Factors Influencing Growth of IFM – Globalization, MNCs, Trade
Fifty years ago, international trade was small. Today, you are reading this on a phone designed in California, assembled in China, with chips from Taiwan, using software from India. What happened?
1. Drivers of IFM Growth
A. Globalization (The Big Shift)
- Removal of Barriers: Countries reduced tariffs and welcomed foreign goods.
- Result: The world became one big market.
B. Rise of MNCs
- Companies grew too big for their home countries.
- Example: Coca-Cola earns more money outside USA than inside USA. Managing this global cash flow requires IFM.
C. Technology & Communication
- Swift Transfers: Money can move from London to Mumbai in seconds.
- Information: A dealer in Tokyo knows NY prices instantly. This integrated financial markets.
D. Financial Liberalization
- Governments relaxed controls (e.g., India's 1991 LPG reforms).
- Allowed currency convertibility and foreign investment (FPI/FDI).
E. Emergence of WTO (World Trade Organization)
- Standardized trade rules made cross-border business safer and predictable.
2. Diagram: The Cycle of Growth
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3. Exam Notes: Writing the Answer
Question: "Discuss the factors responsible for the growth of International Finance." (10 Marks)
Key Points:
- Globalization: Integration of economies.
- MNCs: Growth in scale and scope.
- Technology: Speed of transactions.
- Liberalization: Deregulation (LPG).
- Trade Blocs: EU, NAFTA, ASEAN encouraging trade.
Summary
- Interconnectedness: A crisis in one country (e.g., 2008 US Crisis) now affects everyone. That is why IFM matters.
- Speed: Financial markets engage in almost instant transmission of shocks and opportunities.
Quiz Time! 🎯
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