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International finance
 
 
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International finance is the branch of economics that studies the dynamics of exchange rates, foreign investment
Foreign investment

In finance, foreign investment is investment originating from other countries.See Foreign direct investment.See alsoReferences...
, and how these affect international trade
International trade

International trade is exchange of Capital , goods, and services across international borders or territories. In most countries, it represents a significant share of gross domestic product ....
. It also studies international projects, international investments and capital flows, and trade deficits. It includes the study of futures, options and currency swaps. Together with international trade theory, international finance is also a branch of international economics
International economics

International economics is a branch of economics with three main subdisciplines international trade, monetary economics and international finance....
.

Some of the theories which are important in international finance include the Mundell-Fleming model
Mundell-Fleming model

The Mundell-Fleming model is an economics model first set forth by Robert Mundell and Marcus Fleming. The model is an extension of the IS-LM model....
, the optimum currency area
Optimum currency area

In economics, an optimum currency area , also known as an optimal currency region , is a geographical region in which it would maximize economic efficiency to have the entire region share a single currency....
 (OCA) theory, as well as the purchasing power parity
Purchasing power parity

The purchasing power parity theory uses the long-term equilibrium exchange rate of two currencies to equalize their purchasing power. Developed by Gustav Cassel in 1920, it is based on the law of one price: the theory states that, in ideally efficient markets, identical goods should have only one price....
 (PPP) theory.






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International finance is the branch of economics that studies the dynamics of exchange rates, foreign investment
Foreign investment

In finance, foreign investment is investment originating from other countries.See Foreign direct investment.See alsoReferences...
, and how these affect international trade
International trade

International trade is exchange of Capital , goods, and services across international borders or territories. In most countries, it represents a significant share of gross domestic product ....
. It also studies international projects, international investments and capital flows, and trade deficits. It includes the study of futures, options and currency swaps. Together with international trade theory, international finance is also a branch of international economics
International economics

International economics is a branch of economics with three main subdisciplines international trade, monetary economics and international finance....
.

Some of the theories which are important in international finance include the Mundell-Fleming model
Mundell-Fleming model

The Mundell-Fleming model is an economics model first set forth by Robert Mundell and Marcus Fleming. The model is an extension of the IS-LM model....
, the optimum currency area
Optimum currency area

In economics, an optimum currency area , also known as an optimal currency region , is a geographical region in which it would maximize economic efficiency to have the entire region share a single currency....
 (OCA) theory, as well as the purchasing power parity
Purchasing power parity

The purchasing power parity theory uses the long-term equilibrium exchange rate of two currencies to equalize their purchasing power. Developed by Gustav Cassel in 1920, it is based on the law of one price: the theory states that, in ideally efficient markets, identical goods should have only one price....
 (PPP) theory. Moreover, whereas international trade theory makes use of mostly microeconomic methods and theories, international finance theory makes use of predominantly intermediate and advanced macroeconomic methods and concepts.

See also

  • International Finance Corporation
    International Finance Corporation

    The International Finance Corporation promotes sustainable private sector investment in developing countries as a way to reduce poverty and improve people's lives....
  • Interest rate parity
    Interest rate parity

    Interest rate parity is an economic concept, expressed as a basic algebraic identity that relates interest rates and exchange rates. The identity is theoretical, and usually follows from assumptions imposed in economics models....


External links

  • University of Iowa research center, includes a 300 page E-book.
  • The Global Association of Financial Institutions; fostering global financial stability.