International finance may sound like an extravagant, complicated word to some, but its basic definition is quite the opposite. International finance simply refers to any financial transaction that takes place, crossing national borders. If the transmittal and receipt locations are in two different countries, the transaction falls into the categorization of international finance.
This concept holds true even if the sender and recipient are the same company or business entity. An example of this would be “Company X” sending monetary assets from its U.S.-based central office to its operating branch in Spain. The money never changed hands in ownership, but it did cross borders. This also is a form of international finance. For a closer look at some of today’s more common forms of international finance, we highlight some examples below.
Personal Banking
There are many different ways in which one’s personal banking matters can cross borders. Students abroad can setup foreign accounts, moving money from the United States to oversees accounts. A traveler might do much similar transacting. Perhaps someone has dual citizenship, living in two countries. In this case there will likely be a wide range of financial transactions going from one country to another. This is a form of international finance.
Company Asset Shifts
As previously mentioned, “Company X” may need to move some financial assets from the U.S. to another country. The inverse might also be true and even a somewhat frequent occurrence. This is international finance in the form of asset re-allocation.
It is important to note here however, there are many laws governing such transactions. Government agencies such as the Securities Exchange Commission and the Internal Revenue Service keep a vigilant eye on these kinds of border-crossing business transactions. For this reason, companies doing these sorts of transactions must be well-versed in the international laws pertaining to them.
Sales, Purchases, Trade
The buying, selling, and trading of foreign commodities is a necessity to the world’s financial systems and populations alike. Foreign cars, clothes, home goods, and even pet products fill the homes and businesses of the world’s populations. This requires a lot of international finance transacting, all in the form of buying, selling, and trading. Again, participants must be familiar with laws on the matter.
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Foreign Market Investing
One can find a very helpful publication by the Securities and Exchange Commission entitled “International Investing”. Some of the most common forms of international finance via foreign investing are listed in the publication. These include mutual funds, American depository receipts, and exchange-traded funds. Also listed are the legal reasons why one should be familiar with relevant law, cost factors, scam information, and more. Foreign market investing is a major arena in which international finances can be seen in action.
These are just a few examples of international finances in action in the real world. Again, there are many laws regarding activity in this financial sector. Participants should be aware of these in all matters of international finance dealings.
