CH12sguide - 12 InternationalBankingIssues...


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Chapter Objectives 1. To describe the types of foreign banking offices. 2. To explain the interbank clearing house systems. 3. To discuss the international debt crisis of 1980s, its causes, and possible solutions. 4. To discuss the Asian financial crisis of 1997, its causes, and policy responses. 5. To explain three major techniques to assess country risk: debt ratios, overall country creditwortiness, and sovereign ratings. Chapter Outline I. International Banking Operations A. International banks perform a long list of vital tasks to help the international transactions of multinational companies: i. Finance foreign trade and foreign investment. ii. Underwrite international bonds. iii. Borrow and lend in the Eurodollar market. iv. Organize syndicated loans. v. Participate in international cash management. vi. Solicit local currency deposits and loans. vii. Give information and advice to clients. B. Commercial banks establish multinational operations for a variety of reasons: International Banking Issues and Country Risk Analysis      152 12 International Banking Issues  and Country Risk Analysis
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i. Managerial and marketing knowledge developed at home can be used abroad with low marginal costs. ii. Foreign bank subsidiaries have knowledge advantages over local banks because they can draw on their parent’s knowledge of personal contacts and credit investigations. iii. Large international banks have high-perceived prestige, liquidity, and deposit safety that can be used to attracts clients abroad. iv. A saturated market may limit growth prospects in a home market. v. International banking operations may reduce risk because greater stability of earnings is possible with international diversification. vi. Banks follow their multinational customers abroad to prevent the erosion of their client base. C. World’s largest financial companies: i. The United States and Japan each have three of the world’s 10 largest financial companies. 1. Germany has two, the United Kingdom has 1, as does Switzerland. ii. China is on its way to becoming a new center of global economic power. 1. After adjusting for purchasing power parity, the Chinese economy is the 2 nd largest in the world (after the US). 2. Its GDP grew 7.3% in 2001 and an average of 9% from 1980 to 2000. 3. In 2002, China attracted more foreign direct investment than the US. iii. Some argue that host governments in developing countries are powerless over large financial institutions. 1. In 2002, the grand total assets of the world’s largest ten financial companies was greater than the combined GDP of the eight largest economies, excluding the US and Japan. 2. In 2002, only six countries had a GDP greater than the total assets of Mizuho Financial Group of Japan. D. Types of Foreign Banking Offices
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This note was uploaded on 04/29/2011 for the course FIN 1 taught by Professor Prakash during the Spring '11 term at IIT Bombay.

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CH12sguide - 12 InternationalBankingIssues...


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