International finance system: concept and structure

2024 Author: Henry Conors | [email protected]. Last modified: 2024-02-12 02:43

Finances play an important role in the life and development of the state. Each country has its own characteristics regarding the regulation of the internal movement of financial flows. However, in general, all of these converge into a single whole and form a global system. In the article we will try to figure out what the system of international finance is and what is its structure.

The concept of international finance

International finance is a collection of financial resources around the world and their activity. They very clearly reflect the current state and development of the global monetary system.

The system of international finance (SMF) is a historically established form of organization of economic relations, fixed by interstate agreements and directly related to the movement of world capital. It also serves various types of economic relations between powers, including foreign trade relations,export of money, investments, external loans and subsidies, tourism, exchange of scientific and technological developments, transfers, etc.

As for global financial transactions, they are currently the force that has a special impact on the monetary system of almost every country. When interacting with the economy in a broad sense, this is a powerful tool for the positive integration of financial and economic markets of both entire states and specific regions. However, the system of international finance also has negative characteristics. Among them is helping to spread the crisis quickly and everywhere. In this case, countries are trying to cope with the crisis by their own methods.

SMF structure

Since each system must be streamlined, the system of international finance has a clear structure, which includes:

• Financial assistance. This includes loans and guarantees from international organizations and governments.
• International capital markets. These are currency spot markets, markets for derivatives, credit, equity and debt securities, as well as insurance services.
• Gold and foreign exchange reserves. They are of two types - private and official.

Functions of the international financial system

World finance is a kind of financial reporting, which is carried out through various vectors of international financial activity. The most important direction is considered to be investment,which is direct and portfolio. If direct means investing in the authorized capital of the company and participating in its management, then portfolio means just investing in securities.

The international financial reporting system performs two main functions: control and distributive. Let's take a closer look at each of them.

Control function

The first function implies control over the movement of social products in monetary terms. What does this imply? This makes it possible to analyze and record the movement of these products at any time and at any stage.

In real life, the control function is implemented as follows:

• strategy and current global financial policy being developed;
• follow-up decisions are being made regarding the global financial system.

The performance of this function depends on several factors:

• the nature of the country's development in the economy;
• the ability of a state to implement international policy in the financial field;
• technical base that allows the process of collecting and processing data.

Distribution function

In addition to control, international financial accounting systems perform a distributive function. What does it mean? The world product is distributed in monetary terms with the help of international finance.

There are severalpatterns that characterize this distribution:

• Capital goes where the highest rate of return is shown.
• Risks associated with making a profit necessarily accompany the movement of global capital.
• The movement of international capital reflects and confirms the law according to which proportional development takes place.
• In the international system of financial relations, there is always a policy of individual subjects. As for the last regularity, here it is worth understanding what such relationships are and what their essence is.

International relations and markets

The system of international financial relations belongs to a special area of the market economy. It includes the functioning of the currency, various forms of lending, all types of securities, operations with precious metals and other financial activities, which are also engaged in servicing the mutual exchange of the results of the activities of national economies.

Thus, international financial relations (IFI) are all types of relations that develop in the arena of the international financial market. The process of development of MFIs is inextricably linked with the formation of a global economic system. What were the prerequisites for this fact? The establishment of a world market system, the growth of labor productivity, the international division of labor and the formation of economic ties at the global level.

International Organizations

International finance systemdemonstrates all changes in the balance of payments of the largest countries, the state of financial markets and corporations, as well as the activities of international financial institutions and investment companies. Banks, multinational corporations, international investors, borrowers and other organizations are considered the main participants in the global financial system.

To solve some problems in the development of the global economy, international financial organizations are being created by pooling the financial resources of the participating countries. The system of international financial organizations is based on interstate agreements and is closely linked to the world economy and foreign economic relations.

Every financial institution, regardless of its status, must keep financial records. This necessarily applies to international organizations.

Financial reporting

The system of international financial reporting standards includes a set of certain documents and interpretations that regulate the rules for the execution of financial statements. It is necessary for external managers in order to be able to make the right and cost-effective decision regarding the enterprise.

For what purpose were financial reporting standards created? In order to improve the quality of the information provided, unify the interpretation and make common standards. They allow you to evaluate and conduct a comparative analysis of the performance of various multinational companies, and most importantly, to do thisas efficiently as possible.

RF and international finance

Financialists distinguish three main forms of international financial activity: investments, loans in the world market and financial assistance. Over the past two decades, the leadership of the Russian Federation has often noted the need to attract foreign investment in the country's economy.

Russia plays one of the leading roles in the international financial system, as it is a major world power and has a huge domestic market. Advantages such as low-cost labor, many natural resource deposits, scientific potential should attract a lot of foreign investment. The latter, in turn, can become a channel through which innovations and developments of a scientific and technical nature, as well as the best managerial experience, will come to the country. To date, the largest percentage of foreign investments in the Russian economy are credit and other investments.