The City of London and its role as a financial centre

as the most significant period since “The Big Bang”. Money markets. Londons money markets channel wholesale short-term funds between lenders and borrows. These operations are conducted by all the major banks and financial institutions. The Bank of England regulates the market. There is no physical market place; negotiations are conducted mostly by telephone or through automated dealing systems. The main financial instruments are CDs (Certificates of Deposit), bills of exchange, Treasury and local authority bills and short-term Government stocks. Financial Futures and Traded Options. Financial futures are legal contracts for the purchase or the sale of financial products, on a specified future date at a price agreed in the present. Trading and financial futures developed out of the numerous futures markets in commodities which originate from Londons position as a port and from Britains need to import food and raw material. Options are contracts which give the right to buy or sell financial instruments or physical commodities for a stated period at a predetermined price. Financial futures and options are traded on the London International Futures and Option Exchange (LIFFE) which was established in 1982.. Commodity Exchanges Britain remains the principal international center for transactions in a large number of commodities, though the consignments themselves never pass through the ports of Britain. The need for close links with sources of finance, shipping and insurance services often determines the locations of these markets in the City of London. There are futures markets in cocoa, coffee, grains, rubber, sugar, pigmeat, potatoes there. Gas, oil for heating and petroleum are traded through the International Petroleum Exchange, Europes only energy futures exchange. Copper, lead, zinc, nickel, aluminum, aluminum alloys and tin are treaded through the London Metal Exchange (LME), the worlds largest non-ferrous base metals exchange. The Baltic Exchange is the worlds leading international shipping exchange. It contributed to 292 Mln pounds in net overseas earnings to Britains balance of payments in 1995. Baltic dealers handle more than a half the worlds bulk cargo, transportation of oil, ore, coal and grain. All Britains agricultural futures markets are operated from the Baltic Exchange and physical trading and commodities is also carried out there.

Chapter 4. The International Role of the City of London in the World Monetary and Currency Fields. A recent comprehensive study of four world cities - London, Paris, New York and Tokyo - confirmed many strength of London and described it as possibly the most international of all world cities. The study said that London and New York are the only two pre-eminent international financial centers with advantages over other cities. One city that is emerging as a financial center of the Asian continent is Tokyo. Strengths of London include: 1. The concentration of business and service functions - among them support services such as legal services, accountancy, and management consultancy. 2. Efficient world-wide communication links. 3. A favorable position in the time zone between the United States and Far East. 4. A stable political climate. 5. World-class service industries including hotels, restaurants, theaters and other cultural attractions. Britain and the City of London as a financial symbol, encouraged international liberalization in financial services. It played a major role in negotiating agreements closely connected with GATT (General Agreement of Tariffs and Trade) as well as negotiations within the Organization for Economic Cooperation and Development. Briefly, apart from world-wide insuarence and banking strength, Britains important features include: · Its foreign exchange market,. whose daily turnover of 294 Mln pounds in 1995 represented 30% of Global turnover and was more than the turnover of New York and Tokyo combined. · The London Stock Exchange which is the biggest trade center for overseas equities in the world; it makes 55% of global turnover. · The worlds second largest fund management center, after Tokyo. · One of the worlds biggest markets in financial futures and options. · One of three largest international bond centers in the world. Britains international role in the world monetary and financial fields became particularly in the late 1980s. Deregulation has been the main catalyst in increasing the Citys role as an international financial center. Fundamental reforms of 1986, known as Big Bang affected the London Stock Exchange tremendously, because any foreign financial institution can now participate in the London money market. “What we were trying to do”, in the words of a former Deputy Chairman of London Stock Exchange, “ was to create a new market, not one just oriented toward the UK, but one that can become international”. It was intended to secure London as the leading financial center of Europe, and the third in the world alongside New York and Tokyo. Many foreign banks and finance houses tried to profit from the deregulation, some by direct competition and others by buying long-established City enterprises. Before the Big Bang all City stockbroking firms were British. By 1990 one hundred fifty four out of four hundred and eight were foreign owned. The main investors in British stockbroking are the United States, Japan and France (also see Chapter 2, The Stock Exchange). British banks, insurance companies, building societies, and other money lenders often prefer to invest in other areas, rather than industry, in contrast with Britains competitors, for example Germany and Japan, where the level of industrial development is higher. Britain strongly supports the removal of national regulations and exchange controls which restrict the creation of common market in financial services. London is a major center for international banking. Altogether five hundred sixty one foreign banks are represented in Britain. They employ about 40.000 people and provide different services in many parts of the world. Japan and the United States are the two countries with most banks represented in London (see the table attached). Assets/liabilities of overseas banks in Britain have doubled in the last ten years. Overseas banks have a very high proportion of their operations in foreign currency. Since the end of 1920s the Moscow Narodny Bank has been operating in London to deal with transactions with the Soviet Union and Russia now. A number of British banks have their head offices in Britain but operate mainly abroad. Standard Chartered is the major bank in this sector: it has a network of over 600 offices in more than 40 countries and employs over 25.000 people. Standard Chartereds activities are concentrated in Asia, Africa and Middle East. British banks are developing innovative banking services in their overseas operations. For example Standard Chartered has opened the first