Elements of Capital Budgeting in Global Business Arena

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The definition of globalization of financial markets according to Mr. Greenspan,

"Globalization of the economy and financial markets is characterized by: (1) the rise in volume of trade relative to world gross domestic product, (2) the rapid growth in foreign exchange trading volumes, and (3) the impressive rate of increase in cross-border claims."

Thus globalization is integration across geographical boundaries. Integration involves the freedom and opportunity to raise funds from and to invest anywhere in the world. Thus there has been development of various new financial new instruments such as Currency swaps, options and rapid growth of Euro markets. The major institutions are World Bank, IMF, WTO and other institutions.

They play an important role in the global financial system. It helps in international and cross border flow of capital and credit, gives opportunities to the business, government and other institutions to access to the international markets

It acts as a intermediary between the lenders and borrowers. It arranges funds for the borrowers in any form whether it is equity, debt or hybrid instrument. It raises the finance for them for all kinds of duration whether it is short term or long term. Similarly it helps the lenders in allocating their money according to their objectives of risk and return. It helps in linking the lenders and borrowers of any par to the globe. Thus strong and active financial institutions play an important role in creating economic opportunity. In addition to providing financial support, it can offer a valuable perspective on global markets and business operations in support of development.

Not only this, financial institutions often provide technical assistance to small businesses, training to prospective homeowners, and financial education to residents about the global economy. Financial institutions play a fundamental role in liquidity redistribution and maturity transformation, the implementation of monetary policy, in operating payment systems and in providing appropriate channels for national and international financial flows, which contribute to the overall development of the economy.

Financial institutions can provide lending facilities and help countries in crisis. They can also make major contributions to global financial stability by continuing to make every effort to improve risk management and by transferring know-how and strengthening corporate governance in the ...