Explain why international financial and monetary activities are becoming more integrated. What are the risks and benefits of the growing integration of the two activities?

What will be an ideal response?

The growing integration of the financial and monetary activity worldwide is due to a number of drivers. First, the evolution of monetary and financial regulations worldwide has led to integrated financial and monetary activities. The second driver is the development of new technologies and payment systems and the use of the Internet in global financial activities. The third driver is the increased global and regional interdependence of financial markets. Finally, the growing role of single-currency systems, such as the euro, has caused financial and monetary integration.
The globalization of financial flows has yielded many benefits, such as increasing the volume and speed of international capital flows. However, the globalization of financial flows has also led to possibilities of financial risk. Capital flows are much more volatile than FDI-type investments. It is much easier for investors to withdraw and reallocate liquid capital funds than FDI funds, which are directly tied to factories and other permanent operations that firms establish abroad.