Question

Suppose a U.S bank is considering providing its services abroad. List one possible advantages and one possible disadvantage of expanding via the acquisition of a controlling interest in a foreign bank versus the establishment of an international banking facility (IBF)?

Answer 1

The advantage of expanding via the acquisition of controlling interest in a foreign bank.

New markets - when you expand the franchise internationally you can sometimes take advantage of new markets that are unfamiliar with your business model for example if you own sandwich restaurant you might open the first sandwich restaurant of its kind in a developing market when you're on the first business of its kind in an international market you may be able to bring in substantial profits when a new business comes into a region and the people like it anything it's a cash cow for the owner.

The disadvantage is that Of Cultural differences one of the potential problems of expanding when you have interest in a foreign bank into other countries is overcoming the cultural barriers just because something is popular in the united state does not mean that it will be popular in other countries also every country has its own culture in you may not be able to accurately predict what people in that culture will enjoy.

Establishment of international banking facility means the international extension of Financial Institutions is always in relation to their size Dell international experience the sufficiency both in human potential and in capital but also the nature of domestic and international were Finally on one hand the forms are the basic operations with which a financer institution is developed in international banking network are the following to financial and credit on the other hand the operation of the international banking is achieved through the services in the banking market of foreign country with either indirect or direct way more specifically the direct way for the transport of capital from the savers to those who are lent ET money is used mainly by the investment banks and stock exchange companies.

A profit from the internationalisation of Banking work is that the international banking extension increases the effectiveness of international capital by improving their floor this means that the effectiveness of distribution of capital Greens in economic contact lenders and bowler was from different countries.

Another profit from internationalisation of financial markets is the increasing degree of convergence of interest rate of domestic market with those that exist in the euro markets at the same time the internationalisation of financial markets leads to the weakening of the phenomena of Deportation of private investment in the public sector as in an environment of free market of capital the prevention of the private investment from the state is compensated relatively easily.

The cost from the internationalisation of Banking activities is found in the loss of income for the countries as the internationalisation of work leads to the escape of capital two countries where the committed deposits have higher interest or still the central bank of that country keeps smaller compulsory percentage of capital from the commercial bank.

In relation to the cost from internationalisation of Banking activities as they have been mentioned above 2 important wrists the country risk and the risk of low efficiency of Financing more specifically the country risk this is basically connected with the landing of a country and has two aspects there is the risk that the new Political situation will not recognise past actions and to deny to undertake pass engagements.2. It exist the risk of not settle with of loans due to unfavourable development in the balance of payments consequently this danger of is of the Macro nature country risk that is connected fundamentally with the public deficits and the involving debit of state they could be overcome with techniques of international financing those financing Sa based to the fact that the other Financial Institutions have specified relations between than providing banking operations in the other banks does the risk of the countries can be minimised with the financial plan of the economic unit with plants of co financing with other Financial Institutions.

On the other hand the risk of not efficiency of loan comes from the big fluctuations of interest which is the difference between the interest rates of sponsoring and the interest rates of deposit this thread that is the essence is crisis of confidence from the future puts in test the basic operations of bank that is the transformation of short-term resources in long term financing moreover the efficiency of investment or loan runs through the danger from changes to the words of Legislative regulation of terms of operations of banks that imposes the central bank of country in a change of monetary policy the biggest danger from such a development is the increase of obligatory reserve funds that will have an additional cost which we need to reduction of profit from a lending.