International Money and Finance

International money and finance

Contents
INTRODUCTION.......................................................................................................................................3
Main body...................................................................................................................................................3
Conclusion...................................................................................................................................................7
REFERENCES............................................................................................................................................8

INTRODUCTION
The term international money and finance can be defined as expansion of financial
resources across the border. In the international economy, the impossible trinity (also called "tri
lemma") is a term that says that all three of these cannot be simultaneously: the fixed exchange
rate. The independent monetary policy is the free movement of capital (absence of capital
controls). These three aspects are beneficial for development of international monetary system
(Chen, Filardo and Zhu, 2016). The project report is based on analysis of three key terms which
can be helpful for successful creation of monetary system.
Main body
“Impossible trinity” of international finance that continues to be a valid framework constraining
the shape of any international monetary system.
The International Monetary System (IMS), since the lot of nations has currencies that are not
usually recognized for payment outside their frontiers, is intended to promote global economic
trade. Global trade / investments can thrive when the IMS is running mellifluously; furthermore,
global trade / expenditure can expand when the IMS performs ineffectively or even totally
failing-as in the Great Depression or current credit crisis. Only two of the three basic principles
of global monetary policy, fixed rates, international financial capital stability and internal
monetary policy flexibility were simultaneously fulfilled by the tri lemma or unlikely trinity of
the global monetarist regimes. Nations can adjust regimes properly, but they cannot
simultaneously enjoy financial stability, stable currency exchange and fiscal policy (Ahmed,
Coulibaly and Zlate, 2017). This is because a national currency (like the central bank) needs to
make this rate its only concern, in order to maintain a stable currency (thus renouncing internal
goals such as inflation, employment / GDP) and must also seal the nation away from the world
banking markets by reducing capital flows. Herein, below analysis of role of these three trinity of
international finance is mentioned in such manner that is as follows:
Stable exchange rate- A fixed exchange rate is a form of exchange rate system where the value
of the dollar is calculated or bound to the value of a currency, a set of such currency or some
value indicator, such as gold, by financial authorities. The usage of a fixed exchange rate