Handbook of Critical Issues in Finance
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Handbook of Critical Issues in Finance

Edited by Jan Toporowski and Jo Michell

This vital new Handbook is an authoritative volume presenting key issues in finance that have been widely discussed in the financial markets but have been neglected in textbooks and the usual compilations of conventional academic wisdom.
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Chapter 24: International finance

Jeff Powell


Over 40 years ago, Raymond Goldsmith (1969) developed the financial intermediation ratio to illustrate the steady increase in the ratio of financial assets to money income as a country becomes richer. He anticipated that financial assets would level off at somewhere less than double national income. In recent years, financial assets to GDP have reached as high as eight to ten times GDP, and finance now accounts for over 10 per cent of global economic output. This has led an increasing number of observers of all political stripes to ask again what finance is for. WHAT IS INTERNATIONAL FINANCE? One way to answer this question, admittedly banal and descriptive, is that international finance is that set of institutions, instruments and rules that are concerned with financial flows between countries (see Table 24.1). There are at least two obvious shortcomings to this approach. First is that all of these elements are variously evolving, merging, vanishing and/or proliferating.

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