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IAI Actuarial Core Principles · Business Economics · Impact of the macroeconomic environment on business

Which of the following is a commonly cited effect of globalisation on Indian financial services firms such as insurers and asset managers?

Globalisation gives Indian financial firms greater access to foreign capital, expertise and reinsurance, but also exposes them more to global market volatility and capital flow shocks. Competition tends to increase and local regulation stays necessary, so the other statements are incorrect.

  1. AReduced exposure to global capital flows and external shocks
  2. BElimination of any need for local regulation
  3. CGreater access to foreign capital and reinsurance, but greater exposure to global market volatilityCorrect
  4. DGuaranteed higher domestic interest rates
  5. A fall in competition as foreign firms leave the market

Explanation

Globalisation opens access to foreign capital, expertise and reinsurance capacity, but links domestic markets to global shocks such as capital outflows. Local regulation remains necessary, and competition generally rises. No guaranteed effect on domestic interest rates exists.

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