Understanding International Finance in a Globalized World

1. We live in a globalized world. Every country is dependent on another country in some other means. Developed countries look for the cheap workforce from developing countries and developing countries look for services and products from developed countries. When a trade happened between two countries as in this case, there are many factors that come into the picture and have to be considered while the execution of the trade so that no violation of regulation happens. For any economy international finance is a significant critical factor, the local government should accordingly execute the policies so that the local players are not facing severecompetition from the non-local players. International trade is one of the most important factors of growth and prosperity of participating economies. Its importance has got magnified many times due toglobalization.

2. CONCEPT OF INTERNATIONAL FINANCE CONCEPT OF INTERNATIONAL FINANCE International Finance deals with the management of finances in a global business. It explains how to trade in international markets and how to exchange foreign currency, and earn profit through such activities. In fact, international Finance is an important part of financial economics. It mainly discusses the issues related with monetary interactions of at least two or more countries. International finance is concerned with subjects such as exchange rates of currencies, monetary systems of the world, foreign direct investment(FDI), and other important issues associated with international financial management. International Finance is a section of financial economics which deals with the macro-economic relation between two countries and their monetary transactions. The concepts like interest rate, exchange rate, FDI, FPI and currency prevailing in the trade come under this type of finance. International finance involves MNCs, national government’s rules and regulations, regarding flow of capital, across the borders of the country, this discipline is very complex.

3. The term international finance is defined on the basis of various parameters: (a) It is a discipline of financing the international economic and commercial relations between countries. (b) It includes international markets (such as international banking, euro currency market, euro bond, international stock exchanges, American Depository Receipts, GDRs, international institutions viz., IMF, World Bank, Asian Development Bank, WTO, UNCTAD, Letters of Credit, Bill of Lading, factoring and the like, international financial instruments foreign exchange markets, Balance of Paymentsand International risk management. (c) It is related to management, economic, commercial and accountingactivities of MNCs, governmentsand private individuals. (d) It involvesconversionof onecurrency intoanother. (e) It coordinates all financial and non-financial operations with the objectivesof maximization of the shareholders’ wealth.

4. FEATURES OF INTERNATIONAL FINANCE FEATURES OF INTERNATIONAL FINANCE 1)Expanded Opportunity to Business:- Due to globalization, there is an expanded opportunity to the business. Business can raise more funds through less costof capital. 2)Foreign Exchange Risk:- It is Financial Risk that exists when a financial transaction is denominates in a currency other than that of the base currencyof thecompany. 3)Imperfect Market:- Due to difference in law and customs among the countries, tax system, cultural difference, business practices, there is distinction between international distinction between international business practice, there is distinction between international business practices, there is distinction between international finance and domestic finance. So, it is said that there is always an imperfect market. Due to imperfection in market. 4)Political Risk:-International Financial System affected by government policies and political issues. So there is a risk of political policies, International Finance can be affected. Similarly a favorable political decision can increase international financial stability. business practices, there is

5. IMPORTANCE OF INTERNATIONAL FINANCE IMPORTANCE OF INTERNATIONAL FINANCE International finance plays a critical role in International trade and inter- economy exchange of goods and services. It is Important for a number of reasons; The most notable ones are listed here: 1)International finance helps in keeping international issues in a disciplined state. 2)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. 3)International finance helps in calculating exchange rates which are very important in international finance, as they let us determine the relative values of currencies. 4)Various economic factors help in making international investments decisions. Economic factors of economics help in determining whether or not investors money is safe with foreign debt securities. 5)Utilizing IFRS is an import factor for any stages of international finance. Financial factor for many stages of international finance. Financial statements made by the countries that have adopted IFRS are similar. It helps many countries to follow similar reporting systems. 6)IRFS system which is a part of international finance also helps in saving money by following the rules of reporting on a single accounting standard.

6. SCOPE OF INTERNATIONAL FINANCE SCOPE OF INTERNATIONAL FINANCE Currently, International Finance has become more comprehensive in scope and is dealing with matters related to globalization, Fair trade multinational banking, and multinational corporation. International Finance consist of Foreign Exchange Market, currency convertibility, BOP, international finance and international monetary system. So there is a big scope international finance. It is discussed below: 1)International Monetary System:- For better economic growth and to do Trade and Investments efficiently, monetary system and an authority who can control the system. For example, RBI In India controls over the monetary system of India through controlling over inflation, supply of money and maintaining interest rate. 2)International Financial System:- The growth in World trade, liberalization and globalization in business brought tremendous change in International Financial System. This organization and customs which enable the international payments and receipts between the countries. Comparing to past, thevolume of transaction has increased in International Finance. 3)Foreign Exchange Market:-This is a market where one country’s currency denominated in that currency can be purchase through sales of another country’s currency. International financial system provides this facility. a country need to have its own

7. 4)Currency Convertibility:- The currency of a country is freely convertible when the Resident or non Resident of the country are allowed to convert the local currency in foreign currency. But the governments of the country restricts the residents and non- residents to do this. Various countries do not allow converting the currency freely. It makes the International Business difficult. 5)Balance of Payment: Balance of payment(BOP)of a country is defined as, “Systematic record of all economic transaction with the residents of a reporting country and residents of foreign countries during a given period of time”-Kindle Berger. Thus Balance of payments includes all visible and non-visible transactions of a country during a given period, usually a year. It represents a summation of country’s current demand and supply of the claims on foreign currencies and of foreign claims on it.