A Map of the Global Financial System

The main players and markets that move money around the world - central banks, commercial banks, investors, currency markets and international institutions - and how they connect.

Every day, trillions of dollars move across borders. The global financial system connects savers, borrowers, investors and governments around the world.

The main players

Central banks, such as the US Federal Reserve, the European Central Bank and the Reserve Bank of India, set interest rates and manage money supply.
Commercial banks, especially large global banks, take deposits, make loans and move money across borders.
Investors: pension funds, insurance companies, mutual funds, hedge funds and sovereign wealth funds.
Companies and governments, which borrow and invest internationally.
International institutions, such as the IMF, the World Bank and the Bank for International Settlements.

The main markets

Foreign exchange market: the world’s largest financial market, where currencies are traded. According to the BIS, average daily turnover is several trillion dollars.
Bond markets: governments and companies borrow by issuing bonds.
Stock markets: companies raise money and investors buy shares.
Money markets: short-term borrowing and lending between banks and institutions.
Derivatives markets: contracts based on other assets, used for hedging and speculation.

The central role of the dollar

The US dollar dominates global finance. It is used in most foreign exchange trades, much international trade and a large share of cross-border borrowing. This gives the Federal Reserve outsized influence on the world economy.

Why it matters to everyone

The global financial system affects:

Interest rates on loans in India.
Exchange rates and import prices.
Investment flows into Indian companies and markets.
Crises that can spread from one country to many.

Benefits and risks

Global finance allows savings to flow to productive investments worldwide and helps companies manage risks. But it can also transmit shocks quickly, as the 2008 crisis showed.

The morning chain

A US pension fund buys Indian government bonds. It converts dollars to rupees in the currency market, through global and Indian banks. The rupee strengthens slightly, bond yields dip, and Indian borrowers see marginally lower rates. One decision ripples through several markets.

Thinking global finance only affects big investors

Global interest rates, capital flows and exchange rates affect loan rates, prices and jobs for ordinary people.

Key takeaways

The global financial system links central banks, banks, investors, companies and governments.
Key markets include foreign exchange, bonds, stocks, money markets and derivatives.
The US dollar is central to global finance.
Global finance spreads both opportunities and shocks.