ABSTRACT
Transnational financial institutions, like other transnational corporations, operate on a global basis with little allegiance to country or community. Decision making is driven by a desire to maximize the corporation’s global profitability. As relative production costs change, nonfinancial firms such as General Electric and Nike shift production from country to country with little regard for the effect of the shift on the local economy or population. However, it takes time and effort for such shifts to occur. In contrast, transnational financial institutions like J.P. Morgan Chase and Citigroup can shift their financial flows with the same lack of regard for the effects on the local economy and population but with far less effort. The time involved in moving “hot money” is literally the time it takes to make a few keystrokes. The fungibility of financial claims makes transnational financial institutions even more adept than their nonfinancial corporate counterparts at moving their inputs (sources of funds) to the least costly/most profitable venue (uses of funds). By understanding the institutions involved in the rapid movement of global financial flows described above, we hope the reader will better understand the importance and mechanics of international finance in the ongoing process of economic globalization. To that end, the primary purpose of this chapter is to explain and assess the roles played by transnational financial institutions, offshore banks, and the International Monetary Fund (IMF) in the generation and regulation of global financial flows.
