I need a 125-word reply to each of the following forum post. These post are responses to others post in the class. This is for an international finance class. MUST BE ORIGINAL – THEY ARE CHECKING!!
International banks can be characterized by the types of services they provide that distinguish them from domestic banks. Foremost, international banks facilitate the imports and exports of their clients by arranging trade financing. Additionally, they serve their clients by arranging for foreign exchange necessary to conduct cross-border transactions and make foreign investments and by assisting in hedging exchange rate risk in foreign currency receivables and payables through forward and options contracts. Since international banks have established trading facilities, they generally trade foreign exchange products for their own account. Two major features that distinguish international banks from domestic banks are the types of deposits they accept and the loans and investments they make. Large international banks both borrow and lend in the Eurocurrency market. Moreover, depending upon the regulations of the country in which it operates and its organizational type, an international bank may participate in the underwriting of Eurobonds and foreign bonds. “The American banks face fierce competition from other aggressive European banks, particularly the Swiss. Switzerland’s three largest commercial banks have moved into Frankfurt in a big way in recent months and are widening the investment banking activities in which they excel. Moreover, the blessing for foreigners may yet prove to be mixed. While foreign banks have been admitted to Eurobond management groups, they must subscribe to fixed volumes and have no influence on fixing conditions, which are still set by the large German banks” (Tagliabue, John. 8/25/1986).
Tagliabue, John. August 25, 1986. INTERNATIONAL REPORT; U.S. BANKS ADJUST FAST IN GERMANY. Retrieved from web: com/1986/08/25/business/international-report-us-banks-adjust-fast-in-germany.html”>http://www.nytimes.com/1986/08/25/business/international-report-us-banks-adjust-fast-in-germany.html
A correspondent bank relationship is developed when two banks have a correspondent relationship with one another, where there is a correspondent bank account (Madinger, 2016). From a widened perspective, the services and operations under an international bank function in the regulatory environment (Madinger, 2016). If a correspondent relationship has been developed, this suggests that the banking system allows the clients to conduct business worldwide through the local bank, or associated contacts; this essentially establishes an international network where the bank is the force connecting all of the parties, the clients, and so forth (Madinger, 2016). This would be different than a representative office, which is a smaller facility that operates under the parent bank. One is likely to find a heightened level of service in the latter, as the smaller branch allows the clients to develop a relationship with the bankers, which may not be evident with the larger bank on the international level. It should be noted that Madinger (2016) draws on the connection between money laundering and less-than-ethical activity in its connection with the larger, correspondent bank. The indirect approach may be beneficial to those who are operating in a financial environment, but also opens the door to unethical activity in the banking environment.
Madinger, J. (2016). Money laundering: A guide for criminal investigators. New York: CRC Press.
A dual-currency bond is a straight fixed-rate bond that is issued in a currency and pays coupons in that currency as well. At maturity, the principal is paid in the other currency. The coupon rates for dual-currency bonds are usually higher than other bonds with a straight fixed-rate. The amount of principal is set when the bond is issued and usually is based on some appreciation of the currency that seems stronger. “The financing is Fannie Mae’s first yen-denominated dual-currency issue in the Japanese bond market and the first by an American issuer. The bonds carry a 7.2 percent coupon and will be offered at a price of 101 to yield 7.91 percent. Interest is payable in yen and redeemable in dollars” (The New York Times. March 27, 1986). Both the borrower and investor should primarily give consideration to the exchange rate uncertainty when dealing with dual-currency bonds. The appreciation of one currency compared to the other will influence whether a borrower or issuer will benefit from exchange rates or suffer a loss. If the currency of the issued amount appreciates in comparison to the second currency, the borrower will benefit. However, if the principal currency appreciates, the borrower will suffer a loss from exchange rates. For the investor, they suffer a similar exchange rate risk but on the opposite end. If the principal currency appreciates, the principal repayment they receive will be worth more than the issued currency repayment and they will benefit. If it depreciates, they will suffer an exchange rate loss.
The New York Times. March 27, 1986. FINANCE/NEW ISSUES; Dual-Currency Yen Bonds Set. Retrieved from web: com/1986/03/27/business/finance-new-issues-dual-currency-yen-bonds-set.html”>http://www.nytimes.com/1986/03/27/business/finance-new-issues-dual-currency-yen-bonds-set.html
We must look at the dynamic of a dual currency bond. It has a fixed rate, where the same currency remains throughout. The bond is issued in a currency, such as the U.S. dollar, and the interest on the bond will be paid in that currency (Culp, 2011). However, when the bond matures, the principal will be repaid in a second currency (Culp, 2011). This suggests a long-term forward contract from the buyer’s interpretation of the bond. So, the investor needs to look at the second currency of this bond, because the payment is going to be in the second currency. If this second currency were to appreciate, the repayment of the principal is going to be more than the return of the principal, under the original currency. Alternative, if the second currency depreciates in value over this time, the buyer is going to incur a loss because of the exchange rate, transitioning from the issuing currency to the second currency. So, the investor is going to want to identify the country and whether the country is issuing a payoff currency prior to making a decision. This could be the determining factor as to whether a profit or a loss is incurred at maturity (Culp, 2011).
Culp, C. L. (2011). Structured finance and insurance: The ART of managing capital and risk. New York: Wiley.
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