International Finance -Introduction ,Meaning,Objectives,Features & Importance


International Finance is concerned with the financial management of a global business. It describes how to trade in international markets, exchange foreign currency, and profit from such activities. Indeed, international finance is a critical component of financial economics. It primarily addresses issues concerning the monetary interactions of at least two or more countries. International finance is concerned with issues such as currency exchange rates, global monetary systems, foreign direct investment (FDI), and other critical aspects of international financial management.

Objectives of International Finance

  • To reduce global poverty and improve people’s living conditions and standards
  • To support sustainable economic, social and institutional development.
  • To promote regional cooperation and integration.
  • To lessen poverty and promote the long term development of the economy.

Nature/Features of International Finance

  • Expanded opportunity to business
  • Foreign Exchange Risk
  • Political Risk
  • Market imperfections

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Need for Foreign Capital

In a developing nation like India, the following factors lead to the requirement for foreign capital:

Scope of International Finance

  • It is important while determine the exchange rates of the country. One can do this against the commodity or the common currency.
  • It plays a crucial role in investing in foreign debt securities to have a clear idea about the market.
  • The transaction between countries can be significant in assessing the economic conditions of the other country.
  • One can use arbitrage in tax, risk, and price to market imperfections
    to book good profits while transacting in international trade.

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 −

  • It promotes domestic investment and growth through capital impact.
  • It Prevent excessive domestic through global financial institutions.
  • Promote healthy competitions and effective banking facilities .
  • It provide information on the vital area of investment and leads to effective capital allocation.
  • International finance organizations such as IMF, World Bank etc. mediate and resolve financial disputes among member nations.
  • It helps in comparing the inflation rates and getting an idea about investing in international debt securities.
  • Utilizing IFRS is an important 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.
  • Various economic factors help in making international investment decisions. Economic factors of economies help in determining whether or not investors’ money is safe with foreign debt securities.

Conclusion :

International finance is defined as the set of relations for the creation and using of funds (assets), needed for foreign economic activity of international companies and countries. Like international trade and business, international finance exists due to the fact that economic activities of businesses, governments, and organizations get affected by the existence of nations. It is a known fact that countries often borrow and lend from each other. In such trades, many countries use their own currencies. Therefore, we must understand how the currencies compare with each other. Moreover, we should also have a good understanding of how these goods are paid for and what is the determining factor of the prices that the currencies trade at. Liberal trade is the principal driver of internationalization which encompasses unimpeded flows of capital labor and technology across national boundaries. Free trade is always beneficial because it encourages nations to specialize in the products they are best at and import those they are less good at. This results in efficient allocation of resources and maximization of welfare.

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Techy Khushi

#Youtuber, Content writer ,Website creator, Social media Account handler, Lecturer