International Finance
The term "international finance", or an international macroeconomics, refers to the interaction of several countries, which is of a monetary nature, with an emphasis on overseas straight investment instruments and exchange rates of currencies.
The basics of International Finance
The focus of international finance is on the economic interaction of countries, rather than on specific markets. International finance study is carried out by major institutions including the International Finance Corp. (IFC), and the National Bureau of Economic Research (NBER).
Moreover, the Fed has a division that is responsible for analyzing policies related to the movement of capital in the US, external trade and the expansion of world marketplaces.
International finance is in charge of different fields:
The Mundell-Fleming model. The subject of study of this model represents the relationship of the goods and money markets. At the heart of the model is a theory about fixed prices of certain goods.
International Fisher effect. It is a global economic theory that believes that nominal interest rates depend on spot exchange rate vibrations between different states.
The optimum currency area theory. The main thesis of the hypothesis is that if the whole territory used a common currency, then specific geographic areas would enhance economic effectiveness.
Purchasing power parity. It is measuring prices in different regions using a certain good or a certain mix of them to contrast the total purchasing capacity between currencies of different nations.
Interest rate parity. This method explains a state of balance in which interest rates related to bank deposits in two different countries are not important to investors.
International Finance example
Disclosure of the topic of international finance is performed by considering the work of international financial institutions. Here it should be mentioned the Bretton Woods system. In 1944, at the Bretton Woods conference, 40 assembled countries decided to build up a fixed exchange rate system. The mission of this enterprise was to bring to a common denominator global monetary exchange, and thereby create economic stability in the post-war period.
The Bretton Woods Conference contributed to the development of international institutions that have a tremendous impact on the world economy. This is how institutions such as the International Monetary Fund (IMF), consisting of 189 countries, appeared, the purpose of which was to create an international monetary association, as well as the International Bank for Reconstruction and Development, known as the World Bank.
More about International Finance
Globalization has enhanced the significance of international finance. The modern world cannot be imagined without international trade, which is almost a key criterion for growth and world prosperity.
However, there is no denying that there are fears associated with the fact that the US is no longer the largest creditor. Instead, the United States has become an international debtor, regularly receiving huge funding from countries at the global level. According to financial analysts, this fact can play a pivotal role in relation to international finance.
Among other things, international finance is also responsible for measuring and controlling political and currency risks, mainly connected with the management of transnational corporations.
