Why is the Development of Telecommunications one of the key factors to the Globalization of Financial Markets?

Question

Explain thoroughly.

Answer 1

Two main reasons: Instant communication; and huge volume data processing.

Person-to-person communication allows a financial instument to be simultaneously traded at a "real time" price anywhere. You have, say $500,000 of US treasury bills maturing on October 7th. You can seel them where you always could, on the NYSE. You can also sell them in London, Tokyo, Singapore, anywhere else that there's a dealing room. And you can sell them in singapore while personally being in Timbuktu. Similarly with most other securities.

Secondly, in order for markets to be "effciient", they need access to information. Equity markets, for example, need latest company announcements, market rumours, brokers' reports and opinions. They also benefit from data on price streams for the past x minutes, hours, days, 60 day moving averages, all that stuff. And they need similar data for loads of companies, so traders can compare how one share is doing against another and another and the sector and the market indices. Through global telecoms, this data can be compiled for everyone from the best professionals at Fidelity to you and me in a matter of a second or two, and transmitted to our desk and theirs down the internet. It means that I, in England, have as much chance of successfully analysing, say, medium sized US house builders and investing profitably selectively in them as you in Kansas City and our friend in New York. Which just wasn't the case 30 years ago. And I can phone my NY broker for 2 cents a minute, which is also new. 50 years ago, that was a day's wages for a 10 minute call (roughly!).

Answer 2

A modern trading desk depends on access to telephones and data communication. Most markets have computer-driven order management systems in place. Without modern telecommunications, investors would not be able to use those systems.

Answer 3

Competition in Financial Markets depends almost entirely on superior information; as telecom allows improved information flows, well the connection is easy to see.