Question

In addition to banks conducting business domestically, explain FOUR (4) specific types of risks which to be encountered if decided to expand the banking business internationally

Answer in 5 paragraphs and examples. TQ

Answer 1

Answers

Below are four specific types of risks which to be encountered if decided to expand the banking business internationally .

1-Econnomic ,Legal and Political Factors- Economic condition of the country ,overall economic growth.Legal structures and law need to be adhere for business operation.Political factor of the country also plays a vital role in growth and development of the banking business.Economic and political stabilty of a particular region plays an important role and should be considered while evaluating major risks. (eg -Local government actions ,Local Law and Business environment.

2- Accounting Risks - Risks involved in preparing the financial statements according to the local accounting policies and law of a particular country. Unavailabilty of uniform code and accounting policies like GAAP or IFRS leads to huge discrepencies in financial reporting to the stakeholders.

3- Curreny exchange Risks- Currency exchange risk involved in operating in foreign enviorment ,fluctuation in market rate or rise and fall in currency exchange rates leading to unsual loss or gain . Exchange rate fluctuation effects heavily in banking business as banking sectors deals mainly with investors money. (eg- Customers , Shareholders ) (Eg of share markets are - NYSE , Nasdaq )

4- Reputation and Brand Risk- Creating brand value in international environment is really challenging , many banks fail to create reputation and brand value in operating outside countries. Banks fail to provide uniform and quality products to the customers due to different policies and local banking laws of particular country. Brand value invloves very high risk in long run and banks may not get enough customers if they have weak brand value. ( eg - Like City bank and American express has a huge brand value and trust of customers globally)