- refers to the study and management of financial systems, investments and economic relationships
that span multiple countries.
It deals financial transactions that cross national borders and is influence by global markets,
international regulations, foreign exchange rates and geopolitcal risks.
focuses on financial activities within a single country, dealing with issues such as national banking
system, local capital markets, domestic taxation, and financial decisions of businesses and individuals
operating in that country.
is the study of monetary interactions that transpire between two or more countries.
Three major dimensions set international finance apart from domestic finance . They are:
is the strategic management of financial activities across national borders. It entails overseeing global
financial operations such as investing and risk management. The primary actors in international
finance management are multinational corporations, governments, and financial institutions.
plays a critical role in supporting International financial stability by helping countries maintain stable
economies and preventing global financial crisis. It does this through a combination of surveillance,
financial assistance, technical support and policy advice.
5 SUPPORTS INTERNATIONAL FINANCIAL STABILITY
is the allocation of resources by a resident of one country in business activities in another country
.
It can take various forms, including:
This involves a long-term investment by a non-resident entity in a foreign enterprise, typically giving
the investor control over the enterprise.
This involves the purchase of financial assets, such as stocks and bonds, in a foreign country.
This involves the purchase of foreign currency or foreign-currency-denominated assets.
Risk Management Internationally: A Brief Overview of Risk management is a crucial aspect of doing
business internationally, as companies operating in multiple markets face a wider range of potential
risks compared to domestic operations.
These risks can be categorized into several broad areas:
Political Risk - Government instability: Political conflicts or changes in government policies can create
uncertainty and disrupt business operations.
Expropriation - The government may seize a company's assets or impose restrictions on its
operations.
Trade barriers: Tariffs, quotas, or embargoes can hinder market access and increase costs.
Economic Risk - Currency fluctuations: Changes in exchange rates can impact profitability and cash
flows.
Inflation - High inflation can erode purchasing power and increase costs.?
Operational Risk - Supply chain disruptions: Disruptions in the supply chain, such as natural disasters
or transportation issues, can affect production and delivery.
7. Cultural differences - Misunderstanding local customs, business practices, or etiquette can lead to
operational challenges.
8. Tax disputes - Disputes with tax authorities regarding tax liabilities or compliance. Strategies for
Managing International Risks
Financial Institutions - These entities offer various products and services for individual and commercial
clients, such as deposits, loans, investments, and currency exchange.
The international monetary system refers to the operating system of the financial environment, which
consists of financial institutions, multinational corporations, and investors.
The international monetary system provides the institutional framework for determining the rules
and procedures for international payments, determination of exchange rates, and movement of
capital.
The era of bimetallism
Before 1870, the international monetary system consisted of bimetallism, where both gold and silver
coins were used as the international modes of payment. The exchange rates among currencies were
determined by their gold or silver contents. Some countries were either on a gold or a silver standard.
Inflows of Foreign Currency – are counted as a positive entry (Ex. Exports Sold Overseas)
Outflows of Foreign Currency – are counted as a negative entry (Ex. Imported goods and services)
The financial account measures inflows and outflows of financial capital across national borders.
Financial capital is the monetary assets required for a business to provide goods and services. It
includes transaction that result in a change of ownership of financial assets and liabilities of residents
and non-residents of the country.
