QUESTION NO 3

Explain the main strategic reasons why Banks may wish to establish foreign operations.

Customer seeking strategy

Banks seek to undertake overseas expansion in order to obtain new customers or to follow established
clients. The reason bank are more likely to seek new customers via foreign establishment relates to the
barriers with cross boarder selling of products and services without physical presence, hence the banks
try to eases this process by establishing their physical presence overseas

Obtaining foothold strategy

Foreign expansion can be motivated by the desire to establish a presence in order to test the market.
Information can be obtained by making experimental foreign investment, and over time banks can
decide whether to expand or contract their activities.

Follow the leader strategy.

When a large and well known Bank undertakes investment in a foreign market it may as well
encourage others to follow the recent move of commercial and investment Banks. Example Spanish
Bank expansion in Latin America.

Customer following Strategy

It has been argued that Banks in their home markets have information advantages associated with their
on going client relationships. The nature of these relationships put these firms in a privileged position
to follow their customers abroad. Customer following strategies are common in Banks, big firms need
big banks so they can meet their growing financing needs.

Managerial motives
entrenched managers may make international investment decisions based on their own preference for
pay, power, job security and risk aversion. International expansion may either strengthen or weaken the
hands of entranced managers directly by affecting the market for corporate control or indirectly
changing the market power of the firm

Government motives
The deregulation of many overprotected banking markets has had the effects of encouraging foreign
bank entry and this should boost competition and encourage domestic banks to become more efficient.

Refferences

Barbara Casu, Claudia Girardone, Philip Molyneux, Introduction to Banking, Pearson

Education Ltd 2006.
QUESTION NO 5
Briefly explain the meaning of Eurocurrency banking and traditional foreign banking.

Euro currency banking refers to transactions in currency other than the host country currency.
Further it can be expressed as currency held outside the country in which the money is dominated.

Traditional foreign banking involve transactions with non residents in domestic currency that
facilitate trade finance and other international transactions.

Thus for a bank to operate internationally it does not need a physical premise abroad. Such activity
can be conducted within a single country.

Reference
Barbara Casu, Claudia Girardone, Philip Molyneux, Introduction to Banking, Pearson
Education Ltd 2006.
Handbook of international Banking 2003, business and Economics.