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The different aspects of international business finance include the corporate finance, foreign exchange markets, global financial systems and foreign investment policies. International finance is the study and analysis of how money moves from the home country to an international destination. The level of risk influences how cash flows between countries, such as those associated with the currency exchange rate, central bank policies, political environment and foreign investment policies. These different aspects of international finance provide the financial structure to conduct business abroad, while also identifying and monitoring potential risks.
Corporate finance plays a central role in international business finance by setting its capital structure, process for acquiring assets, capital budgeting and optimizing rates of return.It makes sure that corporations have the financing they needs to fulfill business objectives and reach both domestic and international goals. The corporate finance policies a business up for how it will handle and manage the other aspects of international business finance. For instance, a business may want to invest in technological advancements in order to be able to monitor and manage its overseas capital.
Foreign exchange is an important aspect of international business finance since a slight change can greatly affect the movement of cash flow between countries. The foreign exchange is where currencies can be purchased or sold on the open market. If the value of a currency decreases, then foreign investment may also decrease since the price of purchasing the foreign currency is higher. For example, if the value of the US dollar decreases against the Euro, then investors in the European Union may reduce their investment in the United States since their costs are higher. International businesses often use financial hedging methods in order to reduce their risks of changing exchange rates.
Global financial systems, such as the International Monetary Fund and central banks, are institutions that regulate money on the international level. This aspect of international business finance can cause large ripples in the market when it changes policies or enacts new measures, such as lending to countries in financial distress or changing its lending rates. Business finance monitors global financial systems closely in order to prepare or take advantage of impending changes.
Foreign investment policies affect the company’s ability to conduct business in the foreign country. New laws and legislation in regards to creating a business, human resources and copyright can result in significant cost increases or its inability to continue business in that country. Foreign investment policies are generally stable in developed countries, but must be monitored regularly in emerging or undeveloped economies.