Deck 14: International Banking

Question 1

U.S. banks have been permitted to engage in a wider range of business activities in foreign countries than at home in order to be competitive with foreign banks.

Answer 1

True

Question 2

Representative offices are usually established to coordinate business between domestic and foreign banks.

Answer 2

False

Question 3

Foreign branches of U.S. banks evolved in the 1960s as a reaction to capital flow regulations in the U.S.

Answer 3

True

Question 4

IBFs may be established by a U. S.-chartered depository institution, a U.S. branch or agency of a foreign bank, or a U. S. office of an Edge Act Corporation.

Question 5

Correspondent banks typically provide full banking services in a foreign country including taking deposits.

Question 6

International banking facilities (IBFs) operate as wholly owned subsidiaries of bank holding companies.

Question 7

Edge Act corporations can engage in some types of equity investments.

Question 8

Participating in a syndicated loan rather than providing all the financing for a loan helps banks reduce their credit risk.

Question 9

Shell branches pay no local taxes and usually operate in stable political environments.

Question 10

Troubled sovereign loans to less developed countries are usually rescheduled rather than declared in default.

Question 11

Shell branches are developed for wholesale international money market transactions.

Question 12

U.S. bank regulators allow U.S. banks overseas to engage in all banking activities allowed by the host country.

Question 13

IBFs collect small domestic deposits and make foreign loans.

Question 14

Until the passage of the International Bank Act of 1978, foreign banks enjoyed substantial operating advantages over domestic banks in the U.S.

Question 15

The Edge Act of 1919 permitted U.S. banks to create international banking facilities.

Question 16

Expropriation and nationalization are two methods of guaranteeing payment of U.S. bank loans to developing countries.

Question 17

Foreign branches of U.S. banks are subject to both the host nation's regulations and the regulations in the U.S.

Question 18

Pooling risk entails lending by several banks to a foreign borrower.

Question 19

Representative offices can accept deposits and make loans in the host country.

Question 20

Pooling and third-party guarantees are two methods primarily designed to reduce international currency risk.

Question 21

Most Eurocurrency loans longer with a term greater than one month are fixed rate.

Question 22

Explain how syndicated bank loans work and why they are particularly popular in international lending.

Question 23

Today, daily LIBOR quotes are established and published by the British Banker's Association trade group.

Question 24

Edge Act and Agreement Corporations are similar except that the former is state chartered whereas the latter must have a federal charter.

Question 25

Most Eurocurrency loans have an interest rate that is based on LIBOR.

Question 26

International banking activity is roughly evenly distributed among small, medium and large banks.

Question 27

Country risk is another term for foreign currency risk associated with international loans.

Question 28

What risks are involved in international lending? What methods do banks have to reduce these risks?

Question 29

Explain the "rollover pricing" feature of LIBOR lending?

Question 30

The recent decline in the number of banks and branches is a result of the many bank failures since the financial crisis.

Question 31

Under U.S. regulations Edge Act subsidiaries must devote at least 50 percent of their business to assisting customers with export-import trade and international credit.

Question 32

Most large international loans are funded in the Eurocurrency market.

Question 33

What were the primary reasons U.S. banks began to develop overseas operations after World War II?

Question 34

How did technology innovations and internationalization of the banking industry change the regulations? How are these trends related to economies of scale and scope in the banking industry? How did these changes lead to changes in regulations of bank activities and changes in geographic restrictions?

Question 35

Discuss the following organizational forms used to deliver international banking services and briefly indicate their major purpose: Representative offices, shell branches, correspondent banks, foreign branches, Edge Act Corporations, foreign subsidiaries and international banking facilities.