Topic 6 Flashcards
What is globalisation?
refers to the increasing interconnectedness of countries, where events in one country impact others, and activities such as travel, trade, and communication span across borders
How has travel contributed to globalisation?
A: Travel between countries has become quicker, easier, and cheap, facilitating the movement of people and goods around the world
How has communication technology (ICT) affected globalisation?
A: ICT has made communication faster and more efficient, allowing instant contact between people and financial markets worldwide.
How do businesses benefit from globalisation in terms of trade?
A: Businesses can easily trade across borders by sourcing raw materials from one country and exporting goods to another. Internet shopping also allows consumers to buy products globally
How does migration influence globalisation?
A: Migration brings cultural diversity as people take their cultural preferences to new countries, influencing demand for various goods and services like food and fashion
What is an example of a business sector that has expanded through globalisation?
A: Financial services providers have expanded activities across national borders, establishing offices worldwide and forming multinational organisations through takeovers and mergers.
How does HSBC exemplify globalisation?
A: HSBC has expanded into over 65 countries by acquiring local financial services providers and rebranding them under the HSBC name
What role does internet shopping play in globalisation?
A: allows individuals to purchase goods from different countries, with air transport enabling fast delivery
How do multinational corporations contribute to globalisation?
A: they operate in multiple countries, increasing economic interconnectedness and enabling goods, services, and capital to flow across borders efficiently
What is the general definition of globalisation
refers to the international integration of business, industry, and society through advancements in technology, communication, and migration. It is commonly described as:
• The trend towards a single global economy and society.
• A process of increasing international networking, linking previously isolated communities and economies
What is the IMF, and what does it aim to achieve
The International Monetary Fund (IMF) is an international body comprising 190 countries. Its aim is to:
• Promote international cooperation on exchange rates and other economic matters.
• Ensure the stability of the international monetary system, including exchange rates and international payments, enabling countries and their citizens to transact with one another.
(IMF, 2019)
How does the IMF define globalisation, and what are its key driving factors
The IMF defines globalisation as:
• “The process through which an increasingly free flow of ideas, people, goods, services, and capital leads to the integration of economies and societies” (IMF, 2002).
Key factors driving globalisation:
• Increased trade liberalisation.
• Advances in information and communication technology (ICT)
What are the positive aspects of globalisation
Supporters view globalisation as beneficial because:
• It improves the standard and range of products.
• It leads to consistency in services across different countries.
What are the criticisms of globalisation
Critics argue that globalisation:
• Undermines local culture in countries where multinational corporations operate.
• Leads to depersonalisation, as people feel the “one size fits all” approach ignores local preferences and traditions
How do financial service providers adapt to criticisms of globalisation
Many financial providers strive to balance being global with being local:
• They aim to keep customers loyal by adapting to local needs.
• Example: HSBC marketed itself as “The world’s local bank,” emphasising its global reach while understanding local markets.
However, after the 2007–2008 global financial crisis, HSBC dropped this tagline (Quinn, 2011)
What is another criticism of globalisation related to offshoring
Globalisation is criticized for increasing offshoring, where jobs and production are moved to countries with lower costs, impacting local employment in the home countries
How does globalisation in financial services illustrate its interconnectedness
means that strategic decisions made by providers in one country (e.g., UK) can significantly impact global operations. Events in one part of the world, such as the 2007–08 financial crisis, affect economies worldwide due to interconnected markets
What triggered the 2007–08 financial crisis in the US
The crisis was triggered by the sub-prime mortgage market in the US:
• Banks provided mortgages to high-risk borrowers who could not afford them.
• Rising interest rates made it difficult for borrowers to repay loans, leading to defaults and home repossessions.
• Falling house prices meant banks could not recover their loans through repossessed home sales.
How did the repackaging of mortgage debts contribute to the financial crisis
Banks repackaged mortgage debts into securities sold to investors and other banks.
• As defaults increased, these securities lost value, becoming “toxic debt.”
• Financial institutions holding toxic debt faced huge losses, spreading the crisis globally
What is the “credit crunch,” and how did it arise during the financial crisis
The credit crunch occurred when:
• Uncertainty over the value of toxic debt made banks stop lending to each other.
• This lack of lending caused a freeze in the global financial system.
• The first UK bank affected was Northern Rock, heavily reliant on global money markets to fund its mortgages
What measures were taken to prevent the collapse of the UK banking system during the crisis
The UK government injected funds to support failing banks to avoid systemic collapse. This action was necessary due to the unethical lending practices in the US, which had infected banks globally through interconnected financial systems
What does the 2007–08 financial crisis reveal about the risks of globalisation in financial services
The crisis demonstrated that failures in financial services in one country could threaten the stability of the entire global financial system due to integrated markets and daily cross-border banking transactions
What is a criticism of globalisation related to large multinational corporations?
Globalisation has led to the emergence of powerful multinational corporations that:
• Dominate markets, making it difficult for small local businesses to compete and survive.
• Integrate extensively in sectors like financial services, taking customers from smaller rivals.
How do mergers and acquisitions relate to globalisation
They are common in globalisation, where large corporations:
• Buy smaller rivals, increasing their size and power.
• Often result in redundancies due to overlapping operations.
• Can bring increased employment opportunities when entering new markets.
Authorities encourage limits on mergers to maintain competition and consumer choice