International finance: Economic theories

International finance, also known as international macroeconomics, is the study of monetary interactions between two or more states. Increased globalization has magnified the importance of international finance. International finance deals with the economic interactions between multiple countries, rather than narrowly focusing on individual markets. It analyzes the following specific areas of study:

The Mundell-Fleming Model, which studies the interaction between the goods market and the money market, is based on the assumption that price levels of said goods are fixed.

International Fisher Effect is an international finance theory that assumes nominal interest rates mirror fluctuations in the spot exchange rate between nations.

The optimum currency area theory states that certain geographical regions would maximize economic efficiency if the entire area adopted a single currency.

Purchasing power parity is the measurement of prices in different areas using a specific good or a specific set of goods to compare the absolute purchasing power between different currencies.

Interest rate parity describes an equilibrium state in which investors are indifferent to interest rates attached to bank deposits in two separate countries.

Economic theories of international finance


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