IF - Module Overview

International Finance

Introduction

Foreign exchange rates are affected by economic conditions, the balance of payments, and political issues. Participating in international business can raise all manner of issues and problems. In this module, you will calculate foreign exchange rates, and explain how rates are affected by economic conditions, the balance of payments, and political issues. We will identify the purpose of prominent international business and financial organizations such as the IMF, World Bank, and WTO. Finally, we will describe the necessary documents that must be submitted for making payment in a foreign country.

Essential Questions

  • How is the exchange rate for a country's currency affected by the country's economic condition, the balance of payment, and political climate?
  • How do the International Monetary Fund, the World Bank, and The World Trade Organization interact in the global financial arena?
  • What is the process for making payments internationally?

Key Terms

imports: Something brought in from a foreign country, especially for sale or trade

exports: the commercial activity of selling and shipping goods to a foreign country

foreign exchange rate: prices of foreign currencies expressed in terms of other currencies

balance of payments: difference in value over a period of time of a country\'s imports and exports of merchandise

International Monetary Fund: a United Nations agency that promotes trade by increasing the exchange stability of the major currencies

World Bank: a United Nations agency created to assist developing nations with loans guaranteed by member governments

World Trade Organization: international organization based in Geneva that monitors and enforces rules governing global trade

UPC: Uniform Customs and Practice for Documentary Credits -defines rights and obligations of the various parties in a letter of the credit transaction.

Bear Market: A bear market is a market in which prices are falling, encouraging selling.

Bull Market: A bull market is a market in which share prices are rising, encouraging buying.

Dollar-Cost Averaging: Dollar-cost averaging is an investment strategy for reducing the impact of volatility on large purchases of financial assets such as equities.

Economic Indicator: An economic indicator is a statistic used to gauge future trends in a nation\'s economy.

Leading Economic Indicator: A leading economic indicator is intended to predict future economic activity.

Lagging Economic Indicator: A lagging economic indicator is a measurable economic factor that changes after the economy has already begun to follow a particular pattern or trend.

Coincident Economic Indicator: A coincident economic indicator is a metric that shows the current state of economic activity within a particular area.

Basis: Basis is the purchase price of an investment after commissions or other expenses.

Forward Contract: A forward contract is an informal agreement traded through a broker-dealer network to buy and sell specified assets, typically currency, at a specified price at a certain future date.

Appreciation: Appreciation is an increase in the value of an asset over time.

Depreciation: Depreciation is a decrease in the value of an asset over time.

Hedge: A hedge is making an investment to reduce the risk of adverse price movements in an asset

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