What makes entry into banking market attractive what

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US than US banks are in local currency banking overseas? What makes entry into banking market attractive? What are the obstacles? The US market is attractive to foreign banks both because of its size and because of its language. What makes it attractive- the US market had a lot of problems because of excessive regulations but now there is deregulation and the market is becoming more efficient which is why foreign banks are pulling out Obstacles- o Government imposes regulations on foreign banks. o Foreign banks also do not have relationships with people in the people in the new country that domestic banks have. o There are also language and cultural differences and have poorer information- lack of information leads to foreign banks often winding up with “lemons” that domestic banks tend to avoid. 10. For a US bank entering the Eurodollar market, what are the relative attractions of a London branch, a Caribbean shell branch, and an international banking facility? American dollar held in another country where the currency is not a dollar. (more genrally a yen held in an American bank would be called a Euroyen, etc.) Page 188 London branch- Eurodollar banking is relatively unregulated, this meant that Eurodollar banks could offer higher rates on deposits and charge lower rates on loans. So, it was easier to keep US liquid assets on deposits in London to earn the higher deposit rates and to borrow there at the lower loan rates o London is financial center o It’s very expensive and if you’re a recently created bank or not well known you will get little business Caribbean shell branch- (cost of London Euromarket was too high) lower tax rates, smalls in the same time zone in New York which makes office hours the same. More attractive for larger banks o Problem. There’s not really any business to get here. The shell banks get deposits from correspondent banks in London - a big bank loans because they don’t want to keep all of it on their books so they sell some to shell banks. Allows the big bank to diversify International Banking Facility- not subject to reserve requirements, deposit insurance premiums, or interest rate ceilings (however not allowed to offer overnight deposits). Can do business with entities outside the US without restrictions (but in US it may do business with only other IBFs and the parent bank)
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B. Read “A bundle in the jungle” (Item 7.1) and “Thailand’s Banks Making Big Change…” (Item 7.2): i Why have first-world banks found it profitable to enter banking markets in third- world countries? Be specific. Profitable to enter markets because they are inefficient or competitive There’s a lot of inflation and high interest rates, this allows banks to increase their margin and earn higher profits Banks can avoid regulation and take advantage of economies of scale US banks can diversify and can use services that were developed in the US at a lower cost ii. What are the effects on domestic banks in those markets? Are these effects desirable?
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