Final answer:
A bill of exchange is a money market instrument used to facilitate international trade, regulated by institutions like the IMF. These instruments, along with international capital flows, are essential to international trade stability but are challenging to regulate due to their global and interconnected nature.
Step-by-step explanation:
A money market instrument used to finance and facilitate international trade is typically known as a bill of exchange or a trade draft. This instrument ensures that exporters receive payment for their goods while giving importers time to sell the goods and pay for them later. The flow of financial capital across borders, as international capital flows, occur either as portfolio investment or direct investment. Ensuring the stability of such instruments and the flow of international trade is pivotal to prevent the risk of trade imbalances and unstable financial capital movements.
It's important to recognize that international trade and finance are regulated by various international financial institutions, such as the International Monetary Fund (IMF) and the World Bank, to maintain international financial stability. Additionally, concepts like the foreign exchange market, where currency trading occurs, as well as the hedge, a protection against financial risk, play crucial roles in international trade finance.
However, some proposals to limit financial capital flows face practical difficulties, as financial markets are interconnected and national governments impose taxes within their own jurisdictions, not internationally. Therefore, if a Tobin tax is implemented to dampen exchange rate speculation, it might be bypassed by firms operating in jurisdictions with less stringent regulations, which highlights the challenges of regulating international capital flows.