InternationalBankingServicesInternational banks do everythingdomestic banks do and:Arrange trade financing.ArrangeforeignexchangeOffer hedging services for foreign currencyreceivables and payables through forwardand option contractsOffer investment banking services (whereallowed)
International Banking Services ❖International banks do everything domestic banks do and: ▪ Arrange trade financing. ▪ Arrange foreign exchange. ▪ Offer hedging services for foreign currency receivables and payables through forward and option contracts. ▪ Offer investment banking services (where allowed)
ReasonsforInternationalBankingLowmarginalcostsManagerial andmarketingknowledgedevelopedathomecanbeusedabroad with low marginal costs.KnowledgeadvantageTheforeign bank subsidiary candrawon theparentbank'sknowledgeofpersonal contacts and credit investigationsforuseinthatforeignmarket.HomenationinformationservicesLocal firmsinaforeignmarketmaybeableto obtainmorecompleteinformationontradeandfinancialmarketsinthemultinationalbank'shomenationthanisobtainablefromforeigndomesticbanks.PrestigeVery large multinational banks have high perceived prestige, which canbeattractivetonewclients
Reasons for International Banking ❖ Low marginal costs ▪ Managerial and marketing knowledge developed at home can be used abroad with low marginal costs. ❖ Knowledge advantage ▪ The foreign bank subsidiary can draw on the parent bank’s knowledge of personal contacts and credit investigations for use in that foreign market. ❖ Home nation information services ▪ Local firms in a foreign market may be able to obtain more complete information on trade and financial markets in the multinational bank’s home nation than is obtainable from foreign domestic banks. ❖ Prestige ▪ Very large multinational banks have high perceived prestige, which can be attractive to new clients
Reasonsfor InternationalBankingRegulatoryadvantageMultinationalbanksareoftennot subjecttothesameregulationsasdomesticbanksWholesaledefensive strategyBanks follow theirmultinational customers abroad to avoid losingtheirbusinessat home and abroadRetaildefensivestrategyMultinationalbanksalsocompeteforretailservicessuchastravelerschecksandthetouristandforeignbusinessmarket
Reasons for International Banking ❖ Regulatory advantage ▪ Multinational banks are often not subject to the same regulations as domestic banks. ❖ Wholesale defensive strategy ▪ Banks follow their multinational customers abroad to avoid losing their business at home and abroad. ❖ Retail defensive strategy ▪ Multinational banks also compete for retail services such as travelers checks and the tourist and foreign business market
Reasonsfor InternationalBankingTransactionscostsMultinational banks maybe ableto circumventgovernmentcurrencycontrols+GrowthForeign markets may offer opportunities for growth not founddomesticallyRiskreductionGreaterstabilityofearningswithdiversification
Reasons for International Banking ❖ Transactions costs ▪ Multinational banks may be able to circumvent government currency controls. ❖ Growth ▪ Foreign markets may offer opportunities for growth not found domestically. ❖ Risk reduction ▪ Greater stability of earnings with diversification
Types of InternationalBankingOfficesCorrespondentbankRepresentativeofficesForeign branchesSubsidiary and affiliatebanksEdge Act banksOffshorebanking centers“Shell”branchesInternational banking facilities
Types of International Banking Offices ❖Correspondent bank ❖Representative offices ❖Foreign branches ❖Subsidiary and affiliate banks ❖Edge Act banks ❖Offshore banking centers ❖“Shell” branches ❖International banking facilities