Week 2 Flashcards
What are the main motives for overseas expansion related to factor price differentials?
To take advantage of international factor price differences.
What is the main motive for overseas expansion related to trade barriers or horizontal FDI?
To access markets when trade costs are high.
How can companies leverage a strong currency to acquire a bank in a country with a weaker currency?
Companies can raise finance cheaply in strong currency markets and invest in markets where currencies are weak.
What are some examples of ownership advantages that enable banks to compete with domestic banks?
Technological expertise, marketing know-how, production efficiency, managerial expertise, and innovative product capability.
How can banks diversify their business activity?
By doing similar business activity in different countries and expanding into new areas abroad, such as insurance, mutual funds, and investment banking.
How can expanding overseas help a bank with excess managerial capacity?
It allows the bank to extend its scale of operations and more efficiently utilise its managerial resources.
What are the stages of the product life cycle in relation to location theories?
Innovative or new product stage, mature product stage, and standardised product stage.
What are some firm-specific advantages that make larger banks more likely to expand abroad?
Scale, financial resources, distribution and production expertise, and selling experience.
What are some customer seeking strategies for banks expanding overseas?
Banks carry out overseas expansion with the aim of obtaining new customers.
What is the āfollow the leaderā strategy in international banking?
The decision of a large bank to invest in a foreign market may encourage other institutions to follow.
How can cross-border operations boost a bankās performance and efficiency?
Returns generated from cross-border operations will add to group returns, boosting profits and increasing the bank stock price.
What are some managerial motives for international banking activities?
Managersā own preferences for pay, power, job security, etc.
How does the deregulation process affect international banking activities?
It boosts growth by promoting more competitive, innovative, and open markets.
What factors determine a bankās foreign market approach?
Overall financial resources, level of market experience, international business volume.
What does country risk refer to?
Risks arising from a variety of differences in economic structures, policies, socio-political institutions, geography, and currencies.
Name some classifications of country risk.
Political risk, environmental risk, country-specific risk, economic risk, financial risk.
List some factors to consider when selecting a country for expansion.
Social and political situation, anticipated real growth, monetary and fiscal policies, wage and employment rigidities, and competitiveness.
What is correspondent banking?
Involves using a bank located in the overseas market to provide services to a foreign bank.
What is a representative office?
Cannot take deposits or make loans but are used to prospect for new business and act as marketing offices for parent banks.
What is an agency bank?
A separately incorporated branch of a foreign bank inside the United States that cannot make loans or take deposits in its own name.
How is a branch office structured?
A key part of the parent bank, acting as a legal and functional part of the parentās head office, overseen primarily by the parentās home authority.
How are subsidiaries structured?
Separate legal entities from the parent bank, with their own capital, organised and regulated according to the laws of the host country.
What is a centralised global bank business model focused on?
Corporate and investment banking, catering mainly to FIs and multinational corporates.
What is a decentralised multinational bank business model focused on?
Retail markets, on local currency credit provision in multiple countries.
How are branches typically funded?
Largely wholesale funded.
How are subsidiaries typically funded?
Mostly rely on retail funding, similarly to domestic banks.
What type of lending do subsidiaries focus on?
Consumer lending.
What type of lending do branches focus on?
Interbank lending, securities, and derivatives exposures.
What is a recent trend in the number of foreign banking offices (FBOs)?
A shift from subsidiaries to branches, and from AEs to EMEs.
Why might cross-border expansion through branch networks be more efficient?
What is a potential advantage of branches over subsidiaries?
Branches appear to be less costly and, in some cases, more efficient than establishing a series of legally independent subsidiaries.
Why do branches pose higher risks to host countries than subsidiaries?
Branches have more volatile asset growth, greater responsiveness to home country conditions, and weaker control by host authorities.
What is a key shortcoming to effective cooperation in the event of a bank failure?
The misalignment of incentives between national authorities.
