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2.0 International Commercial Banking (Functions (Provide facilities for…
2.0 International Commercial Banking
Functions
Provide facilities for savings
Savings Account
Current Account
Fixed Deposit Account
Provide facilities to effects payment
Provide credit/loan/advance facilities
Other banking services. Etc : remittances, FOREX, financing both domestic & international trade
Financing government (purchasing government facilities
Facilities offered
Deposit Facilities
Checking Account
Basic medium of exchange in the economy, amounting for for about half of the total money supply
Demand Deposit
Checking account which the owner account is entitled to receive his funds on demand and to write cheques on the account to transfer legal ownership of fund to others
Savings Deposit
Funds can be deposited and withdrawn from this account
Time Deposits
Once deposited the money, the money cannot be taken out before maturity date and cannot be transferred
Negotiable Certificate of Deposit
Commonly denominated in a very large amount (100,000 & more), Have fixed maturity date, explicite interest and negotiable
FOREX / Currency Market
Facilitate international trade & development
Trade Finance
The seller company can feel assured of being paid if it ships goods to its offshore customers.
LOC transaction
By issuing Letter of Credit
Corporate Finance
Lending companies money to purchase raw materials, machine parts, inventory and/or payroll
Effects
Positive
Knowledge advantage
foreign bank can draw on the parent bank's knowldege of personal contacts and credit worthiness
Home nation information services
obtain more advance information on trade and financial markets
Managerial & marketing advance
can be used abroad with low marginal cost
Large multinational banks
have high prestige to attract potential clients
Regulatory advantage
multinational banks are not subject to same regulations as local banks.
Foreign markets may offer opportunities
offer to growth not found domestically
Risk reduction and greater stability
due to diversification
Diverse choices
of consumer banking and financial products/services
Advantages through international transaction ; risk sharing, liquidity & information
Negative
Moral hazard
Free rider problems in resolution of crisis
Information asymmetry
Some rely much more on equity than deposits
Problems regarding international regulations in certain countries
Types of International Banking Offices
Foreign branches
Operate like a local bank but legally part of the parent bank, not separate entity
subject to both banking regulations of Home Country and Foreign Country
Subsidiary & affiliate bank
Subsidiary bank : a locally incorporated bank that is either wholly owned by foreign parent
Engages in full banking activites as permitted by host country regulations
Affiliate bank : partially owned but not controlled by its foreign parent
Disadvantage : must be separately capitalized from its parent
Correspondent bank
Lowest possible of banking exposure to foreign market
Provide trade-related & FOREX services from MNC customers into foreign market wihtout establish its own physical presence
Representative office
Establishes a physical presence in the foreign market but has very limited function
Assist MNC clients with information about local business practices, economic information, credit evaluation of customers and etc
Offshore banking centres
A country whose banking system is organized to permit external accounts beyond the normal scope of local economic activity
Types of Offshore Banking Distribution Strategies
Private Banking
Banking, investment, acquisition and other financial services provided by banks to private individuals
Consists of banking services, discretionary asset management, brokerage, limited tax advisory services & some basic concierge-type services, offered by a single designated relationship manager
Retail Banking
known as personal banking services
A bank performs transactions directly with end customers
Services offered
Debit cards
Credit cards
Personal loans
Current accounts
Mortgages
ATM cards
Savings account
Branchless Banking
Medium of transactions : Internet, ATM, PO Devices, EFTPOS, Mobile phone
Used for delivering financial services without relying on bank branches
Advantages mobile phone branchless banking : open 24 hours a day, small fess for the agents, may withdraw or deposit a small amount of money such as RM1