Economics Short Answer Feedback

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Discuss the impact of global financial flows on economies.

Finance, i.e. money is one of the most globalised features of the world economy, as the introduction and advancements in technology have facilitated the movement of money between economies faster than goods and services and even people. One of the main drivers of global financial flows (GFFs) are international financial deregulations which officially began on a global scale between the 1970s–1980s, and the other is the increase in speculators and currency traders. This in turn, has not only increased the number of global financial transactions but also volatility in global prices. This can be seen in the fluctuation of the FOREX daily turnover which increased from USD $4 trillion in 2010 to USD $6.6 trillion in 2020, which is a total 40% increase in trading volume. A key benefit of GFFs is the increasing ability of economies to obtain greater investment finance, however, augmented GFFs increase the prospect of financial contagion. For example, the GFC saw a plummet in financial market activity as a result of the increased risk aversion of lenders, higher costs of credit and increased market volatility.