We live in an increasingly inter-connected world where trade, transactions and the movement of people, goods and services between countries is becoming not only more and more popular, but also essential to our economic wellbeing. Below, we look at how global finance makes it all possible.
What is global finance?
Global finance essentially refers to the financial framework that facilitates the flow of finance for trade and investment on an international scale. This encompasses various worldwide financial institutions, legal agreements, national agencies and government departments, such as various central banks, finance ministries, as well as private companies.
To be considered a participant in global finance, a company or organisation must possess international clients or conduct business transactions overseas. It therefore excludes any financial businesses or regulators that act on a national or regional level.
The World Bank, World Trade Organization (WTO) and International Monetary Fund (IMF), all of which are intergovernmental organisations (IGO), are some of the most well-known international finance institutions involved in global finance include. Regional and national bodies include the European Investment Bank (EIB), the Bank of England and US Federal Reserve, while private players would be commercial banks, insurance companies, sovereign wealth funds, mutual funds, pension funds, private equity firms, and hedge funds.
How has global finance evolved?
Trading and trade transactions between different countries and over long distances dates back at least 9,000 years. Countries and their inhabitants have always sought to source and sell goods and services that are either in demand or surplus to their own requirements.
Massive advancements in technology have helped foster a more borderless global economy, however, it is ‘globalisation’ – the integration of national economies into a global economic system – that has facilitated a remarkable growth in international trade. There has been a 38-fold increase in the volume of world trade since 1945 and it was the catastrophic impact of both world wars which led to the creation of the global economic system.
In 1930, the Allied powers of World War I established the Bank for International Settlements (BIS), now the oldest international financial institution, to manage the scheduled payment of Germany's reparations imposed by the Treaty of Versailles in 1919, and to function as a bank for central banks around the world.
In 1944, as World War II was ending and discussions were afoot to form the United Nations as an intergovernmental entity, 44 nations attended the United Nations Monetary and Financial Conference. This ultimately led to the creation of two new international financial institutions, the IMF and the International Bank for Reconstruction and Development (IBRD), now part of the World Bank.
Why is global finance important?
Financial markets around the world are now much more connected, which enables money to be quickly and easily moved or transferred between countries. There is also more flexibility in the financial instruments involved, which now include forex, shares, commodities, energies, metals and cryptocurrencies, for example.
Greater global economic integration through the trade agreements formed as part of global financial arrangements make it much easier for businesses to participate in international trade, in turn allowing larger economies of scale, cheaper labour/resources and higher productivity.
Trade agreements can be organised at a national, multinational and international level, for example, through Free Trade Agreements (FTAs), Bilateral Investment Treaties (BITs) and international trade agreements. WTO manages four such agreements: the General Agreement on Tariffs and Trade (GATT), the General Agreement on Trade in Services (GATS), and agreements on trade-related intellectual property rights (TRIPS) and trade-related investment (TRIMS).
Global finance also creates more opportunities for global investment, for business and government. Access the International Stock Market and major national stock markets, such as the New York Stock Exchange (NYSE) or London Stock Exchange, open up further avenues for increased corporate sales and investment. While the 2,500 or so investment treaties make it easier for countries to attract short-term and long-term investment, for example, through foreign direct investment (FDI), which is particularly crucial for developing countries.
How can knowledge of global finance boost your career?
The complexity of international financial markets, including treaties, agreements, laws, and regulations, demands specialist knowledge of global finance. This expertise can be acquired through direct experience or education, such as studying the King’s online Global Finance & Banking MSc programme.
On our course, you’ll develop an in-depth understanding of the principles and theories of international finance and their applications to real-life corporate situations. Studying part-time over two years, you’ll gain a thorough understanding of topics such as investment management processes, financial derivatives, econometric techniques in finance and the regulatory framework of wealth management.
You’ll stand out to employers due to your understanding of global finance – crucial for roles in multinational corporations and investment banks. You'll also develop soft skills such as critical thinking, communication, and a global mindset, which will position you for success in leadership roles:
