This chapter deals with the basics of international finance, beginning with the historical development of the international monetary system – from the earliest issues of coins, through the Gold Standard to the various forms of electronic and credit money. We look at how international financial arrangements have developed, generally as a consequence of the growing sophistication of international trading arrangements. After this, the focus shifts to the way in which the world banking system works, including Islamic banking, and how money is moved through the Clearing Banks. The next section examines theories of monetary exchange, exchange rates and single currencies (exemplified by the euro), and their influence on international business. Following this, we examine the ways in which traders make and receive payment for goods and services they provide, and we briefly examine international pricing and taxation – with particular reference to multinational organisations, and the ways in which multinationals can legally reduce their tax liability. The chapter finishes with an analysis of the Euro, examining the pros and cons of a single currency system, and looks in particular at the politico-economic motivations behind its formation. The chapter case study brings together the financial, political, and economic environments in a study of the Euro, and its effect on European integration and co-operation, in view of the current politico-economic crisis.
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