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The international financial system (IFS) is made up of a variety of assets, institutions, and markets that facilitate the flow of capital for finance and international trade. The IFS includes: Bank and nonbank financial institutions Financial markets that determine and trade the prices of these assets Nonmarket activities, such as private equity transactions Legal agreements Exchange rate systems Financial instruments
The IFS also provides a payment mechanism and offers facilities for borrowing and disposing of surplus funds. The IFS has evolved to mirror changes in the world economy, including: A greater demand for financial assets A diversification of asset holding worldwide Movement toward lending at floating rates Greater use of bonds and other types of securities An integration of financial markets
The IFS includes many different parts, including: Currency: The monetary system of a country Exchange rate: The rate at which two currencies are exchanged Balance of payments: A reflection of a country's external sector Domestic monetary regimes: These regimes focus on price stability Financial regimes: These regimes generally allow funds to move freely across currencies and borders
Related Test: Money, Banking, and Financial Markets Practice Test: The Foreign Exchange Market
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