MODULE ON BANKING AND FINANCIAL INSTITUTIONS

PART III

International Finance

International finance is defined as the set of relationships for the creation and use of funds (assets)
required for international companies and countries to engage in foreign economic activity. International
finance, like international trade and business, exists because the existence of nations affects the economic
activities of businesses, governments, and organizations. It is common knowledge that countries frequently
borrow and lend to one another. Many countries use their own currencies in such transactions. As a result,
we must understand how the currencies compare to one another. Furthermore, we should have a good
understanding of how these goods are paid for and what factors influence the prices at which currencies
trade. The primary driver of internationalisation is free trade, which includes unrestricted flows of capital,
labor, and technology across national borders. Free trade is always advantageous because it encourages
nations to specialize in the products in which they excel and import those in which they fall short. As a
result, resources are allocated more efficiently and welfare is maximized.
Managing international finance entails the managemenet of foreign exchange risk, political risk,
and market imperfections.
A. Foreign exchange risks: Understanding foreign exchange is critical for investors and managers in
today's world of unpredictability in exchange rates. This rate is generally ignored and is less important in
domestic economies because it only applies to that specific economy, but when it comes to the global level,
it should be taken very seriously because there is a risk of violating foreign exchange rates. It could be
regarded as the most serious international issue.
B. Political risks: Political risk is a major risk that a company may face in international finance. It
could lead to a loss. As new acts and laws are enacted, they may be enforced or change previous decisions.
C. Market imperfections: Market imperfections are popular these days, and this is a major
disadvantage for the company. There are various changes in the nation's law, taxation, rules and regulations,
culture, and so on.

International Bank and Global Bank

An international bank is one that operates primarily on a cross-border basis from its home country
or a major financial center. Wells Fargo is an example of this, as its overseas offices are only for corporate
or institutional customers. It is not licensed to serve consumer customers outside of the United States.
According to the Wells Fargo Annual Report 2014, p30, it operates in 36 countries and provides services
such as foreign exchange, treasury management, asset-based lending, and investment banking. An
international bank can also be classified as a more centralized operation, one that pools funds at the head
office or several central locations and redistributes them throughout the organization.
A global bank, also known as a multinational bank, has foreign branches and subsidiaries in
multiple countries that are funded locally in the host countries. HSBC is an example of this. According to
the Business Model section of the HSBC Annual Report 2014, its market presence is an international
network where "services are primarily delivered by domestic banks, typically with local deposit bases."

Foreign banks establish representative offices in the Philippines to serve as marketing and
advertising platforms, with the primary goal of promoting their services and/or forwarding client orders
from abroad. These offices are not permitted to accept deposits, issue letters of credit, or engage in currency
trading. They are, however, required to add the title "Representative Office" to their official local bank
name in order to demonstrate the limited function granted to them by the Bangko Sentral ng Pilipinas (BSP).

Examples of International Banks in the Philippines (with representative office)

 Bank of Singapore Ltd. Representative Office
 Barclays Banks PLC Representative Office
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 DBS Bank Ltd. Representative Office

 Japan Bank for International Cooperation Representative Office
 Rothschild (Singapore) Ltd. Representative Office
 The Bank of New York Mellon Representative Office
 The Export-Import Bank of Korea (Korea Eximbank) Representative Office
 Union Bank of Switzerland Aktiengesellschaft (AG or corporation limited by share ownership)
Representative Office
 Wells Fargo Bank, N.A. Representative Office
 Korea Development Bank Representative Office

International Financial Institutions

International financial institutions (IFIs) play an important role in the social and economic
development programs of nations with developing or transitional economies in many parts of the world.
This position entails providing advice on development projects, funding them, and assisting with their
implementation. Each of these institutions operates independently, with AAA credit ratings and a diverse
membership of borrowing and donor countries. However, they all share the following goals and objectives:
• to reduce global poverty and improve people's living conditions and standards;
• to promote long-term economic, social, and institutional development; and
• to encourage regional cooperation and integration
These goals are met by IFIs through loans, credits, and grants to national governments. Such
funding is typically tied to specific projects that promote economic and social sustainability. IFIs also offer
their borrowers technical and advisory assistance and conduct extensive research on development issues.
In addition to these public procurement opportunities, in which multilateral financing is delivered to a
national government for project or program implementation, IFIs are increasingly lending directly to non-
sovereign guaranteed (NSG) actors. Subnational government entities, as well as the private sector, are
included. Following World War II, the first International Financial Institutions, also known as Multilateral
Development Banks (MDBs), were established to aid in the reconstruction of war-torn countries and to
manage the global financial system. Regional development banks were later established to promote
economic growth and cooperation. As a result, groups of countries established International Financial
Institutions to promote public and private investment in order to foster economic and social development
in developing and transitioning countries.

World Bank
The World Bank is a cooperative of 189 member countries, including the Philippines. These
member countries, or shareholders, are represented by a Board of Governors, who are the World Bank's
ultimate policymakers. The governors are usually the finance or development ministers of member
countries. They meet once a year at the Annual Meetings of the World Bank Group and the International
Monetary Fund's Boards of Governors.

The governors delegate specific responsibilities to the Bank's 25 Executive Directors, who work
on-site. The executive director is appointed by the five largest shareholders, while other member countries
are represented by elected executive directors.

