International financial economics according to Oxford University Press refers to the study of how economic resources are put into best use by multinational corporations or countries in international markets. Knowledge from finance has many uses e.g. it help investors understand economic systems and also make rational decisions on a broad perspective. International financial economics thus involves a detailed analysis of data from different markets. This helps investors make decisions in international markets that has a close association with information imperfection and uncertainties.
International financial economics utilizes different economic theories to analyze or evaluate how risk, uncertainty, time, information and opportunity cost can be put to use by an investor to maximize wealth. Different models are set up to help the investors test how different market variables affect their decisions.
Different factors are of importance when discussing about international financial economics as fundamentals of international finance.
Factors affecting international financial economics
International monetary systems
International monetary system is a general term used in describing institutions, rules, conventions and generally accepted capital relocation between two or more countries. It makes it possible for investors to settle their trade obligations and enhance capital relocation in monetary terms.
Balance of payment (BOP)
BOP is a record of all economic transactions taking place between two countries. This happens over a given time period in most instances one year. Transactions of interest include imports and exports and are put to record either in capital or current account. A country can either have a surplus, deficit or a balance of payment in its trade activities.
Political risk and uncertainty is a major threat to investors and could affect investors’ portfolio significantly. These Political risks and uncertainties include; change of governments, foreign policy, trade restrictions. It may also include new taxation, military control and legislation.
International investment portfolio
It pertains to combination of investment alternatives in the international markets to provide investors with low levels of risks. It allows investors to diversify their investment in different countries for best returns.