20-10-2012, 10:31 AM
International finance
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IF MEANS:
International finance (also referred to as international monetary economics or international macroeconomics) is the branch of financial economics broadly concerned with monetary and macroeconomic interrelations between two or more countries
Dynamics
Global financial system
International monetary system
Balance of payments
Exchange rates
Direct investment
International trade
SCOPES
1. International Economics:- This is related to the concerned with Causes and effects of financial flows among nations , where apllication of MACROECONOMICS comes into the scene with its Theory and policy to the global economy.2. IFM:-Concerned with HOW Individual economic units (MNCs) cope up with the complex financial environment of IB.3. IF Markets:-Concerned with FOREX markets,financial or Investment instrument Securities Market et
HISTORY
Historical overview of exchange rate regimes:
Classical Gold Standard: Pre - 1914
Bretton Woods System: 1944 - 1973
Floating Exchange Rates: 1973 -
European Monetary Union
A Short History of Fixed Exchange Rates
“Gold standard”: (prior to the 1929 Stock Market crash) a nation’s currency was directly convertible into gold at a fixed exchange rate
Gold flowed out of a country that ran a balance of payments deficit
Gold flowed into a country that ran a balance of payments surplus
This fixed exchange rate regime was seen as a form of discipline on countries to maintain a balance of interest rates and trade, though it was subject to breakdown if a country ran low on gold
Floating Exchange Rates
Under the floating exchange rate regime, international businesses must account for currency translation risk.
Currency translation risk: risk that value of foreign currency changes in a way which makes business less profitable, absent an exchange rate “devaluation”
Exchange rate of a particular currency with U.S. dollar is either:
How many dollars it takes to buy one unit of foreign currency
How many units of foreign currency it takes to buy one dollar
Cross rate (American perspective): exchange rate between two foreign currencies because it can be calculated by multiplying their rates relative to the U.S. dollar
Recent trend in IF
Improved std & transparency
Sound financial regulation & supervision
More flexible exchange rate regimes
Improved surveillance of national policies
Management and regulation of the capital account
Orderly debt workouts during liguidity and insolvency crises