International finance (also referred to as international monetary economics or international macroeconomics) is the branch of financial economics broadly concerned

with monetary and macroeconomic interrelations between two or more countries.[1][2] International finance examines the dynamics of the global financial system, international monetary systems, balance of payments, exchange rates, foreign direct investment, and how these topics relate to international trade.[1][2][3] Sometimes referred to as multinational finance, international finance is additionally concerned with matters of international financial management. Investors and multinational corporations must assess and manage international risks such as political risk and exchange rate risk, including transaction exposure, economic exposure, and translation exposure.[4][5] Some examples of key concepts within international finance are the Mundell-Fleming model, the optimum currency area theory, purchasing power parity, interest rate parity, and the international Fisher effect. Whereas the study of international trade makes use of mostly microeconomic concepts, international finance research investigates predominantly macroeconomic concepts.
Finance is often defined simply as the management of money or funds management. [1] Modern finance, however, is a family of business activity that includes the origination, marketing, and management of cash and money surrogates through a variety of capital accounts, instruments, and markets created for transacting and trading assets, liabilities, and risks. Finance is conceptualized, structured, and regulated by a complex system of power relations within political economies across state and global markets. Finance is both art (e.g. product development) and science (e.g. measurement), although these activities increasingly converge through the intense technical and institutional focus on measuring and hedging risk-return relationships that underlie shareholder value.

Finance is used by individuals (personal finance), by governments (public finance), by businesses (corporate finance) and by a wide variety of other organizations, including schools and non-profit organizations. In general, the goals of each of the above activities are achieved through the use of appropriate financial instruments and methodologies, with consideration to their institutional setting. Finance is one of the most important aspects of business management and includes decisions related to the use and acquisition of funds for the enterprise. In corporate finance, a company's capital structure is the total mix of financing methods it uses to raise funds. One method is debt financing, which includes bank loans and bond sales. Another method is equity financing - the sale of stock by a company to investors, the original shareholders of a share. Ownership of a share gives the shareholder certain contractual rights and powers, which typically include the right to receive declared dividends and to vote the proxy on important matters (e.g., board elections). The owners of both bonds and stock, may be institutional investors - financial institutions such as investment banks and pension funds or private individuals, called private investors or retail investors

Financial risk management is the practice of creating and protecting economic value in a firm by using financial instruments to manage exposure to risk, particularly credit risk and market risk. (Other risk types include Foreign exchange, Shape, Volatility, Sector, Liquidity, Inflation risks, etc.) It focuses on when and how to hedge using financial instruments; in this sense it overlaps with financial engineering. Similar to general risk management, financial risk management requires identifying its sources, measuring it (see: Risk measure: Well known risk measures), and formulating plans to address these, and can be qualitative and quantitative. In the banking sector worldwide, the Basel Accords are generally adopted by internationally active banks for tracking, reporting and exposing operational, credit and market risks.

Public finance describes finance as related to sovereign states and sub-national entities (states/provinces, counties, municipalities, etc.) and related public entities (e.g. school districts) or agencies. It is concerned with:

Identification of required expenditure of a public sector entity Source(s) of that entity's revenue The budgeting process Debt issuance (municipal bonds) for public works projects

The global financial system (GFS) is the financial system consisting of institutions and regulators that act on the international level, as opposed to those that act on a national or regional level. The main players are the global institutions, such as International Monetary Fund and Bank for International Settlements, national agencies and government departments, e.g., central banks and finance ministries, private institutions acting on the global scale, e.g., banks and hedge funds, and regional institutions, e.g., the Eurozone.

International economics is concerned with the effects upon economic activity of international differences in productive resources and consumer preferences and the institutions that affect them. It seeks to explain the patterns and consequences of transactions and interactions between the inhabitants of different countries, including trade, investment and migration.

International trade studies goods-and-services flows across international boundaries from supply-and-demand factors, economic integration, international factor movements, and policy variables such as tariff rates and trade quotas.[1] International finance studies the flow of capital across international financial markets, and the effects of these movements on exchange rates.[2] International monetary economics and macroeconomics studies money and macro flows across countries.[3]

International finance, an offshoot of economics, encompasses a detailed understanding of exchange rates and foreign investment and their impact on international trade. Analysis of international projects, overseas

investments, cross border capital flows, trade deficits, currency swaps and global financial markets are some of its key areas of study. Individual investors usually focus on that part of international finance that deals with global futures and options and the forex market.

