6 Chapter six International Banking and Money Market Chapter Objective: Differentiate between international bank and domestic bank operations and examine the differences of various international banking offices. Chapter Outline International Banking Services
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Chapter sixInternational Banking and Money Market
2. Representative office
3. Foreign Branch
4. Subsidiary and Affiliate Bank
5. Offshore Banking Center
-min. cap. Requirements
-supervisory review process
Government obligations = 0%; short-term interbank assets = 20%
Residential mortgages = 50%; other assets = 100%
VAR = (PV)(s)(Z.01)(D1/2)
PV = portfolio value;
s = standard deviation of return(daily);
Z.01 = standard normal value for 1-tail confidence interval;
D = days
- loan interest rate is the interbank offered rate.
- interbank deposit interest rate is the interbank bid rate.
$80m in local currency
Redeem LDC debt at 80% of face in local currency
$80m in local currencyDebt-for-Equity Swap Illustration
LDC firm or MNC subsidiary
Equity Investor or MNC
LDC Central Bank