Financial markets are interconnected on a global scale from "summary" of Economics of Money, Banking and Financial Markets, Business School by Frederic S. Mishkin
The interconnectedness of financial markets on a global scale is a fundamental feature of the modern financial system. This interconnectedness means that events in one market can have ripple effects that impact markets around the world. For example, a financial crisis in one country can quickly spread to other countries through the interconnected web of financial markets. Globalization has played a significant role in increasing the interconnectedness of financial markets. Advances in technology have made it easier and faster to trade financial assets across borders, leading to a more integrated global financial system. As a result, investors and financial institutions can easily move capital between countries, taking advantage of opportunities in different markets. The interconnectedness of financial markets has both benefits and risks. On the one hand, it allows for greater diversification of investment portfolios, as investors can spread their risk across different markets. This can help to reduce the impact of a downturn in any one market. Additionally, the flow of capital across borders can help to allocate resources more efficiently, leading to higher levels of economic growth. However, the interconnectedness of financial markets also means that risks can spread more easily from one market to another. A crisis in one market can quickly lead to a contagion effect, where other markets are also affected. This can create instability in the global financial system and make it more difficult for policymakers to address economic challenges.- The interconnectedness of financial markets on a global scale is a defining feature of the modern financial system. It has both benefits and risks, and policymakers must carefully navigate this interconnected web of markets to maintain stability and promote economic growth.
