Chapter Questions

1. Identify the benefits of being an international bank.

International banks provide three benefits. First, international banks accept deposits from
savers and lend to borrowers, and the savers and borrowers are located in different
countries. Second, international banks lower transaction costs by reducing information
costs, lowering the risk of investments, and increasing the liquidity of financial markets.
Liquidity is the ease of converting assets to currency. Currencies and bank accounts are
the most liquid, while houses and cars are the least liquid assets. Finally, international
banks stimulate financial innovation by creating new financial instruments.
2. Explain an offshore market.

a. 离岸市场提供离岸金融业务:交易双方均为非本地居民的业务称为离岸金融
业务。离岸中心的特点:低税或零税率，主要向非本地居民提供服务，没有
或很少管制，具有地理优越性、政府政策优惠、政治稳定等。
现实中因低透明度和极宽松的管理制度，被各类资本视为"避税天堂"，上述弹丸之
地，也成为资本外逃的"中转站"。
b. An offshore market has little regulations, low tax rates, and strict banker-
customer confidentiality laws. Leading offshore markets include the
Bahamas, Cayman Islands, Dubai, Hong Kong, and Singapore. If the
regulatory agency believes a bank is participating in risky investments, the
regulatory agency has difficulty examining bank records for subsidiaries
located in offshore markets. Consequently, some wealthy people,
businessmen, and criminals hide their money in offshore accounts to evade
taxes, to protect their wealth from countries with aggressive tax policies, or to
hide their profits from illegal business activities.
3. Identify the methods a U.S. bank becomes an international bank.
a. Method 1: The U.S. bank opens a bank branch in a foreign country. These
branches accept deposits and make loans. U.S. banks open branches in
financial centers around the world or places where U.S. firms and
corporations engage in business. Bank branches help the bank transfer money
across nations’ borders.
b. Method 2: The U.S. bank becomes a holding company. The U.S. bank buys
and becomes a majority shareholder of a foreign bank. The Federal Reserve
System restricts U.S. banks to invest in foreign firms that are “closely related
to banking.”
c. Method 3: The U.S. bank becomes an Edge Act Corporation. The U.S. bank
establishes a subsidiary. Subsidiary can accept deposits from both U.S.
residents and foreigners but can only grant loans for international business
activity. These international banks assist with international trade and foreign-
currency exchange. Furthermore, the Federal Reserve System exempts the
subsidiary from some U.S. banking regulations and has the authority to
approve the Edge Act Corporation.
d. Method 4: The U.S. bank creates an international banking facility (IBF). An
international banking facility, similar to an Edge Act corporation, accepts
deposits from foreigners and makes loans to foreigners. The IBFs cannot
conduct any business within the United States except with its parent company
or with other IBFs. Government exempts IBFs from many regulations, and
they do not pay local and state taxes. The Fed encourages U.S. banks to use
an IBF to engage in the international markets.
4. Identify methods a foreign bank enters the United States banking industry.
a. Method 1: Foreign bank opens an agency office. Agency office cannot accept
deposits from U.S. residents, but it can lend to them. Moreover, the agency
office is not subjected to U.S. banking laws and does not carry FDIC deposit
insurance. Agency office receives its funding from foreign depositors and
investors. Agency office is similar to a nonbank bank, and it circumvents the
numerous U.S. banking regulations because the legal definition of a bank is
an institution that accepts deposits and grants loans. If the institution stops
granting loans or stops accepting deposits, then legally the institution is no
longer a bank.
b. Method 2: A foreign bank does business in the U.S. through a foreign bank
branch. This is a full fledge bank that accepts deposits and makes loans.
Consequently, the foreign bank branch must follow the U.S. banking
regulations.
c. Method 3: A foreign bank enters the U.S. market through a subsidiary U.S.
bank. Foreign bank buys U.S. bank stock, becoming the majority shareholder.
Thus, the foreign bank controls the U.S. bank, converting it into a subsidiary.
Many foreign banks use subsidiaries to enter the U.S. banking market
because the U.S. has an extremely complex legal system. Hence, the U.S.
bank employs staffs and experts who know the laws, rules, and regulations. If
a foreign bank opened a new branch, the managers and staff would spend
time learning and complying with all numerous rules and regulations.
5. Identify an exchange rate risk.
a. An exchange rate equals the ratio of one currency to another currency
b. +资料
c. +简单计算例子，清晰明了（Q6）
You loaned a Mexican business $100,000. However, the business is repaying
the loan in Mexican pesos. Exchange rate was $1 = 10 pesos on the day of the
loan but had changed to $1 = 15 pesos; what happened to the value of your
investment?
6. Distinguish between a spot market and a derivatives market.
a. On the other hand, the buyer and seller exchange a commodity for
money immediately in the spot
market, and the spot market provides no protection against future price
fluctuations.
b. A derivative is a contract for a future exchange of a commodity for money at
a known price on a particular date
c. 做一个表格对比
7. Identify a forward transaction.
a. A forward contract contains the commodity’s quantity, a fixed price, and the
future transaction date. Furthermore, a forward contract is a tailor-made
contract, and international banks usually write forwards for foreign
currencies.
b. 加一个例子，流程图解释交易流程
8. Define a currency swap with a ‘spot against a forward.’
a. A popular currency swap is a spot against a forward, and it comprised 57% of
trades in 2004. Investors or businessmen can protect themselves from the
exchange rate risk by purchasing currency from a bank on the spot market
today, and then they use a forward to transfer the same currency back on a
future date for a fixed exchange rate.
 b. 为什么要这么做（Q10）Identify the purpose of a currency swap.
i. DEFI:A currency swap is the exchange of debt instruments
denominated in different currencies
ii. 风险是什么：货币汇率不稳定
iii. 好处：降低风险以及交易成本

