It will be useful to summarize the functions and prerequisites of a world financial center.
Such a center acts as a clearing house for a large volume and variety of international financial transactions. Under normal conditions it acts as a bank for the entire world and the services it renders facilitate the flow of goods, services, and capital among nations. Some of its functions are unique; others are closely comparable with those performed on a national or regional scale by domestic financial centers.
International payments cleared and often financed through such a center arise from a wide variety of commercial and financial transactions and take many different forms. For example, the exportation of coffee from Brazil to Belgium may be paid for either by means of a draft drawn in dollars on a New York bank, or with a bill of exchange in pounds sterling on a London institution. Also, payments of interest and principal on outstanding domestic and foreign obligations and of dividends are as a rule made through institutions located in a leading financial center.
Idle funds of various countries are usually transferred to such a center for employment, either by placing them on deposit with commercial banks at interest or by investing them at short term in money market media, such as Treasury bills or bankers' acceptances. Part of the gold and foreign exchange reserves of central banks of many nations is kept with the central bank or other large financial institutions of an international center. Foreign banks and corporations also maintain working balances there. The center is usually the headquarters of important corporations operating on any international scale as well as of firms engaged in international trade, shipping, and insurance.
Financing is provided for many types of commercial transactions and for long-term capital requirements. Bond and stock issues are underwritten and marketed. Seasonal needs for funds of various countries are met through the facilities of the center. Finally, the center is the seat of important securities and commodity exchanges wherein stocks, bonds, and the staple commodities of the world are bought and sold.
Just as an individual country may have a number of financial centers, so does the world at large. Although during the last decades New York and London have towered above all others, such cities as Amsterdam, Paris, Berlin, Zurich, San Francisco, and Shanghai have played important roles, varying greatly in different periods.
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