International trade financingBanking transactions crossing national boundaries International lending: • all claims of domestic banks offices on foreign residents • claims of foreign bank offices on local residents • claims of domestic bank offices on domestic residents in foreign currency Deposits similarly classified (by residence of bank or depositor, or currency) Eurocurrency deposits – placed with banks outside the country whose currency the deposits are denominated in In today’s global economy, many small and medium-sized companies no longer look to banks, but commercial lending organizations to satisfy the financial needs of a growing business. International Trade Finance can offer Letters of Credit and coordinate with the nation’s top factors to meet your company’s Purchase Order Financing and Accounts Receivable Factoring needs. Purchase Order Financing can work for import financing, export financing, domestic distributors, and assemblers to assist in fulfilling purchase orders from domestic and foreign buyers. If you have purchase orders from credit-worthy buyers, International Trade Finance can provide capital or Letters of Credit to cover your company’s accounts payable, shipping, and warehousing costs necessary to fill these purchase orders. The foreign exchange market (forex, FX, or currency market) is a worldwide decentralized over-the-counter financial market for the trading of currencies. Financial centers around the world function as anchors of trading between a wide range of different types of buyers and sellers around the clock, with the exception of weekends. The foreign exchange market determines the relative values of different currencies. The primary purpose of the foreign exchange is to assist international trade and investment, by allowing businesses to convert one currency to another currency. Investment banks provide four primary types of services: raising capital - An investment bank can assist a firm in raising funds to achieve a variety of objectives, such as to acquire another company, reduce its debt load, expand existing operations, or for specific project financing. Capital can include some combination of debt, common equity, preferred equity, and hybrid securities such as convertible debt or debt with warrants. Mergers and Acquisitions -Investment banks often represent firms in mergers, acquisitions, and divestitures. Example projects include the acquisition of a specific firm, the sale of a company or a subsidiary of the company, and assistance in identifying, structuring, and executing a merger or joint venture. executing securities sales and trading - These services are primarily relevant only to publicly traded firms, or firms which plan to go public in the near future. Specific functions include making a market in a stock, placing new offerings. performing general advisory services -Advisory services include assignments such as strategic planning, business valuations, assisting in financial restructurings, and providing an opinion as to the fairness of a proposed transaction. sovereign lending -??? 52. International banking: the structure and operational function, the services offered, and measures to improve the efficiency and effectiveness of the international banking organization. International (world/global) banking provides financial services to commercial and corporate markets. A bank's international structure is defined by performing operations and transactions between different countries and continents. Structure The international operation of a bank may be conducted in a separate division or department even though many of the activities parallel those performed elsewhere in the bank. Large banks typically operate an international division, which may include a network of foreign branches, subsidiaries, and affiliates. Smaller banks or those with limited international activity often use only a separate department in conjunction with a network of foreign correspondent banks. In either case, the international section will usually have its own management and staff, as well as distinct accounting systems and controls. There is a variety of organizational structures of intern.banking: -representative offices (support the parent bank, market its services, no deposits, no loans), -agency offices (make loans, technical assistance, advise customers) -branch offices (are not separate legally from their parent banks; can accept deposits from the public), -subsidiaries (legal obligation of a parent banking firm is restricted to the capital it invested in each subsidiary; if the parent company fails, the subsidiary won’t necessarily fail too); -joint ventures with foreign banks (if a company is concerned about risks when entering a foreign market, lacking customer contacts abroad or expertise). Activities -Lending (short- and long-term, international and domestic); -deposit placements (Banks may maintain interest-bearing time deposits with foreign banks); -Investments (allocation of capital and risk to investments in foreign debt securities and/or debentures. The debentures may be issued by a foreign bank, corporation, or sovereign government for their respective capital needs.), -supply of foreign currency to customers (currency trading where dealers speculate on trends in the prices of some currencies) -protecting customers against interest rate risk and hedging against currency risks (due to fluctuations in currency prices) with currency futures, forwards, options and currency swaps; -issuance and acceptance of drafts in payment for purchases of goods and services; -underwriting customer note and bond issues in the Eurobond market (when borrowers issue bonds outside their home country), -helping customers market their products through export trading companies. As many international banks are engaged in international lending, there can be big risks. Possible solutions to mitigate these risks can be: -restructuring loan agreements (with lower interest rates and longer maturity), selling intern.loans (it removes such problem credits from the lender’s balance sheet, provides funding for new assets, may raise value of bank’s stock); create checklists to list economic and political factors connected with loans, use expert opinion (the Delphi method) to evaluate risks. 