11. Explain how a banker’s acceptance facilitates trade.

a. DEFI: banker’s acceptance
b. 流程（举例）
12. Define Eurodollars, Euroloans, and Eurobonds, explain why these financial instruments
are popular.

a. 小思维导图讲关系+例子
b. 三个定义
c. 相同点和不同点
d. 好处&风险
13. Identify the problems that governments experience as they regulate international banks.

a. （ 1 ） the Basal agreement set common capitalstandards for banks engaged in

currency swaps, financial futures, and options.
b. a banking crisis in one country can spread and trigger abanking crisis in another.
Thus, one central bank cannot contain a financial crisis.
c. The United States and many countries were deregulating, when the 2008 Financial
Crisisstruck the world economy.

d. （1）在金融活动和金融机构的国际化与金融监管的国别化之间，矛盾日
益加深。

e. 就国际金融监管角度来看，当金融活动的监管还是单个国家政府的事情，
金融监管行为还被限制在国家主权地理区域之内的时候，就意味着无法
对国际金融活动进行有效的监管，面临监管真空的危险。

f. （2）金融国际化加大了监管者和被监管机构之间的信息差异。

g. 本来监管者和被监管者之间就存在着信息不对称，然而被监管者国际化
的努力更加强了这种不对称性， 在金融国际化的过程中，金融机构的组
织结构和业务结构日趋复杂，国际经营和交易业务大量以表外业务的形
式开展，监管机构根本无法及时完整地获得信息。这就使得监管者实施
有效监管的难度越来越大。

h. （3）国际金融业务的创新不断突破现有的金融监管框架，使得监管机构
面临崭新的监管对象。

i. （4）金融机构的集团化和业务综合化与金融监管分散化之问的矛盾。

j. 金融集团复杂的业务结构和风险结构本身，就使金融监管极为困难。分
散化的金融监管更加大了这个困难。
分工
1-4 Li changqi
5-7 Li Aiqi
8-10 JIN Chenge
11-12 Li Yong
13 姜兴