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Meaning
International Finance is an important part of financial economics. It mainly discusses the aspects related with monetary interactions of at least two or more countries. It is concerned with subjects such as exchange rates of currencies, monetary systems of the world, foreign direct investment (FDI), procuement or allocation of funds and other important aspects associated with international financial management.
Like international trade and business, international finance exists due to the fact that economic activities of businesses and governments get affected by the existence of nations. It is a known fact that countries often borrow and lend from each other. In such trades, many countries use their own currencies. Therefore, we must understand how the currencies compare with each other. Moreover, we should also have a good understanding of how these goods are paid for and what is the determining factor of the prices that the currencies trade at.
international finance organisation
1. The World Bank,
2. International Finance Corporation (IFC),
3. International Monetary Fund (IMF),
4. National Bureau of Economic Research (NBER)
Why Do We Have International Finance?
We have international finance because we live in an era of globalization. Businesses buy and sell goods abroad, countries often borrow money from each other and organizations increasingly operate on an international scale. An international system of finance helps to keep the peace between nations in this globalized world. Without a system of regulating cross-border financial transactions, each nation would act in its own self-interest. The chance of international conflict is high
Who's Involved in International Finance?
The International Finance Corporation, World Bank, the National Bureau of Economic Research and the International Monetary Fund play roles in international finance. The World Bank, for example, provides finance and advice to assist middle-and-poor-income countries, while the IMF provides advice, policy recommendations and loans to its 189 member countries to promote economic stability. If a country needs a precautionary loan to stop it from falling into an economic crisis, it would approach the IMF.
Importance
1.) International finance is an important tool to find the exchange rates, compare inflation rates, get an idea about investing in international debt securities, ascertain the economic status of other countries and judge the foreign markets.
2.) Access to captial market across the world enables a country to borrow during tough time and lend during good time.
3.) It promot domestic investment and growth through captial import.
4.) International finance leads to healthy competition and hence a more effective banking system.
5.) It provide information on vital areas of investment and leads to effective captial allocation.
Nature and scope
1.) International trade and Finance: Modes of International trade and Balance of payments, Official Reserve account, International independence, domestic and foreign trade, components of International Financial system, foreign exchange market, International Currency market
2.) International Financial Market Instruments: International equities, International Bonds, Secondary Market operation of InternationalSecurities, Short term and Medium term Instruments.
3.) Export Import Procedures and Documentation: Terms of Export Import Order, Letter of Credit, Bill of Exchange,
4.) Foreign Direct Investment: Costs and Benefits of FDI, Strategy for FDI, Control of MNCs, Theories of FDI –
a. Industrial Organization Theory,
b. Product cycle Theory,
c. Currency Based Approach