Most of the developed countries
today are reeling under the
most profound implication of the economic
globalization—transmission of shocks and tremors felt in
one country soon impact others in the link. While financial institutions in the
US are at the heart of the recent financial crisis, European banks face
similar problems, which shows how deeply interconnected national financial
systems have become. The macroeconomic consequences of subprime mortgage
investments, leveraged loans, failed financial hedges and a surge in conventional
credit losses have impacted the European and American economies alike.
In general, as economies become more connected to other
economies, they have increased opportunities as well as increased competition. An
integral part of this economic globalization has been development and
deepening of a global economic system, with the globalized banks playing
a critical role. Globalized banking is constantly evolving, moving
away from a system with primarily cross-border flows to a system with
both cross-border transactions and more internationally diversified
ownership of banks. The global banks interact with host economies at multiple
levels, transacting in new and sophisticated financial
instruments/products locally and internationally.
Globalization is described as "an ongoing process by which
regional economies, societies and cultures have become integrated through
a globe-spanning network of exchange." The term is most often used to refer
to economic globalization, "the integration of national economies into the
international economy through trade, foreign direct investment,
capital flows, migration, and the spread of technology." In addition to
economic factors, globalization has also a cause-and-effect relationship
with technological, socio-cultural, political and biological factors. However,
in this article, we will look at economic globalization.
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