This is a branch of economics that is basically responsible for all money management. This tool studies all the cash flow that may exist between different countries.
Nowadays, thanks to the globalization that countries have, financial economic relations are an example of all commercial agreements that are carried out internationally.
Basically they study the area of knowledge that usually combines all the elements of finance that are corporate and international economics, we all know that finance is responsible for cash flow.
When we talk about international finance, we want to make a reference to all the cash that flows across international borders, here we go through a national financial type administration, this is a process that occurs in the making of decisions that are due to everything the flow of this cash, these are presented in the context of what a multinational company is.
Here the monetary aspects of the international economy are described; we can say that these are the macroeconomic part of the international economy.
This is a central point for an analysis of the balance of payments and of course the adjustment processes, and also the imbalances of said balance, here one of the fundamental variables is the exchange rate.
This is a part of finance that is really important, this is due to the growing globalization that the economy has been bringing over the years, knowledge of this tool allows the financial executive to understand the way in which They work on all events that are international.
Here companies can be affected and as this happens we must make certain important decisions, such as the amount of risks that we can avoid and clearly be able to take advantage of all the opportunities that these changes offer in terms of an international environment.
Something that is fundamental when managing this tool is that it allows us to carry out all transactions with greater efficiency and what is better, it adjusts to all the technological changes that occur.
This tool contributes to economic integration, making it much more solid and efficient, thus collaborating with all countries to be able to help them in all the agreements that are involved.
Here we will allow ourselves to monitor all the balances of payments regarding the other countries. Faced with which we have the relationship that exists between a country’s imports and exports that can lead to a trade deficit or surplus, depending on the case.
International finance can help us in important ways, there are two types, at first we can talk about the way in which all international events can affect a company and of course what these steps are to be able to exploit all types of development that is positive in order to isolate our company from any agent that is harmful to it.
There are many causes that can affect a company, there is a great variation in them, some of the changes can be interest rates, we also have inflation rates and clearly in all the values that indicate variations in prices international products.
This is why there are close links that can exist between all the different markets. It is important that we know that many of the events that are carried out in all types of different territories can have an effect and these are immediately heard and felt throughout the planet.
We must have a good financial environment, it is of utmost importance here we see a type of growth that apart from being integrated is much more independent, when we talk about an event in a country that is different we must take into account that this can have repercussions of immediately on any company.
So all these variables are important and even more so if they are of an economic type, they are greatly influenced by many of the developments that are seen in all international markets, an example of this is the exchange rate, interest rates, the price of all stocks, the price of bonds, government budget, price of raw materials, current account, among many other things.
It is important to highlight these types of tools, international finances are of utmost care and importance. Taking into account the various variations to take action is crucial since if we make a bad decision we could miss out on countless objectives in all of the company’s markets.
Here companies also have a general objective and that is to have professionals so that they can become very capable of analyzing all types of flows that are economic, that is, cash management on an international scale.
It is important to know about this tool since all these treaties and capital management are done through international borders. Here we also see the valuation of many assets that are located in different countries and that we can access through the financial markets.
Here we see that all this is handled with different types of currency and therefore it is crucial that professionals are informed about the variables that can affect the value of different currencies, so that they can design market strategies to take advantage of the different variations in the value of these and obtain the maximum possible economic benefit.
This is why we must do a prior study of what the meaning of finances is and how we can use them today, since everything is a set, one does not work without the other and if we do not have a prior study we can end up making many mistakes. errors that could be blunders for the management of a company.
This is why international finance plays an important function, this for all those people who make use of a larger type of economy, that is, who have businesses in any country, all those who have part of their assets anywhere in the world. world.
Since we know a little about how this type of economy works, it is important to know that this type of finance is managed with two basic concepts that make it up. These are:
International economy
This type of economy has a single objective and that is to study all the movements related to the commercial operations carried out by a country in relation to the rest of the world, these can be of various categories.
These are usually commercial, technological, economic and also touristic among others, the important thing is that all this is seen from a more macroeconomic point of view.
This set of ideas must be taken into account because they deal with all global monetary problems, on which all this is based, is based on the simple fact of making use of what is a theory of trade policy.
All markets that operate in an exchange mode use currencies from different countries, this also reflects the use of adjustment of all balances of payment.
When we talk about the international aspects of the economy, it is important to know that this is not something that is entirely new, that is, this type of tool has been used for a long time, decades, the only difference is that this tool when going from over the years and thanks to all the technological advances it has been modernized.
Technology has had a really important economic boom, this is because there is an increasingly greater interrelation between everything that happens with international markets that depend on new advances and of course, especially everything that happens with the economy of different countries. .
