Question

What is a disadvantage of a correspondent bank relationship?

Answer 1

Answer :- Here are the main disadvantages :-

1). It is difficult to know the financial effects of various managerial decisions :- In a correspondent banking, there are so many areas of functions and all their decisions have effect on international financial management. So it is quite difficult for the banks to know those effects and co-ordinate all decisions.

2). Based on financial records: - Certain techniques of financial analysis and performance measurement are based on accounting records in case of correspondent banking. The financial accounts are concerned with the past. So the decisions based on those records may not be very true for correspondent banks.

3). Lack of objectivity: - There is a lack of objectivity in international financial management. The decisions of international financial management are affected by the views and feelings of various political parties across the world and when the effect is more it can lead to results which is not favorable to particular correspondent bank.

4). Developing subject: - Correspondent bank relationship is not fully developed subject and development is still going on. The specialists are not agreeing on certain theories and views. The standards of correspondent banking are also changing.

5). Expensive: - It is quite expensive to build an effective international (correspondent) banking system across entire globe.