Subject - Banking Operations - II Class - M.B.

A
Course Code - 312F Semester - IV
 What is Currency Swaps
A currency swap (or a cross currency swap) is a foreign exchange derivative between two

institutions to exchange the principal and/or interest payments of a loan in one currency for

equivalent amounts, in net present value terms, in another currency.

 What is Multinational Company ??
A multinational corporation (or transnational corporation) (MNC/TNC) is a corporation or

enterprise that manages production establishments or delivers services in at least two

countries

• Multinational banks (MNBs), by definition, are those that physically operate in more than one

country. For instance, Citibank operates offices in more than 90 countries around the world

• International banks engage in cross-border operations and do not set up operations in other

countries. A Bank of America loan to a bank in Poland is considered international banking.

Reasons For growth of Multinational Banking
• Regulatory environment

• Technological Changes

• Financial Innovation

• Growing diversity

• Economies of scale
 Various Organizational Structure for
Multinational banking

• Correspondent Banking

• Resident Representatives

• Bank Agencies

• Foreign Branches

• Foreign Subsidiaries And Affiliates

• Consortium Banks
 Risks in foreign exchange dealings
• RBI and FEDAI issue guidelines to all banks to identify, measure and manage risks

• Risks can be classified under:

– Market risk: Loss arising out of change in the market price of an asset

– Liquidity risk: risk that you will not be able to easily sell your assets

– Operational risk: Failure of internal processes, people, systems or external events

– Legal risk: Contracts are not legally enforceable or documented incorrectly

– Credit risk: Counterparty defaulting in payment

• Pre-settlement: Credit risk before the maturity of a transaction

• Settlement risk: Timing differences in cash flows,

– Country risk: Movement of funds across borders may be obstructed by sudden government controls

– Interest rate risk: Interest rate risk or gap risk arises out of adverse movement of interest rates a bank faces on its currency swaps/forward

contracts or other interest rate derivatives

 What is Asset Liability Management??
• The process by which an institution manages its balance sheet in order to allow for

alternative interest rate and liquidity scenarios

• Banks and other financial institutions provide services which expose them to various

kinds of risks like credit risk, interest risk, and liquidity risk

• Asset-liability management models enable institutions to measure and monitor risk, and

provide suitable strategies for their management.

• Offshore banking is a term used to describe banking activity in currencies other
than the currency of the country in which the bankaccounts are held. Countries / territories

conducting such business are called offshore financial centres.

 INTERNATIONAL FINANCIAL
INSTITUTIONS:
International financial institutions (IFIs) are financial institutions that have been

established by more than one country, and hence are subjects of international laws.

Their owners or shareholders are generally national governments, although other

international institutions and other organizations occasionally figure as shareholders. The

most prominent IFIs are creations of multiple nations, although some bilateral financial

institutions exist and are technically IFIs. Many of these are multilateral development

banks (MDB).
 WHAT ARE INTERNATIONAL
FINANCIAL INSTITUTIONS (IFI’S)?
World Bank Group (WBG):

 International Bank for Reconstruction and Development (IBRD)

 International Development Association (IDA)

 International Finance Corporation (IFC)

 Multilateral Investment Guarantee Agency (MIGA)

 International Centre for Settlement of Investment Disputes (ICSID)

International Monetary Fund (IMF)

Regional development banks, such as:

 African Development Bank (AFDB)

 Asian Development Bank (ADB)

Manav Agarwal
manavs87@gmail.com
9823962733