Microsoft Word - Money, Banking, and Int Finance(scribd).docx

Money, Banking, and International Finance

 The U.S. government plans to implement the Basel III requirements that increase banks’

capital requirements and force banks to boost their holdings of liquid securities. During the

housing bubble, many banks increased their leverage ratio to unsustainable levels.

Unfortunately, leverage has several meanings depending on its context. Leverage, in our

case, equals the ratio of debt a business uses to acquired assets. Many banks accumulated

debt to acquire properties at the peak of the housing bubble. Once the bubble deflated, the

property fell in value, and the banks could not sell it without enormous losses. Banks had

high leverage ratios as they accumulated debt for assets with falling market values. If

banks hold more capital or hold more liquid assets, then they would have more capital to

deal with a financial crisis.

Effects of the 2008 Financial Crisis still plague the world’s economy. Although the Great
Recession had ended in 2009, many developed countries are on the verge of entering a new
recession in 2014. Consequently, banks tightened their lending standards while new housing
construction remains at a standstill. Many countries including Great Britain, Ireland, Italy,
Greece, Spain, and the United States are afflicted with an unemployment crisis because the
unemployment rate remains stubbornly high, and the unemployed cannot find work. Thus,
government regulations and regulatory differences among countries will diminish because
governments want to avoid an economic crisis like the 2008 Financial Crisis.

Key Terms

globalization
international bank
offshore market
bank branch
holding company
Edge Act corporation
international banking facility (IBF)
agency office
foreign bank branch
subsidiary U.S. bank
exchange rate
appreciation
depreciation
exchange rate risk
derivative

forward contract

currency swap

forward-forward swap

spot against a forward

Eurodollars

Eurobonds

Euroloans

loan syndication

Euromarkets

banker’s acceptance

international transaction currency

toxic loan

U.S. dollar liquidity swap

leverage

Chapter Questions

1. Identify the benefits of being an international bank.