Finance (Basic)
Ludek Benada
Department of Finance
Office 533
75970@mail.muni.cz

International Finance
… is a field of Finance, which deals with special problems that arise from financial and trading
relations between nations.
The system of financial relationships, which occur through the international movement of cash
funds.

Balance of Payment
Displays accounting operations, which record all financial transactions between a country and the
rest of the world.

Structure of the BP
I.Current Account
a.Trade Balance
I.Merchandise Exports and Imports
b.Services
I.Shipment
II.Travel
III.Other Services
c.Income
d.Transfers
II.Capital Account
III.Financial Account
a.Direct Investment
b.Portfolio Investment
c.Financial Derivatives
d.Other Investment
IV.Errors and Omissions
V.Total Change in Reserves

Foreign Exchange Rate
..represents a rate at which one currency is exchanged for another currency.
Quotations
qBase currency
qQuote currency
qDirect/Indirect
CZK/EUR

FX Regime
qFloating/Dirty Float(USD, EUR, £)
qPegged Float
qFixed Exchange Rate

Relation between BoP and FX
Q
ER
ER3
ER1
ER1
S
D
E
Appreciation/Depreciation

Interest Rate Parity, PPP
pilsner-urquell.jpg USA.jpg 8625298-3d-outline-of-czech-republic-with-flag.jpg
CZK 18.90
$ 0.92
Π = 4.5%
Π = 1.2%

International Monetary System
.. is a set of rules, conventions and institutions whose main aim is to facilitate international
trade, cross border investment and flow of capital between countries.

The Bretton Woods System
§1944 – Bretton Woods, New Hamshire
§New system of rules, regulations, and procedures for the major economies of the world.
§USD             reserve currency of the world.
§1971 – the demise of BW.
§1976 world currencies to floating.

International Monetary and Financial Institutions
Bank for International Settlement
§1930, Basel
§Intergovernmental organizations of CBs
§Central Bank for CBs/58 members
§Purpose is to serve international monetary cooperation/CBs cooperation.

International Monetary Fund
§An international organization, 1944
§Washington D.C./182 members.
§Monitor economic and financial developments.
§Lends funds to countries with balance of payment difficulties.
§Provide technical assistance for countries.
§

The World Bank
§Was created at the end of WW II
§Loans to developing countries.
§The main aim is to reduce poverty.

World Bank Group
qInternational Bank for Reconstruction and Development (IBRD)
qInternational Development Association (IDA)
qInternational Finance Corporation (IFC)
qMultilateral Investment Guarantee Agency (MIGA)
qInternational Centre for Settlement of Investment Disputes (ICSID)

Thank you for your attention