When an organization decides to engage in international financing activities, they also take on additional risk as well as opportunities. The main risks that are associated with businesses engaging in international finance include foreign exchange risk and political risk. These risks may sometimes make it difficult to maintain constant and reliable revenue. When an organization decides to engage in international financing activities, they also take on additional risk as well as opportunities. The main risks that are associated with businesses engaging in international finance include foreign exchange risk and political risk. These risks may sometimes make it difficult to maintain constant and reliable revenue. Foreign exchange risk occurs when the value of investment fluctuates due to changes in a currency’s exchange rate. When a domestic currency appreciates against a foreign currency, profit or returns earned in the foreign country will decrease after being exchanged back to the domestic currency. Political risk transpires when a country’s government unexpectedly changes its policies, which now negatively affect the foreign company. These policy changes can include such things as trade barriers, which serve to limit or prevent international trade. “Since 2010, one in ten of the countries surveyed have experienced a significant increase in the level of short-term political risk. These risks include governments asserting control over natural resources, regimes being ousted by popular uprisings and the expropriation of foreign investors’ assets” (Brown, Sophle. 2013).ReferencesBrown, Sophle. Political instability on the rise. Dec 11, 2013. Retrieved from web: International monetary systems are sets of internationally agreed rules, conventions and supporting institutions, that facilitate international trade, cross border investment and generally the reallocation of capital between nation states. They provide means of payment acceptable between buyers and sellers of different nationality, including deferred payment. To operate successfully, they need to inspire confidence, to provide sufficient liquidity for fluctuating levels of trade and to provide means by which global imbalances can be corrected. A good international monetary system should provide adequate liquidity to the world economy, smooth adjustments mechanism, and safeguard against the crisis of confidence in the system. “Instead of establishing a sound money foundation that would permit free-market mechanisms to optimize capital flows and maximize long-term economic growth, we have empowered central banks to engage in central planning” (Shelton, Judy. 2015).Provision takes the form of adequate units of official reserves held by governments of countries involved in foreign trade. It also requires incentives for commercial banks operating as foreign exchange dealers to hold sufficient foreign exchange reserves to satisfy the requirements of the private sector. Smooth adjustment mechanism requires that individual nations carry out economic and financial policies conducive to maintaining reasonable well balanced international payment systems, or that financial mechanisms operate to provide payments adjustment, or that governments act to preserve equilibrium in the foreign exchange markets.ReferencesShelton, Judy. Spring-Summer 2015, v. 35, iss. 2, pp. 273-89. Fix What Broke: Building an Orderly and Ethical International Monetary System. Retrieved from Ashford Library:
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