International Finance: Benefits

Some of the benefits of international finance are:

Access to capital markets across the world enables a country to borrow during tough times and lend during good times.

It promotes domestic investment and growth through capital import.

Worldwide cash flows can exert a corrective force against bad government policies.

It prevents excessive domestic regulation through global financial institutions.

International finance leads to healthy competition and, hence, a more effective banking system.

It provides information on the vital areas of investments and leads to effective capital allocation.

International finance promotes the integration of economies, facilitating the easy flow of capital. The free transfer of fundswould eventually result in more equality among countries that are a part of the global financial system.

Definition of 'Imperfect Market'

A market where information is not quickly disclosed to all participants in it and where the matching of buyers and sellers isn't immediate. Generally speaking, it is any market that does not adhere rigidly to perfect information flow and provide instantly available buyers and sellers. In economic theory, perfect competition describes markets such that no participants are large enough to have the market power to set the price of a homogeneous product. Because the conditions for perfect competition are strict, there are few if any perfectly competitive markets. Still, buyers and sellers in some auction-type markets, say for commodities or some financial assets, may approximate the concept. Perfect competition serves as a benchmark against which to measure real-life and imperfectly competitive markets.

Product life-cycle management (or PLCM) is the succession of strategies used by business management as a product goes through its life-cycle. The conditions in which a product is sold (advertising, saturation) changes over time and must be managed as it moves through its succession of stages. Product life-cycle (PLC) Like human beings, products also have an arc. From birth to death, human beings pass through various stages e.g. birth, growth, maturity, decline and death. A similar life-cycle is seen in the case of products. The product life cycle goes through multiple phases, involves many professional disciplines, and requires many skills, tools and processes. Product life cycle (PLC) has to do with the life of a product in the market with respect to business/commercial costs and sales measures. To say that a product has a life cycle is to assert three things:

Products have a limited life, Product sales pass through distinct stages, each posing different challenges, opportunities, and problems to the seller, Products require different marketing, financing, manufacturing, purchasing, and human resource strategies in each life cycle stage.

The four main stages of a product's life cycle and the accompanying characteristics are: Stage 1. Market introduction stage Characteristics 1. costs are very high 2. slow sales volumes to start 3. little or no competition

4. demand has to be created 5. customers have to be prompted to try the product 6. makes no money at this stage 1. 2. 3. 4. 5. costs reduced due to economies of scale sales volume increases significantly profitability begins to rise public awareness increases competition begins to increase with a few new players in establishing market 6. increased competition leads to price decreases 1. costs are lowered as a result of production volumes increasing and experience curve effects 2. sales volume peaks and market saturation is reached 3. increase in competitors entering the market 4. prices tend to drop due to the proliferation of competing products 5. brand differentiation and feature diversification is emphasized to maintain or increase market share 6. Industrial profits go down 1. 2. 3. 4. costs become counter-optimal sales volume decline prices, profitability diminish profit becomes more a challenge of production/distribution efficiency than increased sales

2. Growth stage

3. Maturity stage

4. Saturation and decline stage

In economics, the law of comparative advantage refers to the ability of a person or a country to produce a particular good or service at a lower marginal and opportunity cost. Even if one country is more efficient in the production of all goods (absolute advantage) than the other, both countries will still gain by trading with each other, as long as they have different relative efficiencies.[1][2][3] For example, if, using machinery, a worker in one country can produce both shoes and shirts at 6 per hour, and a worker in a country with less machinery can produce either 2 shoes or 4 shirts in an hour, each country can gain from trade because their internal trade-offs between shoes and shirts are different. The less-efficient country has a comparative advantage in shirts, so it finds it more efficient to produce shirts and trade them to the more-efficient country for shoes. Without trade, its opportunity cost per shoe was 2 shirts; by trading, its cost per shoe can reduce to as low as 1 shirt depending on how much trade occurs (since the more-efficient country has a 1:1 tradeoff). The more-efficient country has a comparative advantage in shoes, so it can gain in efficiency by moving some workers from shirt-production to shoe-production and trading some

shoes for shirts. Without trade, its cost to make a shirt was 1 shoe; by trading, its cost per shirt can go as low as 1/2 shoe depending on how much trade occurs. The net benefits to each country are called the gains from trade
Example 1

