Most observers believe that for better or for worse, we have achieved a global market for securities. Discuss the major changes in the international markets of securities: during the 1980s, during the 1990s and the current conditions

Question

What will be an ideal response?

Answer 1

Answer: During the 1980s, numerous firms cross-listed on major foreign exchanges and were successful in lowering their WACC and increasing its availability. During the 1990s, national restrictions on cross-border portfolio investment were gradually eased under pressure from the Organization for Economic Cooperation and Development. Liberalization of European securities markets was accelerated because of the European Union's efforts to develop a single European market without barriers. Emerging nation markets followed suit, as did the former Eastern Bloc countries after the breakup of the Soviet Union. Emerging national markets have often been motivated by the need to source foreign capital to finance large-scale privatization.

Now, market segmentation has been significantly reduced, although the liquidity of individual national markets remains limited. The good news is that many firms have been assisted to become MNEs because they now have access to a global cost and availability of capital. The bad news is that the correlation among securities markets has increased, thereby reducing, but not eliminating, the benefits of international portfolio diversification. Globalization of securities markets has also led to more volatility and speculative behavior, as shown by the emerging market crises of the 1995-2001 period, and the 2008-2009 global credit crisis.