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IAI Actuarial Core Principles · Business Economics · Globalisation and multinational business

Which of the following is a likely benefit of financial globalisation for Indian life insurers and the wider economy?

Financial globalisation gives access to foreign capital and reinsurance capacity, though it also increases exposure to volatile capital flows and global shocks. It does not insulate markets, fix exchange rates, remove regulation or reduce competition.

  1. AComplete insulation of domestic asset prices from global shocks
  2. BGreater access to foreign capital and reinsurance capacity, though with increased exposure to volatile capital flowsCorrect
  3. CA guaranteed fixed exchange rate for the rupee
  4. DThe removal of the need for domestic regulation
  5. Lower competition among financial service providers

Explanation

Financial globalisation widens access to foreign capital, investors and reinsurance capacity, but also exposes the economy to sudden capital outflows and contagion. It does not insulate prices, fix the exchange rate, remove regulation or reduce competition.

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