Question

In: Finance

Explain why a domestic bank in the U.S. might create a subsidiary bank in a foreign...

Explain why a domestic bank in the U.S. might create a subsidiary bank in a foreign location like the Cayman Islands.

Solutions

Expert Solution

Mostly, the question can be answered in assumption based. That means We can not say the fact and exact reasons why the bank is opening its subsidiaries in foreign countries because that depends on the banks vision and mission with objectives. But the common reasons that we can assumed are explained below:

Subsidiary bank is a type of foreign entity that is located and incorporated in a foreign country but majority owned by a parent corporation in a different nation. Some common reasons behind this subsidiaries creation are listed here:
1. For tax saving purpose: Each country has not same tax rate. So, to save tax more they can create subsidiaries in foreign countries.

2. To improve and build strong customers base: They will get more and more customers if they are available in world wide and can make a strong customers based over the world.

3. Take the advantage of exchange rate : If the foreign transaction take placed in right time, not only from banking transaction but also more additional benefits can be taken fro exchange rate fluctuation as well. That will helps to bank to increase its profit.

4 Others Reasons: Customers for banks are not only limited within the country. But they are available outside the country as well. So, to provides the same banking facilities and to recognized the bank name as multinational company they opened or create subsidiaries of the brand in different different location of the different countries.


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