ABSTRACT
This chapter is organized around the following questions. What exactly does global finance entail? What are the key institutions involved, and how do they operate?
Global finance, as we have seen, stands at the intersection of two broad long-term processes. One is the development of specialist financial institutions serving households, businesses, and states. The other is globalization: a complex set of processes involving cross-border flows and dependencies arising from not only the mobility of capital, commodities, technology, and people, but also political ideas and institutions, and cultural ways of life. Without global finance it is unlikely that economic globalization would be sustainable. However, it is equally the case that repeated global financial crises are evident across history, raising questions about why it is that global finance bears with it a high level of risk, and whether such crises can be avoided in the future. Global finance is a familiar feature of contemporary life that may be
identified with a range of businesses, markets, and public institutions. These span banking, insurance, and investment, products such as shares,
bonds, loans of various kinds including mortgages, and more complex financial instruments such as derivatives including futures – all of which will be explored further below. They involve well-known banking giants such as Goldman Sachs and Barclays, insurance businesses such as Lloyds, hedge funds such as JP Morgan Chase or Soros Fund Management, less well-known bond dealers such as Pimco, debt ratings agencies such as Moodys and Standard and Poors, and a range of trading markets. These include face-to-face ‘open outcry’ markets such as the New York Stock Exchange and the Chicago Board of Trade (which trades commodities and bonds), and electronic screen-based markets such as the Nasdaq – US share dealing markets specializing in high-tech companies – or the vast electronic global foreign exchange markets. These markets are centred in global cities, not only New York, London, and Chicago, but also Tokyo, Sydney, and Zurich. Recent economic globalization in combination with new communications
and information technologies has meant that global finance never sleeps. Trading is spread across a global twenty-four-hour period, meaning that a succession of market centres open and close across a range of different timezones. Electronic communication involves special trading and information screens displaying a constant stream of market information delivered by specialist terminals from news providers such as Bloomberg and Reuters. And beyond this rather breathless world of global dealing based on
constantly changing market prices and commercial news is the slower but equally globally connected world of central banks and regulators. Some of these are organized internationally such as the Bank for International Settlements, some regionally such as the European Central Bank, some nationally such as the US Federal Reserve or Bank of England, and some on a sub-national basis, such as regulatory agencies in the various US states. Making the picture even more complicated are private organizations that are charged with regulating specific industry sectors within global finance, such as the International Swaps and Derivatives Association, or the International Association of Investment Bankers.
