ABSTRACT
As noted in Chapter 1, one of the most significant aspects of financial globalization is the extremely rapid expansion of international liquidity. There has been an enormous increase in liquid assets available to participants in the global financial markets. The objective of this chapter is to provide quantitative and qualitative details regarding capital flows from the global financial markets to the emerging market economies, and other closely related features. The constitution and geographical distribution of these flows has undergone significant transformation with the passage of time. The entry of institutional investors onto the global financial scene and their progressively increasing significance has ushered in many changes, as well as adding to the liquidity of the financial markets. Little wonder that they are considered heavyweights in the global financial markets and have enormous impact on the emerging market economies. However, their presence has exposed the emerging market economies to some vulnerabilities – for instance, institutional investors can take short positions in weak currencies, in the process destabilizing the economy of that emerging market economy.