Two men live alone on an isolated island. To survive they must undertake a few basic economic activities like water carrying, fishing, cooking and shelter construction and maintenance. The first man is young, strong, and educated. He is also faster, better, and more productive at everything. He has an absolute advantage in all activities. The second man is old, weak, and uneducated. He has an absolute disadvantage in all economic activities. In some activities the difference between the two is great; in others it is small. Despite the fact that the younger man has absolute advantage in all activities, it is not in the interest of either of them to work in isolation since they both can benefit from specialization and exchange. If the two men divide the work according to comparative advantage then the young man will specialize in tasks at which he is most productive, while the older man will concentrate on tasks where his productivity is only a little less than that of the young man. Such an arrangement will increase total production for a given amount of labour supplied by both men and it will benefit both of them.
In international economics, international factor movements are movements of labor, capital, and other factors of production between countries. International factor movements occur in three ways: immigration/emigration, capital transfers through international borrowing and lending, and foreign direct investment.[1] International factor movements also raise political and social issues not present in trade in goods and services. Nations frequently restrict immigration, capital flows, and foreign direct investment.

International marketing takes place when a business directs its products and services toward consumers in a country other than the one in which it is located. While the overall concept of marketing is the same worldwide, the environment within which the marketing plan is implemented can be dramatically different from region to region. Common marketing concernssuch as input costs, price, advertising, and distribution are likely to differ dramatically in the countries in which a firm elects to market its goods or services. Business consultants thus contend that the key to successful international marketing for any businesswhether a multinational corporation or a small entrepreneurial ventureis the ability to adapt, manage, and coordinate an intelligent plan in an unfamiliar (and sometimes unstable) foreign environment.

Businesses choose to explore foreign markets for a host of sound reasons. In some instances, firms initiate foreign market exploration in response to unsolicited orders from consumers in those markets. Many others, meanwhile, seek to establish a business to absorb overhead costs at home, diversify their corporate holdings, take advantage of domestic or international political or economic changes, or tap into new or growing markets. The overriding factor spurring international marketing efforts is, of course, to make money, and as the systems that comprise the global economy become ever more interrelated, many companies have recognized that international opportunities can ultimately spell the difference between success and failure. "The world is getting smaller," concluded E. Jerome McCarthy and William D. Perreault Jr. in Basic Marketing. "Advances in communications and transportation are making it easier to reach international customers. Product-market opportunities are often no more limited by national boundaries than they are by state lines within the United States. Around the world there are potential customers with needs and money to spend. Ignoring those customers doesn't make any more sense than ignoring potential customers in the same town." While companies choosing to market internationally do not share an overall profile, they seem to have two specific characteristics in common. First, the products that they market abroad, usually patented, are believed to have high earnings potential in foreign markets. Second, the management of companies marketing internationally must be ready to make a commitment to these markets. This entails far more than simply throwing money at a new exporting venture. Indeed, a business that is genuinely committed to establishing an international presence must be willing to educate itself thoroughly on the particular countries it chooses to enter through a course of market research. ADVANTAGE
1. Foreign operations can absorb excess capacity, reduce unit costs, and spread economic risks over a wider number of markets. 2. Foreign operations can allow firms to establish low-cost production facilities in locations close to raw materials and/or cheap labor. 3. Competitors in foreign markets may not exist, or competition may be less intense than in domestic markets. 4. Foreign operations may result in reduced tariffs, lower taxes, and favorable political treatment in other countries.

5. Joint ventures can enable firms to learn the technology,culture, and business practices of other people and to make contacts with potential customers, suppliers, creditors, and distributors in foreign countries. 6. Many foreign governments and countries offer varied incentives to encourage foreign investment in specific locations. 7. Economies of scale can be achieved from operation in global rather than solely domestic markets. Larger-scale production and better efficiencies allow higher sales volumes and lower-price offerings. DISADVANTAGE 1. Firms confront different and often little-understood social, cultural, demographic, environmental, political, governmental, legal, technological, economic, and competitive forces when internationally doing business. These forces can make communication difficult between the parent firm and subsidiaries. 2. Weaknesses of competitors in foreign lands are often overestimated, and strengths are often underestimated. Keeping informed about the number and nature of competitors is more difficult when internationally doing business. 3. Language, culture, and value systems differ among countries, and this can create barriers to communication and problems managing people. 4. Gaining an understanding of regional organizations such as the European Economic Community, the Latin American Free Trade Area, the Intenational Bank for Reconstruction and Development, and the International Finance Corporation is difficult but is often required in internationally doing business. 5. Dealing with two or more monetary systems can complicate international business operations. 6. The availability, depth, and reliability of economic and marketing information in different countries vary extensively, as do industrial structures, business practices, and the number and nature of regional organizations.