QUESTION ONE
Critically discuss the major factors contributed to rapid growth of international banking and point out the roles of
the bank for international settlement (BIS) in supervision of banks internationally.
Major factors contributed to rapid growth of international banking are as follows;
The growth of international trade and overseas investment increasing the demand for international funds. If one
has to business internationally cannot afford the risk of moving with fund everywhere he goes, rather he would
simply deposit it at one point and withdraw at any point in the world as the need arise.
The abolition of exchange controls encouraging the globalization of International financial markets whereby
national financially markets becomes integrated into single International market. As the global market remove the
restrictions involve in sale and purchase of foreign currencies by residencies of foreign people then people were
encouraged to involve in International banking activities.
Deregulations of capital markets permitting securitization of debt by which companies issue international traded
instruments such as Eurobonds and Euro commercial paper. As foreign are freely allowed to move from one
country to another, then the need for international banking arose as businessman could not take the risk of
travelling with large of sum at hand. Rather they needed to deposit it in their home countries and come to withdraw
them in the host country.
The development of multinational companies, operating in range of countries. Also companies need to operate
in countries that are not their home countries, thus the need for bank that could allow them to move funds from
their home countries to host countries. Also the needs for international bank arise as a means to remit funds to the
parents companies abroad.
The roles of the bank for international settlement (BIS) in supervision of banks internationally are as
follows;
 Arrange trade financing
 Arrange foreign exchange
 Offer hedging services for foreign currency receivables and payables through forward and option
contracts
 Offer investment banking services
QUESTION TWO
Briefly describe factors affecting Multination Corporations success, clearly separate them
into internal factors and external factors.
INTERNAL FACTORS
Firm size:
Smaller firms have limited financial and human resources at their disposal and are therefore
exposed to more risks as chances of failure of foreign investment can lead to insolvency of the
entire firm. On the other hand, larger firms possess greater productive resources, greater market
power, greater knowledge and economies of scale.
International experience:
As a firm ventures into foreign markets, it gains the knowledge of dealing with local economic
and environmental conditions. As the experience increases, the firm’s potential to project the
costs and returns, to gauge the market demand, to assess the customer’s needs and to evaluate the
true economic worth of the foreign market also increases. It becomes more confident of their
ability to manage foreign operations and consequently is willing to greater resources. On the
other hand, firms with lesser experience tend to perceive greater uncertainty, and are likely to
wrongly estimate the risks and returns. They, therefore hesitate to commit greater resources in
the foreign market.
Technological capability:
Firms which possess high R&D capability face greater risk of leaking proprietary technology to
their rivals if they opt for lower control modes or non equity modes. With non-equity modes,
there is a risk of the firm loosing the control of its technology to the local partner.
Product characteristics:
The product characteristics provide the firm with the ability to differentiate its product offering
from its rivals. It includes the attributes like degree of product uniqueness, extent of product
establishment, training needs of sales force, and the degree of maintenance and service
requirement for the product. Products that are service intensive are hard to serve from a distant
market. The company needs to be close to the customer and therefore local production is
appropriate in such cases. Thus, in case of service intensive products equity mode will be
preferred. Similarly, innovative products possess highly intangible components in terms of
technological and marketing know-how. For such products, specialized training programs for the
employees must be put in place.
EXTERNAL FACTORS
Cultural distance:
Culturally close countries ought to have similar languages, similar set of norms governing
business and industry and also similar cultural characteristics. The greater the cultural distance
between the home and host country, the greater will be the uncertainty and greater will be the
costs of collecting information and communication. Therefore, when the cultural distance is large
the company will avoid using equity entry modes and will us entry modes which require lower
resource commitment.
Market size and growth:
The larger the size of the market, the greater is the potential for growth and the higher will be the
inclination of the firm to commit greater resources for its development.
Country risk:
Country risk emanates from political and economic factors both of which can significantly
influence the potential attractiveness of a country. Unstable and unpredictable political and
economic environment increases the risk of doing business in a particular country and
discourages the firm.
Legal barriers:
Imposition of tariffs and quotas on the import of foreign products and excessive trade regulations
limit the success of multinational firms since it will have to use much of its resources trying to
get access to the foreign market which will eventually led to high expenses.
REFERENCES
International financial management by V. Sharan (3rd edition), published by Asoke K. Ghosh,
prentice Hall of India private limited 2004
Mr. Ngowi handout of international finance
Multinational Financial Management by Alan C. Shapiro (4th edition), published by Asoke K.
Ghosh, prentice Hall of India private limited
Multinational Financial Management by Cheol S. Eun, Bruce G. Resnick (2nd edition), published
by Tata McGrawhill Publishing Company.
Multinational Financial Management by Vyuptaken Sharan (4th edition), published by Asoke
K.Ghosh, prentice Hall of India private limited