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Overview

Two important international financial institutions were created in the post-World War II environment of the 1940s, the International Monetary Fund (IMF) and the World Bank, collectively called the Bretton Woods Institutions (BWIs). Generally, the IMF has been responsible for fashioning the rules and expectations governing the behavior of member countries in their financial and economic relations with the rest of the world, especially with respect to exchange rates (the value of your country’s currency), monetary policy (i.e., policies regarding the supply of your country’s currency), and fiscal policy (i.e., policies regarding government taxes and spending). The World Bank’s primary role has been to make loans to countries pursuing development projects or undertaking major structural changes in their economies. Much of what international investment entails relates to a specific area that is commonly referred to as foreign direct investment, or FDI. FDI is the movement of capital across national frontiers in a manner that grants the investor control over the acquired asset. Thus it is distinct from portfolio investment which may cross borders, but does not offer such control. Firms which source FDI are known as ‘multinational enterprises’ (MNEs).

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