国际财务管理答案Chap011.docx

1、国际财务管理答案Chap011CHAPTER 11 INTERNATIONAL BANKINGSUGGESTED ANSWERS AND SOLUTIONS TO END-OF-CHAPTERQUESTIONS AND PROBLEMSQUESTIONS1. Briefly discuss some of the services that international banks provide their customers and the market place.Answer: International banks can be characterized by the types o

2、f services they provide that distinguish them from domestic banks. Foremost, international banks facilitate the imports and exports of their clients by arranging trade financing. Additionally, they serve their clients by arranging for foreign exchange necessary to conduct cross-border transactions a

3、nd make foreign investments and by assisting in hedging exchange rate risk in foreign currency receivables and payables through forward and options contracts. Since international banks have established trading facilities, they generally trade foreign exchange products for their own account.Two major

4、 features that distinguish international banks from domestic banks are the types of deposits they accept and the loans and investments they make. Large international banks both borrow and lend in the Eurocurrency market. Moreover, depending upon the regulations of the country in which it operates an

5、d its organizational type, an international bank may participate in the underwriting of Eurobonds and foreign bonds.International banks frequently provide consulting services and advice to their clients in the areas of foreign exchange hedging strategies, interest rate and currency swap financing, a

6、nd international cash management services. Not all international banks provide all services. Banks that do provide a majority of these services are known as universal banks or full service banks.2. Briefly discuss the various types of international banking offices.Answer: The services and operations

7、 which an international bank undertakes is a function of the regulatory environment in which the bank operates and the type of banking facility established.A correspondent bank relationship is established when two banks maintain a correspondent bank account with one another. The correspondent bankin

8、g system provides a means for a banks MNC clients to conduct business worldwide through his local bank or its contacts.A representative office is a small service facility staffed by parent bank personnel that is designed to assist MNC clients of the parent bank in its dealings with the banks corresp

9、ondents. It is a way for the parent bank to provide its MNC clients with a level of service greater than that provided through merely a correspondent relationship.A foreign branch bank operates like a local bank, but legally it is a part of the parent bank. As such, a branch bank is subject to the b

10、anking regulations of its home country and the country in which it operates. The primary reason a parent bank would establish a foreign branch is that it can provide a much fuller range of services for its MNC customers through a branch office than it can through a representative office.A subsidiary

11、 bank is a locally incorporated bank that is either wholly owned or owned in major part by a foreign subsidiary. An affiliate bank is one that is only partially owned, but not controlled by its foreign parent. Both subsidiary and affiliate banks operate under the banking laws of the country in which

12、 they are incorporated. U.S. parent banks find subsidiary and affiliate banking structures desirable because they are allowed to engage in security underwriting.Edge Act banks are federally chartered subsidiaries of U.S. banks which are physically located in the United States that are allowed to eng

13、age in a full range of international banking activities. A 1919 amendment to Section 25 of the Federal Reserve Act created Edge Act banks. The purpose of the amendment was to allow U.S. banks to be competitive with the services foreign banks could supply their customers. Federal Reserve Regulation K

14、 allows Edge Act banks to accept foreign deposits, extend trade credit, finance foreign projects abroad, trade foreign currencies, and engage in investment banking activities with U.S. citizens involving foreign securities. As such, Edge Act banks do not compete directly with the services provided b

15、y U.S. commercial banks. Edge Act banks are not prohibited from owning equity in business corporations as are domestic commercial banks. Thus, it is through the Edge Act that U.S. parent banks own foreign banking subsidiaries and have ownership positions in foreign banking affiliates.An offshore ban

16、king center is a country whose banking system is organized to permit external accounts beyond the normal economic activity of the country. Offshore banks operate as branches or subsidiaries of the parent bank. The primary activities of offshore banks are to seek deposits and grant loans in currencie

17、s other than the currency of the host government.In 1981, the Federal Reserve authorized the establishment of International Banking Facilities (IBF). An IBF is a separate set of asset and liability accounts that are segregated on the parent banks books; it is not a unique physical or legal entity. I

