Question

Discuss what are offshore financial centres and its characteristics. Explain the advantages and the disadvantages of this banking system.

Answer in 5 paragraphs with examples. TQ

Answer 1

Offshore Financial Centers facilitate great mobility of finance globally. They facilitate no or low taxes, no or low regulations, secrecy to enable free flow of capital all over the world. An Offshore Financial Center can be a country or jurisdiction which ensures mobility of financial services to non residents. This will not disturb the size or financing of the domestic economy. These centers are used as holding companies for tax avoidance. They sometimes are used illegally for tax evasion.

Example : Singapore is a major offshore financial center. It is in Asia-Pacific region

Characteristics of Offshore Financial Centers

• Offshore financial centers deal in external currencies
• They are free from the taxes and exchange controls on the domestic financial markets.
• They are primarily for nonresident clients

Advantages Offshore Financial Centers

• Offshore Financial Centers deals in Multi-currency
• They provides Foreign Exchange services globally
• Interest earned is free from the deduction of taxation.
• They offer customers the advantages of flexibility in terms of account usage