FINANCIAL INNOVATIONS AS A POSSIBLE SOURCE OF ECONOMIC INSTABILITY
Journal Title: Knowledge International Journal - Year 2018, Vol 26, Issue 1
Abstract
The financial sector has developed more intensely in comparison with the real one in the period of globalization. Over the past twenty years, international cash flows have been more than thirty times more pronounced than the value of commodity exchange. With money moving across borders in almost uncontrolled amounts, the ability of national monetary authorities to control their own financial system has been significantly reduced. Financial globalization has allowed the realization of significant benefits to individual countries, to savers and investors. However, it radically transformed the market structure, made new risks and challenges for all market participants and creators of macroeconomic policies. In conditions of financial liberalization, potential investors are no longer confronted with numerous limitations of borrowing funds. Financial globalization has enabled participants in financial markets to choose different financial instruments in an effort to minimize potential risks. Numerous factors have contributed to the deregulation and globalization of the financial sector, among which are those distinguished by their significance: advancement of information technology, liberalization of national financial markets and competition between financial service providers. The development of information and communication technology has enabled market participant and monetary authorities to collect and process information that they need to measure, monitor and manage financial risks. Thanks to the developed range of new information technologies, it is possible to inform about prices and trade with numerous financial instruments, many of which are the result of deregulation and globalization of the financial sector. Liberalization of national financial markets in the combination with the strong improvements of information and communication technologies, on the one hand, and the globalization of national economies, on the other hand, accelerated financial innovation and induced international capital mobility. The globalization of financial mediation partially responded to the demand for mechanisms that mediate in trade of financial services and liberalized the rules for the entry of foreign financial institutions into domestic financial markets. The competition between the providers of intermediary financial services is a consequence of financial liberalization and technological innovations. In many countries, the authorities have mitigated regulations on institutions that have the right to deal with the provision of financial services through the regulatory mechanism, enabling the establishment of many, completely new forms of non-banking financial institutions. Investment banks, joint stock companies, mutual funds, insurance companies have begun to provide services that were once traditionally in the competence of banking institutions.
Authors and Affiliations
Slobodan Cvetanović, Sretko Ribać, Dušan Cvetanović
Keywords
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