This is an economics that is a fundamental part of the social sciences, this tool can also be divided into two fundamental and important branches, one of them is the theory of international trade, and the second is the theory of international finance .
It is through international trade that we can understand how economies relate to the rest of the world, this is due to the sales and purchases of products and services that are carried out in order to obtain benefits.
As a second way we have all those relationships that are made abroad, this is done through finance, which is why any of the entities in a certain country can have financial assets in any other country.
It is very common for citizens today to have some type of financial investment in other countries; it is well known that all large companies and banks maintain financial relationships at an international level.
This is why there is an interrelationship between all the financial markets of all the different countries.
International corporate finance
Corporate finance is a branch of finance that is based on the monetary decisions that a company can make, this is a tool that is basically used to make all decisions, that is, its only objective is to find a way to generate a type of value.
This is why international finance , or also called financial monetary economics, is dedicated to monetary interrelationships and which are also macroeconomic relationships that can exist between two or more countries. This is why it is important to know how to handle all these concepts and tools, since both How corporate finance and the international economy depend on each other and it is necessary to know the relationships that exist between the two to obtain the best financial results.
International corporate finance includes a number of activities that may exist in a company, these may be the functions and acquisitions that may affect the company, we know these as M&A (Mergers and Acquisitions). Being between companies from different countries, it is necessary to have knowledge of the international economy to know what values they operate with and what are the possible benefits that can be obtained from these mergers.
We also have other types of project financing, a capital structure, investment models and, of course, financial models.
This part of the economy has one objective in terms of its finances and it is the study of the situation, its stability and clearly the profitability that exists in the company in terms of all its finances.
This part of the economy is highly important, this is because here we can study all the possible international businesses that the company may take in the future.
Advantages for multinational companies in a global economy
Multinational companies can gain multiple benefits from operating in a global economy. The different types of globalization trade agreements that allow the outsourcing of certain company functions in countries where there is cheaper labor or where processes are faster and better can mean that companies obtain a greater benefit than the one they would get by operating from their local environment.
Of course, companies must know when to take measures to avoid all types of risk and thus be able to take advantage of all the opportunities offered by all the changes that occur internationally.
Today there are many countries that have taken advantage of these circumstances and have boosted their growth.
There are international companies that have important relationships in terms of import and export , these multinational companies operate through companies that are subsidiaries that are located in other countries and also with transnational companies.
This is why all of these have deals with several countries, that is, they have international commercial relations and therefore have some important advantages.
- We see an increase in competitiveness, this is due to its imports and exports that take advantage of the comparative advantage.
- We see a lot in terms of job training.
- An increase in veins is also reflected.
- In terms of business we see a much broader market, this allows us to take advantage of economies with a larger scale and at a low cost and thus seeing an increase in profits.
- Variations in business cycles across different countries will provide us with many diversification benefits, this significantly reduces risk.
- We will have more economical sources of financing that are better adapted to all the required needs.
- When you have a company that has a presence in different types of markets, we will accumulate greater knowledge of all the new trends, whether technological or simply different forms of administration.
- Here you know the competition much better and have a greater capacity to respond to these new challenges.
- If you have a multinational company we must know that it will be much more flexible and has greater growth potential.
Disadvantages for multinational companies in a global economy
- We will have volatility in prices, this in exchange rates, here long-term economic planning will be difficult.
- There will also be costs derived from the licenses and regulations of each country.
- We can have a flight in terms of capital, when we have international speculators they will withdraw all their capital from emerging economies.
- We will have a tendency towards deflation, this is to improve their ability to compete, companies contribute with excess capacity, this is done with the desire to reduce all costs for the purchasing power of consumers, which generates a great crisis of overproduction.
- Increase in income inequality. This is because globalization produces both winners and losers, this gap is between the two groups and is constantly widening, this can lead to resentment on the part of the losers and even attempts to take a kind of backtrack on globalization. .
- We will also have conflicts at the regional and international level, this is a relentless fight for the limits that exist between the markets and this will exacerbate the conflicts.
- Language difficulty, here the language can become a barrier to defining all business relationships that may be satisfactory.
When we take these advantages and disadvantages into account we can notice that globalization and all businesses that are international create many new business opportunities, this is why its study is really important, we must know very well how to use international finance in order to be able to afford understand the current situation regarding its economy.
We must know how to contribute in a more stable and formal way in a business that is being done outside the country, we must know what we want to produce and export or import as companies, which is why we must take everything involved very seriously. an active.
It is well known that if we misuse these finances we can cause a great risk of loss economically and even to the company itself, the costs and losses can become so drastic that we will not be able to recover absolutely anything.
On the other hand, a country’s investments are governed by many interests and these can affect the operation of various national and foreign companies.
