BUS613: Advanced International Business

4a. Categorize components of the international financial system based on their functionality and specialized areas of service 

• What is the concept of balance of payments, and how might that assist you in understanding how the flow of goods and services influences the international financial system?
• What international financial institutions make it possible to transact between businesses in different countries?
  

Companies, organizations, and individuals can easily transact with each other in today's modern global financial system due to the networks in place that have been supported and developed over the years with international financial institutions. It is much easier to track trade statistics due to the flow of currency that is recorded and transferred across borders due to technological advances.
 
The letter of credit, which provides terms and conditions while mitigating risks for both the buyer and the seller, has played a pivotal role in international transactions. The balance of payments summarizes all transactions of an economy with all other nations. It provides a good framework for understanding how well a country produces and trades with others. Foreign direct investment is used by countries to attract outside investment and increase their foreign exchange reserves.
 
To review, see Balance of Payments.
 

4b. Describe how the global financial market works and how transactions are made between companies in other countries with different currencies 

• How do currency exchange fluctuations impact purchase decisions when they occur across borders? How can exchange risk be mitigated, and what options do buyers and sellers have?
• What role does a Letter of Credit have in promoting international trade, and why has it succeeded?
  

Currencies are continuously fluctuating when transacted between each other through the foreign exchange market. It is important to understand why this occurs and what options are available to mitigate risk when transacting between currencies. The global financial system has made it relatively easy to transact across borders. Still, it does come with some risk, and an international business leader needs to understand what information to analyze to make the best decisions. An exchange rate, the value of one currency transferred into another, is a foundational concept present in all international trade and transactions.
 
To review, see Foreign Exchange Markets, International Financial Markets, International Financial Transactions and SWIFT, and Letters of Credit.
 

4c. Analyze the effects that political institutions like central banks have on exchange and interest rates 

• What role do central banks play in influencing the trajectory of an economy?
• What impact might you expect on the economy when interest rates are raised and lowered?
• How do the decisions made by central banks influence foreign exchange markets?
  

Central banks such as the Federal Reserve, European Central Bank, and many others have a tremendous impact on how economic policy, which in turn influences the value of a currency and what rate it is when traded with other currencies. Interest rates are set by these banks, which declare the cost associated with borrowing. These factors create conditions in which international businesses must plan, analyze and transact daily. As international business leaders, it is critical to closely pay attention to the political winds in major economies worldwide and assess how that will impact decisions made by their central banks.
 
To review, see The Influence of Central Banks and The European Central Bank.
 

Unit 4 Vocabulary

This vocabulary list includes terms you will need to know to successfully complete the final exam.

• balance of payments
• central bank
• exchange rate
• foreign direct investment
• foreign exchange market
• interest rate
• letter of credit