• Unit 4: The Global Financial System

    A significant component of global markets is access to capital and financing. This unit discusses the global financial system and how it functions. The world relies on international financial institutions to conduct business and trade. From a financial standpoint, countries cannot operate independently.

    Completing this unit should take you approximately 2 hours.

    • Upon successful completion of this unit, you will be able to:

      • categorize components of the international financial system based on their functionality and specialized areas of service;
      • describe how the global financial market works and how transactions are made between companies in other countries with different currencies; and
      • analyze the effects that political institutions like central banks have on exchange and interest rates.

    • 4.1: International Financial Institutions

      • Foreign Exchange Markets Book

        Foreign exchange markets set the value of currencies against one another, influencing the price of products and services worldwide. If one country has a cheaper or undervalued currency, it can produce and sell products to the world at a lower price. Read this section to learn more.

      • Balance of Payments Book

        As countries trade goods and services, financial capital flows to establish trade balances. Capital either flows out or in, which creates the country's current account balance. The record of these transactions is reflected over a period of time in what is known as the balance of payments. Read this page and focus on how flows of goods and services are closely connected to flows of capital.

    • 4.2: International Banking

      • International Financial Transactions and SWIFT Page

        The global financial system allows you to make financial transactions from your bank account to an account in another country. Several key network institutions allow this to happen, such as the SWIFT (Society for Worldwide Interbank Financial Telecommunications) system, a vast messaging network that enables banks to send and receive secure messages with payment transfer information. Watch this video that walks through what happens when an international payment request is sent and received.

      • Letters of Credit Page

        A Letter of Credit is an essential part of buying or selling services with a group outside your country. It is one of the most common and popular methods of securing payment in international business agreements. As international transactions with new or unfamiliar businesses can bring added risk, a bank can issue a letter guaranteeing payment, mitigating risk and expediting the supply of goods or services. Read this page to see how a Letter of Credit works and the situations where one can be useful.

      • The European Central Bank Page

        The European Central Bank is one of the most influential banks in the world. It sets the monetary policy for the Euro, which in turn influences economic policy everywhere. This video discusses the history of the European Central Bank and how it became a vital economic institution.

      • The Influence of Central Banks Book

        Central banks are typically government-managed or sponsored and play a significant role in some countries' banking systems. The Federal Reserve Bank in the United States sets things such as interest rates, which influence borrowing costs. Read this section and complete the exercises at the end.

    • Study Guide: Unit 4

      We recommend reviewing this Study Guide before taking the Unit 4 Assessment.

    • Unit 4 Assessment

      • Unit 4 Assessment Quiz
        Receive a grade

        Take this assessment to see how well you understood this unit.

        • This assessment does not count towards your grade. It is just for practice!
        • You will see the correct answers when you submit your answers. Use this to help you study for the final exam!
        • You can take this assessment as many times as you want, whenever you want.