What does 'financial globalization' refer to?

Financial globalization refers to the increased financial interdependence among countries that arises from cross-border capital flows. This phenomenon encompasses a wide range of activities including investments, lending, and borrowing that occur across international boundaries. As economies become more interconnected, capital can move more freely between countries, allowing for greater access to funding and investment opportunities. This interdependence enhances the overall efficiency of international markets and leads to a more integrated global economy.

In this context, the movement of capital can affect exchange rates, influence economic policies, and create opportunities for both investors and companies looking to expand their operations internationally. The essence of financial globalization is not just the existence of cross-border transactions but the resulting interconnectedness that shapes economic relationships between nations.

The other options do not accurately capture the concept of financial globalization. While the rise of national currencies might play a role in the larger financial context, it does not directly define financial globalization. Isolation of domestic economies contradicts the very idea of globalization, and a reduction of interest rates worldwide might occur independently of increases in financial interdependence. Thus, the correct understanding of financial globalization revolves around the significant interactions and exchanges that occur due to cross-border capital flows.