International trade is the transaction of goods and services across national borders. International finance is the turnover and movement of monetary funds. Academic terms may sound a little abstract, but if the two are analogized with the behavior of daily life is much more superficial. If international trade is compared to dining out, then international finance is the measurement of the costs and benefits of the act of dining out. Checking the price of food before eating, whether the restaurant has discounts, and whether the use of coupons is cost-effective is like an international exchange. How much the meal cost, how to pay, this is like international settlement. The phone bill should be recorded, and this account is like the international income and expenditure. If, by chance, you find that you don’t have your wallet after the meal, if the store is comfortable that the customer is pledging credit, this is called international credit. If the customer happens to be a big boss, after the meal, feeling the dishes are sweet and delicious, the store has a distinctive character, they are planning to buy the store or take a stake to promote its expansion and development, which is called international investment. All this behavior should be based on a fair and orderly, law-based economic order, which is called the international monetary system.
From this we can see that there is an interaction between international finance and international trade, and there is a link between the branches of international finance and international trade.
Analysis of the significance of international finance and international trade
1.Balance of payments and international trade
The balance of payments branch of international finance under the current account of goods and services, corresponding to international trade in the international trade branch of goods and services transactions. Said to be corresponding, but the two are not the same, now through the following table of China’s trade data in the past five years for evidence analysis.
It can be seen that the difference between the two sets of data in services is the same, but there is a gap between the current account balance of goods and the balance of imports and exports, or this is low and this is high, or this is high and this is low. The reason is that the statistical subjects of the two are different. The import and export data are compiled and published by the General Administration of Customs, while the balance of payments is compiled and published by the Bureau of Foreign Exchange. The difference between the two statistics causes the “current account surplus” and the “customs import/export surplus” to be confused as a “surplus country”.
2.The impact of international exchange on international trade
The measurement of international exchange is mainly based on the foreign exchange rate. The following chart shows the change of foreign exchange rate and import and export balance in China in the past ten years.
The four exchange rates as the independent variable, the import and export balance as the dependent variable for data analysis. Firstly, factor analysis is conducted, and after getting the gravel plot, it can be seen that the eigenroots of the first principal component and the second principal component are greater than 1, while the eigenvalues of other principal components are less than 1. It can be assumed that the first two principal components can summarize most of the information. After taking the principal component analysis to extract the component matrix of the factors, it can be seen that the first factor has the strongest relationship with the exchange rate of RMB to EUR, and the second factor has a higher inverse fit with the exchange rate of RMB to JPY. This indicates that exchange rate changes can affect the trade balance, but our exchange rates to different countries have different effects on our trade balance, both individually and jointly.
3.The significance of international settlement to international trade
International trade generates transactions that give rise to international settlements. International settlement is just a part of the collection of money in international trade.
In the international trade business, a payment settlement can use only one type of settlement, but also according to the need to use two or more settlement methods in combination. Different transaction methods, its significance for importers and exporters are different, and the two trade tendencies are different. When conducting foreign trade business, the choice of which form of combination should be made at your discretion.
4.The role of international credit on international trade
With the relaxation of commercial credit, importers can concentrate on marketing their products or services with less pressure on capital turnover, which will lead to an increase in domestic demand and international trade volume.
The development of credit instruments such as bills of exchange issued by bank acceptance discount exporters to importers can promote the diversification of bank credit, diversification of settlement methods, and greatly enhance the convenience of international trade.
5.International Investment and International Trade
In the current international economic environment called “globalization”, the traditional linear sequence of “trade – investment” is completely broken, the pain points of trade barriers are reduced, and factor cost differences are highlighted. In other words, countries with high capital intensity have strong investment initiative and high flexibility, which are highly subversive to the traditional linear theoretical framework and have high international trade dynamics; while countries with low capital intensity and high labor and other low value-added factors of production have weak investment initiative and are stuck to the traditional theoretical framework, which have relatively low trade dynamics.
6.International Monetary System and International Trade
The gold standard system for the international trading system to provide a stable value of gold and gold and fully convertible pounds as a means of international payment and international reserve assets, to promote the unprecedented development of international free trade. The growth of international trade and negated the gold standard system for the two unlimited growth requirements. After World War II, the establishment of the Bretton Woods system to promote the expansion of international trade and balance. 70s, the expanding international trade and accelerate its collapse, the formation of the Jamaican system known as the “system without a system”. It can be said that the international monetary system and international trade are in the mutual promotion, mutual improvement in the gradual development.
1.International finance is the monetary basis and digital representation of international trade
(1) balance of payments is the authoritative representation of the amount of international trade.
(2) Foreign exchange rate single factor or double factor interaction has an impact on the amount of international trade.
(3) International settlement is an important part of international trade, which directly determines the amount of trade.
(4) International credit is a means to promote international trade and a factor to support the development of multinational companies and the internationalization of production.
(5) The scale of international investment can influence the vitality of international trade.
(6) The stability of the international monetary system is the environmental guarantee of the good operation of international trade.
2.International trade is a reflection of the substance of international finance and practical support
(1) The content of international trade is an important factor in determining the current account of the balance of payments.
(2) International trade is the main origin of international settlement.
(3) The development of international trade has promoted the emergence of international investment.
(4) The development of international trade determines the emergence and changes of the international monetary system.