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International Banking

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  • 1. INTERNATIONAL BANKING
  • 2. International Banking
    • International banks can be characterised by the type of services they provide that distinguish them from domestic banks
  • 3. International Banking
    • Major Functions :
    • Facilitate imports and exports of their clients – trade financing
    • 2. Arrange for foreign exchange – cross-border transactions and foreign investments
    • 3. Assist in hedging exchange rate risk
    • 4. Trade foreign exchange products for their own account
  • 4. International Banking
    • Major Functions :
    • 5. Borrow and lend in the Eurocurrency market
    • 6. Participate in international loan syndicate – lending to MNCs- project financing and to sovereign governments – economic development
    • 7. Participate in underwriting of Eurobonds and foreign bonds issues
  • 5. International Banking
    • Major Functions :
    • 8. Provide consultancy and advice on hedging strategies, interest rate and currency swap financing and international cash management services
    • Banks providing all the above are commonly
    • known as universal banks or full service banks
  • 6. Top 10 Global Banks in 2009 Switzerland UBS 10 US Citigroup 9 Japan Mitsubishi UFJ Financial Group 8 US JP Morgan Chase & Co 7 France Credit Agricole Group 6 UK HSBC Holdings 5 France BNP Paribas 4 UK Barclays Bank 3 Germany Deutsche Bank 2 UK Royal Bank of Scotland 1
  • 7. Types of International Banking Offices
    • Correspondent Bank :
    • Two banks maintain a correspondent bank account with one another
    • Helps MNCs clients to conduct business worldwide through his local bank or its contacts
  • 8. Types of International Banking Offices
    • Representative Offices :
    • A small service facility staffed by parent bank personnel to assist MNC clients –
    • They assist MNC clients with information about local business practices, economic information, credit evaluation of customers etc.
  • 9. Types of International Banking Offices
    • Foreign Branches :
    • Operates like a local bank but legally is a part of the parent bank
    • Subject to both the banking regulations of its home country and the country in which it operates
  • 10. Types of International Banking Offices
    • Subsidiary and Affiliated Banks :
    • A subsidiary is a locally incorporated bank that is either wholly owned or owned in major part by a foreign parent
    • An affiliate bank is one that is only partially owned but not controlled by its parent
    • Both operate under the banking laws of the country in which they are incorporated
  • 11. Types of International Banking Offices
    • Offshore Banking Centers :
    • An offshore banking centre is a country whose banking system is organised to permit external accounts beyond the normal economic activity of the country
    • IMF recognises the Bahamas, Bahrain, the Cayman Islands, Hong Kong, the Netherlands Antilles, Panama and Singapore as major offshore banking centers
  • 12. Types of International Banking Offices
    • Offshore Banking Centers :
    • Offshore banks operate as branches or subsidiaries of the parent bank
    • The primary activity of offshore banks are to seek deposits and grant loans in currencies other than the currency of the host government
  • 13.
    • Offshore Banking Centers :
    • The offshore banks function with lower spreads:
    • They are unregulated institutions ( low reserve requirements and no deposit insurance)
    • They are not subject to interest rate ceilings
    Types of International Banking Offices
  • 14.
    • Offshore Banking Centers :
    • They can take advantage of low tax location
    • High degree of competitiveness- low margins, low overheads
    • No pressure from domestic government
    Types of International Banking Offices
  • 15. Euro-Money
    • As per definition of money, the components of domestic money are : Currency and demand deposits ( narrow definition)
    • In the same way, Euro-money comprises of Euro-deposits and Euro-currency money mobilised by banks and financial institutions in a currency other than of a country in which they are located
  • 16. Euro-Money
    • The market which consists of such banks and financial institutions is called Euro-money market or Euro-currency market
    • Such institutions have grown worldwide, such as London, New York, Luxembourg, Hong Kong, Singapore etc.
    • They are also called as offshore markets
  • 17. How is Euro-money Created?...
    • A national currency becomes part of offshore currency market when it is transferred to a bank outside its own monetary system
    • Which also means the deposit is made in that segment of banking structure which is not regulated by the central bank of the country which has issued the currency
  • 18. International Banking
    • International banking relates to financial intermediaries that bid for time deposits and make loans in the offshore market
    • It is an unregulated market involving greater risk
    • It is a wholesale segment of lending and deposit activity
  • 19. International Banking
    • International banking brings together borrowers and lenders from same country or different countries
    • They are substitutes for the domestic banking system
  • 20. Growth of Euro-money Market
    • The rapid growth of these markets is due to:
    • Depositors receive better interest rate on
    • deposits
    • Borrowers can borrow more, possibly at
    • lower interest rate than they can at home
  • 21. Euro-Deposits
      • The deposits denominated in currencies
      • made outside the domestic banking
      • system’s operation are called Euro-deposits
      • They are more risky
      • They are conventional short term non-
      • negotiable-deposits ( 30 days or 90 days)
      • A large part is of CDs ( certificate of
      • deposits) – negotiable – traded in secondary
      • market
  • 22.
    • Thank you

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