18、BFs operate as foreign banks in the U.S. IBFs were established largely as a result of the success of offshore banking. The Federal Reserve desired to return a large share of the deposit and loan business of U.S. branches and subsidiaries to the U.S.3. How does the deposit-loan rate spread in the Eur

19、odollar market compare with the deposit-loan rate spread in the domestic U.S. banking system? Why?Answer: Competition has driven the deposit-loan spread in the domestic U.S. banking system to about the same level as in the Eurodollar market. That is, in the Eurodollar market the deposit rate is abou

20、t the same as the deposit rate for dollars in the U.S. banking system. Similarly the lending rates are about the same. In theory, the Eurodollar market can operate at a lower cost than the U.S. banking system because it is not subject to mandatory reserve requirements on deposits or deposit insuranc

21、e on foreign currency deposits.4. What is the difference between the Euronote market and the Eurocommercial paper market?Answer: Euronotes are short-term notes underwritten by a group of international investment or commercial banks called a “facility.” A client-borrower makes an agreement with a fac

22、ility to issue Euronotes in its own name for a period of time, generally three to 10 years. Euronotes are sold at a discount from face value, and pay back the full face value at maturity. Euronotes typically have maturities of from three to six months. Eurocommercial paper is an unsecured short-term

23、 promissory note issued by a corporation or a bank and placed directly with the investment public through a dealer. Like Euronotes, Eurocommercial paper is sold at a discount from face value. Maturities typically range from one to six months.5. Briefly discuss the cause and the solution(s) to the in

24、ternational bank crisis involving less-developed countries.Answer: The international debt crisis began on August 20, 1982 when Mexico asked more than 100 U.S. and foreign banks to forgive its $68 billion in loans. Soon Brazil, Argentina and more than 20 other developing countries announced similar p

25、roblems in making the debt service on their bank loans. At the height of the crisis, Third World countries owed $1.2 trillion!The international debt crisis had oil as its source. In the early 1970s, the Organization of Petroleum Exporting Countries (OPEC) became the dominant supplier of oil worldwid

26、e. Throughout this time period, OPEC raised oil prices dramatically and amassed a tremendous supply of U.S. dollars, which was the currency generally demanded as payment from the oil importing countries.OPEC deposited billions in Eurodollar deposits; by 1976 the deposits amounted to nearly $100 bill

27、ion. Eurobanks were faced with a huge problem of lending these funds in order to generate interest income to pay the interest on the deposits. Third World countries were only too eager to assist the equally eager Eurobankers in accepting Eurodollar loans that could be used for economic development a

28、nd for payment of oil imports. The high oil prices were accompanied by high interest rates, high inflation, and high unemployment during the 1979-1981 period. Soon, thereafter, oil prices collapsed and the crisis was on.Today, most debtor nations and creditor banks would agree that the international

29、 debt crisis is effectively over. U.S. Treasury Secretary Nicholas F. Brady of the first Bush Administration is largely credited with designing a strategy in the spring of 1989 to resolve the problem. Three important factors were necessary to move from the debt management stage, employed over the ye

30、ars 1982-1988 to keep the crisis in check, to debt resolution. First, banks had to realize that the face value of the debt would never be repaid on schedule. Second, it was necessary to extend the debt maturities and to use market instruments to collateralize the debt. Third, the LDCs needed to open

31、 their markets to private investment if economic development was to occur. Debt-for-equity swaps helped pave the way for an increase in private investment in the LDCs. However, monetary and fiscal reforms in the developing countries and the recent privatization trend of state owned industry were als

32、o important factors.Treasury Secretary Bradys solution was to offer creditor banks one of three alternatives: (1) convert their loans to marketable bonds with a face value equal to 65 percent of the original loan amount; (2) convert the loans into collateralized bonds with a reduced interest rate of

33、 6.5 percent; or, (3) lend additional funds to allow the debtor nations to get on their feet. The second alternative called for an extension the debt maturities by 25 to 30 years and the purchase by the debtor nation of zero-coupon U.S. Treasury bonds with a corresponding maturity to guarantee the bonds and make them marketable. These bon