What Is the Importance of International Finance?
International finance is important for determining exchange rates, comparing inflation rates, investing in foreign debt securities, ascertaining economic conditions in other countries and investing in foreign markets, according to For Dummies. The International Financial Reporting Standards (IFRS), adopted by more than 120 countries as of April 2011, are an important backbone of international finance and offer numerous benefits, according to Investopedia.
Exchange rates are vital to international finance because they determine how much one currency is worth to another. For Dummies explains that inflation rates, interest rates and available amount of currency all contribute to fluctuations in exchange rates. Economic factors in other countries help determine whether or not investors think their money is safe with foreign debt securities. If the economic and political climate changes in a particular country or region, an investment becomes riskier.
Using IFRS is important on many levels of international finance. Investopedia reveals that financial statements in countries that adopt IFRS are similar, which increases quality of financial reporting, provides greater transparency among foreign companies and saves money by reporting on a single accounting standard. As of 2014, the United States uses the U.S. Generally Accepted Accounting Principles (U.S. GAAP) as its accounting standard and is the only country to do so.
