International Finance - financial stability Essay

International Finance - financial stability - Essay Example According to the Deardoff's Glossary of International economics, "International finance is the monetary side of international economics, in contrast to the real side, or real trade. Often called also international monetary economics or international macroeconomics, each term has a slightly different meaning, and none seems entirely right for the entire field. "International finance" is best for the study of international financial markets including exchange rates. To explain international economics, it is the interaction among countries with respect to financial transactions, trade relationships, organizations and policies that govern them. The handbook written by Hal S. Scot named "An overview of International finance Law and Regulation" states "For economists international finance has traditionally meant the study of exchange rates but or policy makers and lawyers it meant much more. Generally, it involves the study of financial transactions, transaction that have some cross-border element with respect to payment, credit or investment, or a financial contract." History of International Finance: In order to understand the history of 'International finance, we have to know the emergence of large scale money lending, stock markets, the credit and debt of countries across the globe. International markets and money lending traces back to the medieval Europe in the twelfth century. Stock markets rose simultaneously in Sweden and London and the London stock exchange was formally inaugurated in 1801. In 1946, the Bretton woods system the gold standard and set limits on foreign exchange However; it collapsed in 1971 when the USA discarded this standard. International finance came into prominence only after a proper gold standard and aggregation of exchange rates among countries was established. Moreover, it played a vast role in the determination of trade relationship between countries. So what is International finance Is it a regulatory body or an inter-governmental organization No, it is the combined activity of all the bodies, which regulate trade and foreign exchange, and the relation of borrowing and lending of capital between countries. Organizations in International finance: Let us look at some of the organizations that play a key role in International finance Below is a table which lists clearly all global organizations that stand as pillars to International trade and finance:- Organization name Location of headquarters Year created Description World Bank Washington DC, USA 1945 Made up of two institutions focused on development: the International Bank for Reconstruction, Development, and the International Development Association. The bank provides loans and grants to developing countries to assist their economic development. International Monetary Fund (IMF) Washington DC, USA 1945 Exists to promote stability in the world's economy, particularly the avoidance of monetary crises and the maintenance of a system of currency exchange. Bank for International Settlements (BIS) Basel, Switzerland 1930 Seeks to ensure consistency, co-operation and co-ordination of reserves by member countries (mainly European, and North/South American states). Group of Eight (G8) No HQ - group consists of the member states only 1998 (predecessors G6 and G7 began earlier) Collaboration between governments of USA, France, UK, Germany, Italy,