We usually think that International Finance is too complex and
complicated concept but rather it is a simple and easy topic. It deals with the
cross border transactions or between two or more nations. I in this article we
will discuss International Finance also let us try to understand International
Finance better.
International Finance
International Finance is also referred
as International Macroeconomics or International Monetary Economics. International
Finance is a branch of financial economics that is concerned with the monetary
and macroeconomic issues between two or more countries. International Finance
deals with Foreign Direct Investment and Currency Exchange Rate, Balance of
Payment, Global Financial System, International Monetary Systems and also
topics related to International Trade.
Major players of International Finance are International Finance
Corporation, The World Bank, and IMF. These institutions plays very vital role
in the mediation of the international finance. Apart these institutions private
sector institute – Institute of International Finance assists in international
financial industry to manage the risk, sets up regulations for the global
stability and sustainable economic development. The members of Institute of
International Finance are Investment and Commercial Banks, Insurance Companies
and Hedge Funds.
The three main factors or components
that differentiate between International Finance and Domestic Finance are
§ Foreign Exchange
§ Market Imperfections
§ Expansion Opportunities
The components of international finance completely depend on the
right and power to issue currencies, formulation of economic and fiscal
policies, taxation and regulations for movement of goods and people across
border.
Need of International Finance
The need of International Finance was a
raised due to globalization. As soon as the globalization came into existence
businesses started its operations cross borders and the business starting
growing faster than ever before as a result of expansion. Thus the businesses
need a system to transact between different currencies of various nations in a
disciplined manner so that no conflict arises between the nations. Thus this
lead to the development of a system called International Finance so that it
keeps in check the flow of money in a disciplined manner with any conflicts.
Importance of International Finance
The importance of International
Finance is as follows,
§ International Finance plays a very vital role in the economic
activities of the International Trade to calculate exchange rates.
§ International Finance helps
us to understand and assess the inflation rates, get idea about the
international debt securities and also assess the economic position of various
countries.
§ International Finance helps investors to assess the cross border
investment opportunities and tell them the risk involved in the investment
opportunity.
§ International Finance helps to determine the Exchange rates which
will help to assess the relative value of various currencies.
§ IFRS practice makes it possible to practice the similar reporting
system.
§ International Finance has resolved the conflicts that would have a
raised because of various different currencies.
§ Institutions like IMF, The World Bank and other institutions helps
to resolve the dispute if gets raised.
§ Institutions of International Finance help the backward countries
and developing countries by advancing loans from them for the sustainable
economic development and technological advancement. So that the world’s has a
sustainable growth and stability in economic activities.
§ International Finance has given an opportunity for the nations to
bring foreign funds for the economic activities and growth of the nations.
As a result of International Finance today the economic activities
of countries have became interconnect and financial system has also got interconnected.
This has leaded to have us an International Financial System. And the
International Finance System has given the rise to International Financial Crisis
or Global Crisis.
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