These interests can favor companies in a particular country, this is due to all the economic facilities that the state could grant them within the framework of its economic policy.
Something fundamental that we must take into account is the export and import traffic that can be sustained in the economy of a country, and we must also take into account the business fabric, and of course the labor market. To the extent that countries enhance their workforce and the conditions for their companies, they can obtain a greater advantage in international trade.
It is important that these different tasks are taken into account delicately since all financial entities will guarantee the stability of an economic model.
For this reason, we must observe the type of government very carefully, it must be serious, since what international finance does is study all these economic relationships that may exist between two or more countries.
Countries and transnational companies see how their financial systems are affected from all possible points of view, these are both commercial, political and social.
Therefore, it must be ensured that all these relationships are good, and the company’s investments have an extension of assets of all kinds, this is fundamental, this will be something that benefits everyone.
This is why each country must take care of its financial status as well as its economy in order to develop and grow in a better, much healthier way.
Political aspects of international finance
If this does not occur, the economic rupture that may be generated with other countries can be a quite difficult scenario in which the recovery is long and painful, this is because the influx of money from abroad can become a bad government financing, this is extremely negative for investment since it will be very little or simply non-existent. One of the most important examples of this defect is the economic situation during the Chávez-Maduro governments, in which the mismanagement of the economy had a profound impact on the country’s international finances, greatly reducing the country’s direct and indirect foreign investment. and nullifying the entire capacity of its own companies to develop internationally.
Therefore, the administration of the national economy must do the best it can because otherwise it will weaken the active relationship with other countries. These international finances summarize very well what we must do in terms of improving the economic situation.
In this sense, the relationship between international finance and public finance becomes quite evident, since economic decisions and the administration of state money at the national level can lead to scenarios in which the local currency devalues (inflation). greatly limiting the willingness and ability of locally operating companies to expand internationally, establishing franchises or subsidiaries that can generate income that is eventually added to the gross national product.
On the other hand, a scenario of good economic administration by the state will lead to low inflation scenarios, strengthening the value of the currency, making local companies have more decision-making power and decide to expand to countries where the workforce is more cheap, as well as exporting its production to nations where the value of the currency is stronger and more benefits can be obtained.
Other scenarios to take into account in international finance are geopolitical aspects and international demand for goods that can affect decision-making among investors and force adjustments in terms of investment, commercial priorities of different types, reduction of expenses. and restructuring. An example of this can be seen in the drop in the price of oil during the years following the 2008 financial crisis and the respective discoveries of new extraction methods such as fracking. This circumstance has forced many nations to reconsider their dependence on oil, as well as forced oil companies to diversify their investments towards other types of energy such as renewables.
Specific action items of international finance
As we have seen, international finance is influenced by various factors that shape the transnational flow of capital within the framework of economic globalization. Comprehensive knowledge of global trends better prepares companies and individuals to make accurate predictions about the future of the economy and make decisions that help them obtain the greatest possible return.
Within various aspects of international finance we have structures such as:
Futures markets: commodity contracts such as oil, soybeans, gold, among other goods that are traded at a fixed price and with a specific date in time to ensure a profit, regardless of market conditions.
The Forex market: The most important currencies such as the dollar, the English pound, the yen, the Swiss franc, the euro, the Canadian dollar and the Australian dollar that are traded in order to obtain reserves for banks that carry out operations in different currencies or in order to obtain profits through speculation in trading.
Stock markets: Which allow anyone in the world to carry out investment operations in any company in the world through investment funds or directly. These investments are made in shares of the most important companies and which are therefore listed on the public stock market.
Foreign direct investment: Investments that companies make in other nations, establishing their own subsidiaries and business agencies whose purpose is to establish production plants or their own marketing points. As an example of this, we have companies like Apple, Honda, and Nike, which put their production points in nations where labor is cheaper.
International loans: This is another of the structures or mechanisms of international finance. As an example, we have the funds provided by the International Monetary Fund, the World Bank or the loans that nations make among themselves.
International cooperation: These are direct or indirect aid action funds that are offered without charge and without waiting for the recipient country to make a return. These funds generally have the indirect purpose of making it easier for a nation to find its economic development. As an example, we have aid funds in the fight against drugs, funds for the eradication of hunger, aid funds for military equipment or money sent to foundations with specific philanthropic purposes (racial equality, religious freedom, women’s rights, rights of minorities, etc.)
International economic sanctions: This other mechanism of international economic policy and international finance aims to weaken the international economic position in order to worsen its political and social situation, and in this way force it to make decisions favorable to the country that imposes the sanctions. As an example, we have the economic sanctions of the United States against countries such as Iran or North Korea and the sanctions of the European Union against Russia and others.
