Live Chat Now
Give us a call

Send us a text



What is International Finance?

By DeVry University

February 19, 2024

5 min read


International finance, sometimes called international macroeconomics, is the study of monetary exchanges between two or more countries. The discipline focuses largely on currency exchange rates and foreign direct investment. If you have a curiosity about how money is invested in other countries or the growth of economies in other parts of the world, then a career in international finance might be right for you.


In this article, we will explore the areas of study, functions, importance and future of international finance, and take a glimpse at some of the institutions that are major players and policy makers in this field. 

What's Involved in International Finance?

International finance analyzes the following specific areas of study:

  • The Mundell-Fleming Model:

    This area of study analyzes the interaction between the goods market and the money market, based on the assumption that price levels of goods are fixed.

  • International Fisher Effect:

    This international finance theory assumes nominal interest rates mirror fluctuations in the spot exchange rate between nations.

  • Optimum Currency Area Theory:

    This theory hypothesizes that certain geographical regions would maximize their economic efficiency if they adopted a single currency for the entire region.

  • Purchasing Power Parity:

    This is a measurement of prices in different areas using a specific good or set of goods to compare the absolute purchasing power between different currencies.

  • Interest Rate Parity:

    This metric describes an equilibrium state in which investors are indifferent to interest rates attached to bank deposits in 2 separate countries. 

The Functions of International Finance

Encompassing the study of how different countries’ financial systems interact, international finance aims to manage a multitude of financial aspects of international trade, and has multiple functions. In this section, we’ll begin to answer the “what is international finance” question by looking at 3 major areas of the field.

Facilitating trade

International finance facilitates trade between countries, economies and trading partners. Change is a constant here, with a variety of factors like fluctuating consumer demand for goods, technological innovations and new methods of transport affecting complex supply chains.

Capital mobility

Capital mobility refers to the ease or difficulty with which financial flows can occur across international borders. High capital mobility implies that funds are able to be transferred easily and relatively seamlessly from one country to another, while low mobility suggests that capital isn’t flowing easily and that barriers may be hindering its flow.

Many types of financial flows exist in the complex world of international finance, including foreign direct investment, portfolio flows and flows processed through the banking sector. Economists use many different ways to measure capital mobility, but no single measure captures all of its essential characteristics. The four major groups of measures include arbitrage measures, (for debt flows), quality-based measures, measures of equity market integration and regulatory/institutional measures.

Risk management

International trade and financing activities involve a certain degree of risk. Two main types of risk in international finance, foreign exchange risk and political risk, can make it difficult for organizations to maintain a consistent revenue stream.

Foreign exchange risk analyzes the risk associated with fluctuations in foreign currency values. The nature of the exchange rate can be volatile, making it difficult to safeguard against this type of risk.

Political risk (or geopolitical risk) occurs when a country unexpectedly changes its policies, having a negative effect on the foreign trading partner. Major policy changes, such as trade barriers, can significantly disrupt or prevent transactions. For example, a country could impose tariffs on certain imported goods coming across their borders, seriously eroding the profits or restricting the revenues of the companies exporting those products.

The Importance of International Finance

Increased economic globalization has amplified the importance of international finance. We can see this in 3 aspects of the discipline—economic growth, international trade and financial stability.

Economic growth

International finance plays a significant role in the growth and prosperity of economies around the world. International finance and its cross-border flows create a globalization that stimulates the economies of both of the trading partners’ countries, with a somewhat more beneficial effect to the smaller, or developing country’s economy.

Research by the International Monetary Fund (IMF) suggests that the volume of cross-border capital flows has risen sharply during the last decade, and there is evidence to suggest that financial globalization does have a positive effect on the growth of developing countries.

International trade

The World Economic Forum (WEF) refers to international trade as the lifeblood of the world economy. Flowing along those complex supply chains we mentioned earlier, raw materials are sourced, consumer goods are manufactured and then distributed and put to their final use. Because of international trade, whole populations are able to bolster their economy, taking a seat at the table of the developed world.

The WEF offers the economic rise of China as a most striking example of this, noting that China, once an impoverished nation, is now the world’s second-largest economy and the largest outbound trader of goods, accounting for nearly 15% of all exports, according to data from the United Nations.

Financial stability

International finance promotes financial stability through organizations like the IMF. This international organization monitors the economies of its member countries and provides financial support to them in times of need. They also provide technical assistance and training to countries, to help them build their own sound economic policies.

Financial stability is also achieved through several initiatives involving groups of nations. One such effort, the Bretton Woods system, emerged from a 1944 conference of 40 nations held in Bretton Woods, New Hampshire with the goal of standardizing international monetary exchanges and policies to nurture economic stability in the aftermath of World War II.

International Financial Institutions

Several international financial institutions contribute to global financial stability by providing funding and guidance to member nations, working to reduce barriers to trade and establishing international policies and agreements that keep international trade open and transparent.

International Monetary Fund (IMF)

The origins of the IMF date back to the Bretton Woods conference. Governed by and accountable to its 190 member countries, the IMF facilitates international trade, promotes employment and works to reduce global poverty. Its 3 critical missions are:

•  Furthering international monetary cooperation

•  Encouraging the expansion of trade and economic growth

•  Discouraging policies that would harm prosperity

To fulfill these goals, IMF member countries work collaboratively and with other international organizations.

