irrespective of the other advantages of financial globalisation.

Globalization can also cause crunches if there are other flaws on the global capital markets that can build inflation, irrational habit, herding habit, speculative outbreaks and crashes. Faulty capital markets around the world can trigger crunches, including in nations with full and detailed fundamentals. For example, if financiers assume that the exchange rate is unmanageable, they could be playing against the currency, creating a self-fulfilling squeeze in the balance of payments against the fundamental market. In case the required financial infrastructure is not achieved after integration, the well-being of the domestic financial system can be undermined by liberalization and capital inflow.