If you have ever thought about working in international finance, you might be surprised to learn just how different it can be from traditional finance. The nature of cross border transactions and the global nature of the industry mean that these financial professionals encounter challenges that their domestic counterparts never would. Check out these five things you didn’t know about international finance in order to get a better understanding of what it’s like to work in this industry.
Capital controls
One major challenge to understanding international finance is its complexity. Countries often place restrictions on the purchase and sale of foreign currency in order to regulate their economy, but the specifics of these policies can be quite complicated. These regulations are collectively referred to as capital controls, and in certain situations they can impose very heavy costs. However, there are also benefits to capital controls that we need to keep in mind. For example, this particular type of regulation can help control inflation by acting as a buffer when money floods into a country with low interest rates.
Currency crises
One of the most important challenges that international financiers have to deal with is currency crises. A crisis can come in various forms, for example there can be a national economic crisis, or the country's currency may no longer be easily convertible into other currencies. All of these issues have significant implications on international financiers and businesses as they try to trade goods with other countries. In order to combat this challenge, many countries are adopting new digital currencies like Bitcoin.
Online trade
International trade has existed for centuries, even before the invention of the computer. It's a marketplace that helps businesses and entrepreneurs from different parts of the world work together to become more successful by using each other's strengths. Without international trade, we would be unable to participate in some essential resources that make our world go around. For example, without international trade oil prices would skyrocket and worldwide greenhouse gas emissions would increase.
Unconventional monetary policy
Today's unconventional monetary policy is more expansive than anything attempted before, which is one of the reasons why economists have changed their views. A Federal Reserve study has found that quantitative easing can work if interest rates are close to zero. So far, here are some indications that it has helped avert deflation and helped ease credit conditions by driving down long-term interest rates. For example, the Bank of Japan bought about $1 trillion worth of Japanese bonds and drove long-term interest rates down.
Supply chains
A multinational company can have many supply chains, some of which overlap. There are five types of supply chains: sequential, disaggregated, complete, fragmentation and multilink. Sequential is the simplest type of chain because each subsequent business is involved in creating a different product.