World Bank

The World Bank can also trace its beginnings to the Bretton Woods conference. Originally called the International Bank for Reconstruction and Development, its articles of agreement included rebuilding the economies of counties devastated by war and increasing the economic development of developing countries.

Continuing its work in global economic development, the World Bank also works in the areas of conflict prevention, post-conflict resolution and assistance to countries after major political change.

World Trade Organization (WTO)

Established in 1995, the WTO’s overarching objective is to help its members use international trade as a means of raising living standards, creating jobs and improving people’s standard of living. The WTO operates the global system of trade rules, having its origins in the negotiations aimed at progressively reducing barriers to trade.

At the heart of this organization are the WTO agreements signed by the majority of the world’s trading nations. The agreements provide the rules for international commerce and bind governments to keep their trade policies within agreed limits. The WTO’s main purpose is to help trade flow as freely as possible, keep the rules around trading transparent and make sure there are no sudden changes in policy.

The Future of International Finance

For professionals interested in pursuing a career in international finance, the future holds some interesting opportunities and challenges. Among them are the continuing advances in financial technologies, or fintech, continued globalization and the effects of climate change on international markets.


The tools, platforms and services that fall under the category of fintech have a role to play in the future of international finance. In 2018, the World Bank and IMF launched the Bali Fintech Agenda Paper, which proposes a framework of high-level fintech-related issues that countries should consider in their domestic policy discussions. The paper consists of 12 policy proposals and covers issues related to enabling fintech, ensuring resilience in the financial sector, addressing risks and promoting international cooperation.

The World Bank has undertaken a series of initiatives focusing on fintech, including the use of fintech to deepen financial markets, enhance access to financial services and improve cross-border payments and remittance transfer systems. The World Bank’s Fintech and the Future of Finance report covers data trends and market perceptions related to fintech, policy issues and products.

Acknowledging another aspect of fintech with implications in global finance, a representative of the IMF said that over the next couple of decades, digital money will transform the way we think about currency and how it operates, thanks to the advancements in technologies such as distributed ledger technology, encryption, analytics of big datasets and artificial intelligence. These technologies will enable cross-border payments to become cheaper, faster and easier, allow them to cross borders more seamlessly and be more accessible to those who need access to credit.


Competitive businesses have set the stage for globalization by increasingly turning to global markets as a means of developing new consumer markets for their products, and also to establish new production locations and partners for new ventures.

Globalization impacts international investment in several ways that represent opportunities and potential drawbacks. There is a greater inter-connectedness among markets around the world and the potential risks and profit opportunities are within easier reach, thanks in part to improved communication technologies. With trade agreements, economies are deeply interconnected and far-reaching growth can help the economies of developing countries, attracting the kind of foreign investment that, over time, creates jobs and lifts wages. 

Climate Change

Climate change could have a significant effect on the future of international finance, potentially derailing progress made by many of the world’s developing economies and eroding profits, growth and investment opportunities for developed economies.

Climate change’s effects could shrink the economy by 18% in the next 30 years if the world fails to reduce the use of fossil fuels and do it quickly. That’s the dire warning in a report from Swiss Re, one of the world’s largest reinsurance companies. Some Asian nations could be the hardest-hit, potentially having one-third less wealth if governments fail to act more decisively on climate change.

If, however, countries succeed in holding average global temperature increases to less than 2 degrees Celsius above pre-industrial levels (the goal set by the 2015 Paris climate accord) the economic losses by the mid-century mark would be marginal, according to the Swiss Re report.

Considering a Career in International Finance?

If the world of international finance beckons you, prepare to pursue a variety of career opportunities with a Bachelor’s Degree Specialization in Finance from DeVry University or an MBA with a Specialization in Finance from our Keller Graduate School of Management. Develop an understanding of finance principles from an international perspective. Hone skills related to aspects of international finance such as exchange rates, parity conditions and the various techniques used by multinational corporations to hedge against risk. You’ll also be exposed to the technology applications and analytical tools used by organizations to develop solutions and respond to the needs of stakeholders.

Earn your bachelor’s degree with a specialization in finance in as little as 2 years and 8 months with an accelerated schedule, or follow a normal schedule and complete your program in 4 years.1 Our Keller MBA degree with a specialization in finance can be completed in as little as 1 year and 4 months with at least 9 credit hours of Prior Learning Credit on an accelerated schedule,2 or go with a normal schedule, finishing in 2 years and 8 months.2

DeVry University is Higher Learning Commission-accredited institution3 with over 50 years of experience in business education Classes start soon. 

1Normal schedule does not include breaks and assumes 2 semesters of year-round, full-time enrollment in 12-19 credit hours a semester per 12 month period. Accelerated schedule does not include breaks and assumes 3 semesters of year-round, full-time enrollment in 12-19 credit hours a semester per 12 month period. 
2Normal time assumes completion of 3 semesters per year, enrollment in an average of 6 credit hours per semester and continuous, year-round enrollment with no breaks. Accelerated time to complete requires at least 9 credit hours of Prior Learning Credit. Per 12-month period, assumes completion of 3 semesters, enrollment in an average of 10 credit hours per semester and continuous, full-time year-round enrollment with no breaks. Does not apply to MBA with Specialization. Time to complete and details vary by specialization See the Keller Academic Catalog for complete program details.
3DeVry University is accredited by The Higher Learning Commission (HLC), The University’s Keller Graduate School of Management is included in this accreditation.

8-Week Class Sessions

Classes Start Every 8 Weeks

Filter Blog Post Category

Related Posts