What is international finance?

When it comes to business Finance, it is important to consider that this is an area of ​​the economy which includes different types of industries. One of them is international finance.

International finance is the basis of the global economic model and its research allows for all types of activities, including the development and promotion of international trade. The various analyzes carried out to evaluate the aspects that make up the financial equation deal only with this and know that this is very important if you want to delve into all the details of the financial branch.

What is the goal of international finance?

International finance is considered a division of finance. Its goal is to study and manage the money flows that occur between two or more countries. On the other hand, they are also in charge of analyzing the dynamics of the global financial system, the international monetary system and foreign direct investment.

Features of international finance

International finance has some specific characteristics, one of which is the exchange rate and currencies, i.e. the currencies used in different countries, their values ​​and their impact on the financial system. Furthermore, it is also important to take into account the international financial system which includes the institutions responsible for regulating this type of transaction, financial derivatives and stock markets.

International finance is divided into two subcategories, on the one hand, international economics, which specializes in the study of exchange rates and interest rates; and, on the other, the so-called corporate finance, whose objective is focused on the study of the markets and the financial products deriving from them.

Importance of international finance

International finance is important due to its great utility in international business activities. The various analyzes studied in this area allow conclusions to be drawn from the participating countries at an economic level and then to make informed decisions based on the results of the analysis and the objectives set for each country.

International finance supports a country's economy on an international scale, while the development and financial well-being of a country beyond its borders depends on the international monetary economy and everything related to it.

Among the advantages of international finance we have:

• It allows you to analyze and manage currency risk.
• Provides currency parity so that related currencies have the same value. It allows you to finance commercial activities in the short, medium and long term.
• This provides export opportunities and the importance of goods and services between countries that require different products for their needs and national development, facilitating international trade. It allows you to open different positions on different financial assets to minimize the investment risk.
• Investors see quantitative and qualitative improvements in their performance.

Main aspects of international finance

There are 5 main aspects that make up the study of international finance:

• Exchange Rates and Currencies: Study of countries' currencies, their relationships in terms of exchange rates, and their impact on a country's and a company's finances.
• International financial system: rules and institutions that regulate the functioning of international financial transactions.
• Principle of Purchasing Power Parity: Explains the differences and causes of the purchasing power of one country relative to another.
• Financial Derivatives: Hedging and speculation contracts that are used in international trading.
• Stock Markets: Financial institutions where all types of tradable securities are traded.

Disadvantages of international finance

• Some countries take measures to prevent foreign trade by protecting domestic companies, which can become an obstacle to establishing international financial or commercial relations.
• The actions that are carried out in society to meet the specific needs, production and consumption of a country are characterized by the effect of inflation, which implies an in-depth analysis of this variable when making international financial decisions.
• Sometimes the differences that exist between one currency and another in countries that conduct international trade can negatively affect these transactions. This is especially important when there is a sudden change in the price of a currency, causing uncertainty about closing the deal.

Why Study a Finance Major?

By studying a specialization in finance you will become a professional capable of analyzing the behavior of the economy, of the ever-growing and changing financial markets, with a global vision.