4. INTERNATIONAL BANKS
Globalization influences the financial markets. In the last 40 years, savers and borrowers
have become linked through the international financial markets. For example, a Japanese bank
transfers funds from savers in Japan to lend to a company that builds a new factory in China.
Thus, funds move between countries, and investors have access to financial markets that scale
across the world.
Globalization has impacted the financial markets as products, services, and money flow
across a country’s borders. Moreover, globalization increased rapidly since World War II and
has three causes. First, many government leaders repealed laws that restricted the free flow of
investment between countries. Second, countries are growing economically. Thus, the savers
can channel their funds into the international financial markets, pursuing greater returns abroad.
Finally, international corporations produce products in one country and ship them to another.
Furthermore, corporations need financing to engage in business in foreign countries; thus, they
work with international banks. An international bank operates in two or more countries.
Corporations move products, services, and resources across international borders while the
banks move the money. After this chapter, students will understand why banks enter the
international markets, and the methods a bank uses to enter a foreign market. Moreover, banks
can circumvent government regulations as they cross borders, and they invented new financial
instruments. Unfortunately, international banks pose many problems for government regulators.
Functions of International Banks
International banks transcend the functions of a domestic bank because they link savers
and borrowers across different countries. Consequently, an international bank helps people and
businesses engage in international trade and finance. Furthermore, an international bank helps
with foreign-currency exchange rates and holds inventories of foreign currencies. For example,
HP Corporation enters into a contract with a firm in Hong Kong to buy memory chips. HP goes
to an international bank, where the bank grants a short-term loan for the memory chip purchase.
Bank helps HP pay for the memory chips and can help HP with the currency exchange rates.
International banks provide three benefits. First, international banks accept deposits from
savers and lend to borrowers, and the savers and borrowers are located in different countries.
Second, international banks lower transaction costs by reducing information costs, lowering the
risk of investments, and increasing the liquidity of financial markets. Liquidity is the ease of
converting assets to currency. Currencies and bank accounts are the most liquid, while houses
and cars are the least liquid assets. Finally, international banks stimulate financial innovation by
creating new financial instruments.
International banks link savers and borrowers from different countries across the world,
crossing international borders. International banks are concentrated in financial centers across
the world, such as New York City, Tokyo, and London, and they operate 24 hours every day,
seven days a week. Consequently, a government in one country has problems regulating its