International finance is a crucial economic branch that studies monetary and macroeconomic relations between countries, analyzing global financial systems, exchange rates, balance of payments, and foreign direct investment. It also encompasses international financial management, where multinational corporations assess and mitigate international risks like political and foreign exchange exposure, utilizing concepts such as purchasing power parity and the Mundell–Fleming model.
The historical foundation for modern currency systems dates back over a thousand years to China, where dynasties like the Tang, Song, Yuan, and Ming pioneered fiat currency – paper money not tied to precious metals – due to shortages of metallic currency. However, fiat currencies gained significant international relevance only after the U.S. removed its dollar from the gold standard in 1971. A pivotal moment in modern international finance was the 1944 Bretton Woods Conference, where delegates from 44 nations established the framework for the International Monetary Fund (IMF) and the World Bank. These institutions, developed from post-WWII negotiations, provided a measurable way to determine exchange rates, dramatically boosting global trade and cooperation.