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Copyright © 2002 Pearson Education, Inc. Slide 16-1
Organization of International Banks
International banks provide services to those engaged in international trade and investment: risk-sharing, liquidity, information.
Like domestic banks, international banks accept deposits and lend.
International banks lower transactions costs and lower information costs.
Copyright © 2002 Pearson Education, Inc. Slide 16-2
Overseas Organization of U.S. Banks
Some banks operate wholly owned branches around the world.
Edge Act corporations can perform only international banking services.
U.S. banks can own a controlling interest in foreign financial service companies.
International banking facilities (IBFs) can do business only with foreigners.
Copyright © 2002 Pearson Education, Inc. Slide 16-3
Organization of Foreign Banks in the United States
An agency office can transfer funds from abroad and make loans in the United States.
A foreign bank branch is a full-service bank with the name of the foreign bank.
A subsidiary U.S. bank is treated as a U.S. bank but need not have the foreign bank name.
Copyright © 2002 Pearson Education, Inc. Slide 16-4
Managing Exchange Rate Risk
International banks are exposed to exchange rate risk in their foreign transactions.
Banks can avoid this risk by matching the denomination of assets and liabilities.
Banks can hedge against exchange rate risk by using financial futures or options.
Copyright © 2002 Pearson Education, Inc. Slide 16-5
Services Provided by International Banks
Bank trading increases liquidity and efficiency of markets.
Banks trade to reduce customer’s costs for transactions and their own exchange rate risk.
Banks also arrange currency swaps. Banks help firms move funds from country to
country. Banks provide bankers’ acceptances.
Copyright © 2002 Pearson Education, Inc. Slide 16-6
Figure 16.1 Information Services and
Bankers’ Acceptances
Copyright © 2002 Pearson Education, Inc. Slide 16-7
Figure 16.2 International Banking Services
Copyright © 2002 Pearson Education, Inc. Slide 16-8
The Rise of Euromarkets Before World War II, the pound served as the
international transaction currency. A Eurodollar is a dollar-denominated deposit in a
bank outside of the U.S. British banks, trying to avoid rules on the use of
pounds, created the Eurodollar market…LIBOR Much of international banking is done in banking
centers called Euromarkets.
