International finance, an offshoot of economics, encompasses a detailed understanding of exchange rates and foreign investment and their impact on international trade. Analysis of international projects, overseas investments, cross border capital flows, trade deficits, currency swaps and global financial markets are some of its key areas of study. Individual investors usually focus on that part of international finance that deals with global futures and options and the forex market.
International Finance: Prominent Institutes
There are various global bodies regulating different aspects of international finance. These include:
- IFC: International Finance Corporation is a prominent entity supporting sustainable investments in the private sector ofdeveloping countries to stimulate their growth. It is the biggest source of multilateral loans and equity financing for projects undertaken by the private sector in developing countries. IFC plays a key role in providing technical assistance to businesses and governments of developing countries.
- IMF: International Monetary Fund monitors the balance of payments of its member countries. It is regarded as the lender of last resort for countries facing a financial crisis, such as deficits and currency crisis. The relief amount is relative to thesize of the countryâ€™s contribution in the global trading system.
- World Bank: It funds the development of projects, mainly in developing countries, that are not financed by the privatesector.
- WTO: World Trade Organization resolves multilateral and bilateral trade disputes in addition to the negotiation of different trade agreements among its various member nations.
International Finance: Benefits
Some of the benefits of international finance are:
- Access to capital markets across the world enables a country to borrow during tough times and lend during good times.
- It promotes domestic investment and growth through capital import.
- Worldwide cash flows can exert a corrective force against bad government policies.
- It prevents excessive domestic regulation through global financial institutions.
- International finance leads to healthy competition and, hence, a more effective banking system.
- It provides information on the vital areas of investments and leads to effective capital allocation.
International finance promotes the integration of economies, facilitating the easy flow of capital. The free transfer of fundswould eventually result in more equality among countries that are a part of the global financial system.