International finance now plays a leading role in the global economy. Because finance is crucial to so many aspects of how modern economies work, the globalization of finance has had a major impact in terms of linking economies around the world. Finance is the most globalizes feature of the world economy because money moves between countries more quickly than goods and services or people. An important feature of international finance are foreign exchange markets (orFOREXmarkets), which are networks of buyers and sellers exchanging one currency for another in order to facilitate flows of finance between countries. Foreign exchange markets have experienced extraordinary growth in recent years, with average daily turnover reaching $4 trillion in 2010. The main drivers of global financial flows are speculators who shift billions of dollars in and out of financial markets worldwide to undertake short-term investments in financial assets. According to a Triennial Survey by the Bank of International Settlements, 95 per cent of foreign exchange transactions are undertaken for the main purpose of deriving short-term profits from currency and asset price movements, rather than being directed towards trade and long-term investment. The value of a currency is expressed in terms of another currency and is known as the exchange rate between two currencies. The International Monetary Fund (IMF) is responsible for the overall stability of the global financial system. Its objective is to stabilize individual economies experiencing currency crises or financial turmoil in order to prevent flow-on effects to other economies.
KEY TERMS
Speculators are investors who buy or sell financial assets with the aim of making profits from short term price movements. They are often criticised for creating excessive volatility in financial markets.
The value of a currency is expressed in terms of another currency and is known as the exchange rate between two currencies
The International Monetary Fund (IMF) is responsible for the overall stability of the global financial system. s.