CHAPTER 2 : INTERNATIONAL COMMERCIAL BANKING (2.2 Facilities offered by…
CHAPTER 2 : INTERNATIONAL COMMERCIAL BANKING
2.1 Functions of international commercial banks.
:star: Provide facilities for saving (savings, current & fixed deposit account & other financial instruments
:star: Provide facilities to effects payment
:star: Provide credit/loan/advance facilities
:star: Financing government (purchasing government securities
:star: Other banking services (remittances, FOREX, financing both domestic & international trade)
2.2 Facilities offered by international commercial banks
•By issuing letter of credit (LOC)
•The seller company can feel assured of being paid if it ships goods to its offshore customers.
•Negotiable certificate of deposit (NCD).
•To facilitate international trade & development
•The largest market in the world
•Main participants – larger international banks
•FOREX arrangement would be in the forms of cross border transactions & foreign investments
•It assists in the implementation of risk management under hedging exchange rate risk
2.4 types of international banking office
:red_flag: established a physical presence in the foreign market that has very limited function
:red_flag: not allowed to offer traditional banking service
:unlock: REPRESENTATIVE OFFICE
:<3: considered as lowest possible of banking exposure to the foreign bank
:<3: provides trade related and FOREX service for its MNC customers in the foreign market
:lock: CORRESPONDENT BANK
:fire: country whose banking system is organized to permit external account beyond the normal scope of local economic activities.
:fire: host country usually grants complete freedom form its governmental banking regulation.
:fire: types of banking distribution
:neutral_face:1) branchless banking
2) private banking
3) retail banking
:star: operates like a local bank but is legally part of the parent bank, not a separate entities
:star: reason : 1) to offer more extensive range of service.
2) to take advantage on the situation not subject to local reserve requirement
3) to compete with host country bank at the local level
:unlock: FOREIGN BRANCHES
:unicorn_face: locally incorporated bank that is either wholly owned or owned in major part by a foreign parents.
:unicorn_face: engages in full banking activities as permitted by host country regulation
:lock: SUBSIDIARY AND AFFILIATE BANK
2.3 The effect of international foreign commercial bank.
:check: managerial and marketing knowledge developed at home can be used abroad with low marginal cost.
:check: knowledge advantage
:check: home nation information service
:check: very large multinational bank have high perceived reputation which can be attractive enough to potential clients
:check: regulatory advantages
:red_cross: information asymmetry
:red_cross: moral hazard
:red_cross: free rider problem in resolution of crises
:red_cross: some international bank rely much more on equity than deposit
:red_cross: problem regarding international regulation for certain coutries
:lock: OFFSHORE BANKING CENTRES