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Exam 14: International Banking

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Question 21

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Pooling and third-party guarantees are two methods primarily designed to reduce international currency risk.

A) True
B) False

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Question 22

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Shell branches are developed for wholesale international money market transactions.

A) True
B) False

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Question 23

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What were the primary reasons U.S. banks began to develop overseas operations after World War II?

Troubled sovereign loans to less developed countries are usually rescheduled rather than declared in default.

Representative offices are usually established to coordinate business between domestic and foreign banks.

International banking facilities (IBFs) operate as wholly owned subsidiaries of bank holding companies.

Most Eurocurrency loans longer with a term greater than one month are fixed rate.

Country risk is another term for foreign currency risk associated with international loans.

Discuss the following organizational forms used to deliver international banking services and briefly indicate their major purpose: Representative offices, shell branches, correspondent banks, foreign branches, Edge Act Corporations, foreign subsidiaries and international banking facilities.

U.S. banks have been permitted to engage in a wider range of business activities in foreign countries than at home in order to be competitive with foreign banks.

Until the passage of the International Bank Act of 1978, foreign banks enjoyed substantial operating advantages over domestic banks in the U.S.

Under U.S. regulations Edge Act subsidiaries must devote at least 50 percent of their business to assisting customers with export-import trade and international credit.

Pooling risk entails lending by several banks to a foreign borrower.

Today, daily LIBOR quotes are established and published by the British Banker's Association trade group.

Edge Act and Agreement Corporations are similar except that the former is state chartered whereas the latter must have a federal charter.