INTERNATIONAL

BANKING
BANKING AND FINANCIAL INSTITUTIONS
Semi-Final Period
INTERNATIONAL
BANKING
 What is International Banking???
 Services offered by International Banks
 Types of International Banks
 Reasons / Importance of Int. Banks
 How it Works – Practical Example
 Euro Currency Market
 Major Risks Faced by International Banks
 INTERNATIONAL
BANKING
The industry was transformed in the 1970s. Until
then most banks concentrated on their home
markets, considering themselves as domestic
institutions that handled foreign business.
 INTERNATIONAL
BANKING
With the rapid expansion of international networks, the
banking sector occupies a pivotal position in the global
economy as it has access to the capital, the
technological capabilities, and the international network
to facilitate these activities.
INTERNATIONAL
BANKING
 An international bank is a financial entity
that offers financial services, such as
payment accounts and lending
opportunities, to foreign clients.
INTERNATIONAL
BANKING
 An international bank is a financial entity
that offers financial services, such as
payment accounts and lending
opportunities, to foreign clients.
 INTERNATIONAL
 BANKING
According to the Bank for International Settlements'
Committee on the Global Financial System,
international banking is when a bank
headquartered in one country extends credit to
residents of another country
 INTERNATIONAL
BANKING
According to Eric Philip Davis, a senior researcher at
the National Institute of Economic and Social
Research in the United Kingdom, it also includes
domestic loans made in foreign currencies, as
when an American bank issues a loan to an American
resident in euros, rather than U.S. dollars.
 IBs – Services Offered
 Arrange trade financing.
 Arrange foreign exchange.
 Offer hedging services for foreign currency receivables
and payables
 Offer investment banking services (where allowed).
 Borrow or lend in Eurocurrency market
 Underwrite Eurobonds and foreign bonds.
 IBs – Services Offered
 International banks provide services to those engaged
in international trade and investment: risk sharing,
liquidity, information.
 Like domestic banks, international banks accept
deposits and lend.
 International banks lower transactions costs and lower
information costs.
 International financial regulation can lead to innovation
in banking
 INTERNATIONAL
BANKING ADVANTAGES
 Convenience and Flexibility—an offshore
bank account can afford you the
convenience and flexibility you need.
  Multiple Currency Accounts—have
access to accounts in several different
currencies
 INTERNATIONAL
BANKING ADVANTAGES
 Special Products and Services—Offshore banks often
offer services and products that may not be available
through your domestic bank.
 Another advantage of doing business with an offshore
bank is that they are used to working with people
coming from many different countries.
 INTERNATIONAL
BANKING ADVANTAGES
 Greater privacy.
 Low or no taxation (i.e. Tax havens). Interest is generally paid
by offshore banks without tax being deducted
 Easy access to deposits (at least in terms of regulation).
 Protection against local, political, or financial instability
 INTERNATIONAL
BANKING
DISADVANTAGES
 require a high minimum deposit
 less financially secure (it may not be protected in the
event of a financial crisis)
 Offshore banking has been associated in the past with
the underground economy and organized crime,
through money laundering
 INTERNATIONAL
BANKING
DISADVANTAGES
Thus, banking offshore is historically
riskier than banking onshore.
 Letter of Credit
 A letter of credit, or "credit letter" is a letter from
a bank guaranteeing that a buyer's payment to a
seller will be received on time and for the correct
amount.
 A time draft is a form of payment that is
guaranteed by an issuing bank but is not payable
in full until a specified amount of time after it is
received and accepted
 EUROCURRENCY MARKET
 Before World War II, the pound served as the
international transaction currency.
 A Eurodollar is a dollar-denominated deposit in a
bank outside of the U.S.
 Much of international banking is done in banking
centers called Euromarkets.
 EURO-DOLLARS
 Euro-dollars is meant all U.S. dollar deposits in
banks outside the United States, including the
foreign branches of U.S. banks.
 A Euro-dollar is, however, not a special type of
dollar. It bears the same exchange rate as an
ordinary U.S. dollar has in terms of other
currencies.
 EUROCURRENCY MARKET
 Any freely convertible currency, such as $, € or ,
Yen deposited in a bank outside its country of
origin.
 It is the residency of the bank and not its
nationality that determines the “euro” nature of
the deposit.
 EUROCURRENCY MARKET
 The most important international financial
markets today.
 Composed of euro banks who accept/maintain
deposits of foreign currency.
 Dominant currency: US$
 International Banks – Key Risks
 International lending risk—risks related to the
creditworthiness of the borrower
 Country risk—Risk that a foreign government will
default on its bonds or other financial commitments
 Credit Risk—Risk of default on a debt that may arise
from a borrower failing to make required payments
 Currency Risk
 Foreign Exchange Risk
 International Banks – Key Risks
 Currency Risk—the possibility that currency
depreciation will negatively affect the value of one's
assets
 Foreign Exchange Risk—is a financial risk that exists
when a financial transaction is denominated in a
currency other than the domestic currency of the
company