The World Bank Group President presides over Board of Directors meetings and is in charge of the
Bank's overall management. The President is appointed by the Board of Executive Directors for a five-year
term that is renewable.
The World Bank's Boards of Directors are made up of Executive Directors. They usually meet at
least twice a week to oversee the Bank's operations, such as loan and guarantee approvals, new policies, the
administrative budget, country assistance strategies, and borrowing and financial decisions.
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The president, management, and senior staff, as well as the vice presidents in charge of Global
Practices, Cross-Cutting Solutions Areas, regions, and functions, lead and direct the World Bank on a daily
basis.
Asian Development Bank
The Asian Development Bank (ADB) was conceived in the early 1960s as a financial institution
with an Asian flavor that would foster economic growth and cooperation in one of the world's poorest
regions. A resolution adopted at the United Nations Economic Commission for Asia and the Far East's first
Ministerial Conference on Asian Economic Cooperation in 1963 put that vision on track to become a reality.
The capital of the Philippines, Manila, was chosen to host the new institution, which opened on December
19, 1966, with 31 members who came together to serve a predominantly agricultural region. Takeshi
Watanabe was the first President of the ADB. During the 1960s, the ADB concentrated much of its aid on
food production and rural development.
The Asian Development Bank (ADB) envisions a prosperous, inclusive, resilient, and sustainable
Asia and the Pacific, while continuing to work to eliminate extreme poverty in the region. Despite its many
achievements, the region continues to house a sizable proportion of the world's poor: 263 million people
live on less than $1.90 per day, and 1.1 billion live on less than $3.20 per day. ADB provides loans, technical
assistance, grants, and equity investments to its members and partners in order to promote social and
economic development. By facilitating policy dialogues, providing advisory services, and mobilizing
financial resources through cofinancing operations that tap official, commercial, and export credit sources,
ADB maximizes the development impact of its assistance.
ADB has grown from 31 members when it was founded in 1966 to 68 members today, 49 of whom
are from Asia and the Pacific and 19 from elsewhere.

International Monetary Fund

The International Monetary Fund, or IMF, works to promote global financial stability and monetary
cooperation. It also facilitates international trade, promotes job creation and long-term economic growth,
and aids in the reduction of global poverty. The International Monetary Fund is governed and accountable
to its 190 member countries. The International Monetary Fund (IMF) was conceived in July 1944 at the
United Nations Bretton Woods Conference in New Hampshire, United States. The 44 countries present
sought to establish a framework for international economic cooperation in order to avoid repeating the
competitive currency devaluations that contributed to the 1930s Great Depression. The primary mission of
the IMF is to ensure the stability of the international monetary system, which is the system of exchange
rates and international payments that allows countries and their citizens to transact with one another.
Primary aims:
 Promote international monetary cooperation;
 Facilitate the expansion and balanced growth of international trade;
 Promote exchange stability;
 Assist in the establishment of a multilateral system of payments; and
 Make resources available (with adequate safeguards) to members experiencing balance-of-
payments difficulties.
Currently, Yongzheng Yang is the resident representative for Philippines in the IMF.

What is the distinction between the World Bank Group and the International Monetary Fund?
The two institutions, founded at the Bretton Woods conference in 1944, have complementary
missions. The World Bank Group collaborates with developing countries to alleviate poverty and increase
shared prosperity, whereas the International Monetary Fund serves to stabilize the international monetary
system and monitors the world's currencies. The World Bank Group provides governments with financing,
policy advice, and technical assistance, as well as focusing on the development of the private sector in
developing countries. The IMF monitors the global economy and member countries' economies, lends to
countries experiencing balance-of-payments difficulties, and provides practical assistance to members.
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Countries must first join the IMF before they can join the World Bank Group; each institution currently has
189 member countries.

The World Bank Group (WBG)

The World Bank Group is a major source of funding and knowledge for developing countries
around the world. Its five institutions are all dedicated to reducing poverty, increasing shared prosperity,
and promoting long-term development.
IBRD and IDA work together to form the World Bank, which provides financing, policy advice,
and technical assistance to developing-country governments. The International Development Association
(IDA) focuses on the world's poorest countries, whereas the International Bank for Reconstruction and
Development (IBRD) assists middle-income and creditworthy poorer countries.
The IFC, MIGA, and ICSID all work to improve the private sector in developing countries. The
World Bank Group provides private enterprises, including financial institutions, with financing, technical
assistance, political risk insurance, and dispute resolution through these institutions.

The International Monetary Fund (IMF)

The IMF promotes global monetary cooperation, financial stability, international trade facilitation,
high employment and sustainable economic growth, and poverty reduction around the world.
The primary goal of the IMF is to maintain the stability of the international monetary system, which
is the system of exchange rates and international payments that allows countries and their citizens to transact
with one another. It accomplishes this by monitoring the global economy and the economies of its members,
lending to countries experiencing balance-of-payments difficulties, and providing practical assistance to
members.

References:

(2022). Retrieved 16 January 2022, from

https://www.distanceeducationju.in/pdf/International%20Finance%20(Unit%20I-IV).pdf

(2022). Retrieved 16 January 2022, from https://www.worldbank.org/en/about/leadership

About ADB. (2022). Retrieved 16 January 2022, from https://www.adb.org/who-we-are/about

(2022). Retrieved 16 January 2022, from https://www.imf.org/en/About/Factsheets/IMF-at-a-Glance