53. The major issues in International banking: international money laundering, international banking crisis, regulation of international banking, and offshore banking markets. Offshore banks usually operate on an island or in a country that provides tax benefits, secrecy and lenient regulations (in 30 sites globally). Among the typically offered services are payments and savings accounts, funds transfers, loans, currency exchanges, portfolio management, safekeeping of assets and trust management. Offshore banking markets attract very high net worth private clients and the large multinationals. As a result, legitimate centres lose business and tax revenues, which in turn raises the tax burden for smaller firms and average net worth individuals. Some centres offering clients a high degree of secrecy (as opposed to confidentiality, where official regulators are given access to client files) are accused of encouraging the growth of money laundering rather than legitimate business and finance. In the wake of 11 September 2001, a few have come under special scrutiny because they are thought to harbour terrorist funds; all are under pressure to freeze the assets of any account thought to be linked to terrorist organizations. Supporters of offshore banking see it as legitimate devices to make loans and raise funds at low cost. They argue that governments shutting down the offshore system try to get rid of tough and fair competition. The Financial Stability Forum (FSF, for the G-8 finance departments) has called for the IMF to offer international financial policing, and forsanctions to be applied to offshore centres with tax regimes that can undermine the fiscal objectives of the major industrialized countries and/or allowmoney laundering. Switzerland has been one proactive centre, suspending secrecy laws which had protected clients. Money laundering is generally regarded as the practice of engaging in financial transactions to conceal the identity, source, and/or destination of illegally gained money by which the proceeds of crime are converted into assets which appear to have a legitimate origin. It is common to refer to money legally obtained as “clean”, and money illegally obtained as “dirty”. Money laundering occurs over a period of three steps, which include the physical distribution of the cash (“placement”), the second step involves carrying out complex financial transactions in order to camouflage the illegal source (“layering”), and the final step which entails acquiring wealth generated from the transactions of the illicit funds (“integration”). In the past, the term money laundering was applied only to financial transactions related to organized crime. Today its definition is often expanded by government and international regulators such as the U.S. Office of the Comptroller of the Currency to mean any financial transaction which generates an asset or a value as the result of an illegal act, which may involve actions such as tax evasion or false accounting. Courts involve money laundering committed by private individuals, drug dealers, businesses, corrupt officials, members of criminal organizations, and even states. As financial crime has become more complex, and "Financial Intelligence" (FININT) has become more recognized in combating international crime and terrorism, money laundering has become more prominent in political, economic, and legal debate. The current financial crisis originated in the U.S. banking system which facilitated cheap and easily available mortgage, triggered by the constant increase of real estate prices. This led to the unprecedented demand for accommodation, especially the houses, which were to be used for short-term investments. The credit requirements were lowering as most of the banks were sure that in case of defaults, they will be able to sell the disposed houses and get a better profit. Besides, huge funds of insurance companies circulated in the banking sphere to insure both the borrowers, and the lenders. But soon the real estate market became overheated and the demand for houses was rapidly decreasing. As a result the real estate prices went down and the cost of accommodation became twice lower than the mortgage borrowed. People failed to fulfill their credit obligations. The number of defaults increased sharply. Banks can not sell the withdrawn estate, are not able to cover their liabilities to other banks, insurers go bankrupt compensating the risks of the population and banks. The liquidity crisis broke out, directly affecting the stock markets and real sector of the economy all over the world. Most industries, highly dependent on the borrowed funds, felt sharp shortage of cheap credits. Together with strong decrease in consumption this lead to the sharp decline of the production and vast bankruptcies of the businesses. The subsequent outburst of unemployment and defaults put the globe economy in great depression. International banking regulation begins inside each country or nation. U.S. banking is regulated and monitored by the Federal Reserve System, that does not only monitor the banking industry inside the U.S., but by implementing monetary policy, controlling the money supply, and managing the country's foreign exchange and gold reserve, it is also regulates international banking. The Bank for International Settlements (BIS) is the international organization for central banks. Its purpose is to serve as a bank for central banks and to cultivate international financial and monetary cooperation. Because monetary policy is always decided upon by each nation, there can be differences in policy. BIS has two areas of interest: capital adequacy (preventing overvaluing of assets) and making reserve requirements transparent. One of the better known committees of BIS is the Basel Committee on Banking Supervision which is charged with strengthening banking supervisory systems throughout the world. This committee works to strengthen policy development and accounting and auditing standards.
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