International Financing Meaning, Sources and Importance


What Is International Finance?

What Is International Finance?

International finance is also referred to as international macroeconomics. It involves the economic interactions between two or more countries. They focus on areas such as foreign direct investment and currency exchange rates. The increase in globalization has boosted the importance of international finance. International finance also analyzes some specific areas of study which are as follows,

  • Purchasing power parity
  • International Fisher Effect
  • The Mundell-Fleming Model
  • Interest rate parity
  • The optimum currency area theory.


Sources of International Financing

Sources of International Financing are classified into three major categories those are,


1. Commercial Banks

Commercial Banks

Commercial banks are extended to the global level rather than being fund businesses and firms in the home country. They actually provide foreign currency advances and loans throughout the world. Normally loans are provided for business purposes. As it is a very famous source for funding non-trade operations internationally. All the different banks in the countries provide several wide ranges of advances, loans, or services to firms. Every market of international finances and the import-export industry is incomplete without commercial banks. While Commercial banks have a lot to offer in international financing.


2. International Agencies and Develpmental Banks

International Agencies and Develpmental Banks

These banks are named Developmental banks because they are established by the government for developmental purposes only. International Agencies and Developmental banks have appeared with the goal to fund finance internationally. This was created by the governments of developed countries. Their work was to develop the weaker section of the economy by providing and making loans easily available. The financial institutions are developed at global, local, and regional levels. Some of these examples are

  • European Bank for Reconstruction and Development (EBRD)
  • European Investment Bank (EIB)
  • Asian Developmental Banks (ADB).


3. International Capital Market

International Capital Market

International Capital Market exists with the objective of generating economies of scale and enhancing efficiencies in economies. Most organizations in current times like global corporations are dependent on a large number amount of funds in rupees in addition to foreign currency. International Capital Market is the most consumed source of financing. In the source of international financing, there are many financial avenues available which are as follows,

  • Global Depository Receipts (GDRs)
  • Indian Depository Receipts (IDRs)
  • American Depository Receipts (ADRs)
  • Foreign Currency Convertible Bonds (FCCBs)


Importance of international finance

Importance of international finance

International Finance is important for a number of reasons the most major ones are listed here

  1. The exchange rate let us determine the relative values of currencies. As they are important and help in calculating these rates.
  2. International finance is an important tool to find comparing inflation rates, and exchange rates, ascertaining the economic status of other countries and judging the foreign markets, and getting an idea about investing in international debt securities.