Question

What benefits and risks associated with the globalization of financial markets do you think are more important in today’s level of globalization? Why? What could be the implications for monetary policy?

Answer 1

Ans ) Benefits of globalisation

1 ) globalisation of capital markets have provided some benefits in terms of greater flexibility and efficiency, the preservation of the safety and soundness of the financial system requires a more forceful and internationally co-ordinated supervisory presence.

2 ) Globalisation and financial stability. One specific mechanism through which globalisation can affect economic growth, poverty and inequality is its impact on financial stability. Financial crises can result in a permanent loss of income, have a devastating effect on poverty and increase inequality.

3 ) Advantages of Financial Globalization. with which a country may always remain prepared to counter any financial crisis. between nations increase which causes well-organized world allocation of money. national shocks, and an excellent system for more efficient global allocation of resources.

4 ) Globalization improves communication access.

5 ) Globalization would remove tax havens for wealthy individuals and businesses.

6 ) Globalization could create more employment opportunities.
With fewer barriers to the import/export market, the cost of producing goods or offering services would decline without affecting the profit margins of companies. Consumers would benefit from the lower prices, consume more, and create additional job opportunities around the world. By creating an environment where free trade encouragement readily exists, more innovation, creativity, and engagement would occur at every level of society.

Risk associated with globalisation

1 ) Globalisation may encourage more offshoring instead of less.
With fewer restrictions in place at the national level, some businesses may use offshoring to their advantage. Even if they kept jobs local, the threat of sending jobs to a different, cheaper region overseas could be used to justify lower wages at home. The end result of an effort to remove borders would be an increase in wages in the developing world, but a decrease in developed countries. Many households could see their standard of living go down if consumable price decreases don’t occur simultaneously.

2 ) Globalization benefits the wealthy more than the poor.
Value-added taxes above 25% exist in some nations. Tariffs above 70% exist for some products. Unless borders are completely removed, the advantages of globalization are challenging to achieve. The people who have the power to dictate policy would reap the most significant rewards. Those with money to invest would see their bank accounts continue to rise. At the same time, households living paycheck-to-paycheck would struggle to access what they require, suppressing their ability to pursue a better job.

3 ) Globalization would negatively impact the environment.
We’ve already seen what free trade does to the environment. Greenhouse gas emissions rose in 2018 despite efforts to curtail them. Micro-plastics invaded our oceans, creating negative impacts on marine life. The waters of our planet are slowly acidifying, creating economic and health impacts every day. Over 200,000 Americans die each year because of pollution exposure. If caps are taken off of what is not permitted through globalization, then this issue will continue growing worse.

2 ) Implications for monetary policy

The IS-LM model has a major implication for monetary policy: when the IS curve is unstable, a money supply target will lead to greater output stability, and when the LM curve is unstable, an interest rate target will produce greater macro stability.

The IS-LM model is a standard tool of macroeconomic that demonstrates the relationship between interest rates and real output in the goods and services market and the money market.