Two Questions of international banks - Essay Example

17 January, Political risk is the most important risk international banks face in cross-border operations: Introduction: International banks are at stake in the times of war and international conflicts. The following text discusses some of the potential ways in which international banks are affected by political threats. Main body: When countries indulge into a state of war with one another, international banks have to face a lot of consequences. For example, let’s suppose an American bank offers a loan to a company in Venezuela.

When it is time to pay back the load, the Venezuelan company may not be able to repay in dollars because of exchange controls imposed by the government of Venezuela. Thus, the borrower could not fulfill the demand of contract because of transfer risk (Smith 112). The government policies do not allow the transfer of currency of the opponent country. The local currency is not allowed to be converted into forex so that it may be sent out of the host country. Likewise, forex can not be acquired from the outside.

The tangible assets of banks are susceptible to confiscation by the local agencies. The contract between the investor and the government bodies is likely to experience a breach. Other risks are of significantly minute nature that include but are not limited to financial crisis in the host country, local people’s boycott of the bank on the grounds of religion, and delays in currency exchange and transfer because of external influences. Conclusion: International banks suffer a lot because of political risks.

Political upsets are both a cause and effect of distorted international banking system. Growth of international banking and role of supply and demand conditions: Introduction: Value of a particular stock upsurges as its demand increases. The more money people are ready to invest in business, the more the business will flourish, and accordingly, the international banking. The following text discusses how supply and demand affect the growth of international banking. Main body: International banking fundamentally depends upon the willingness of people to invest in business.

This can be estimated from the fact that international banking faced a boom in the 1960s and 1970s when the US donated loans to foreign markets (Hughes and MacDonald 27). Almost all businesses draw money from banks, which offer to lend money with the expectation of a higher return. Stock prices at different points in time are influenced by the fall or rise in the value of a certain stock that in turn results from the varying trends in the supply and demand (Tolumi). The more the value of a share, the more expensive it gets and vice versa.

Supply and demand, hence, assumes the biggest role in the international banking. Conclusion: International banking is flourished by the investment of people. People invest in business and purchase stock and hence are entitled to a share in the overall profit according to the amount they invested. What value a certain share would retain depends fundamentally upon the supply and demand. If the demand is high and the supply is low, the share will increase in value. On the contrary, if the demand is low and supply is more, it will regress in value.

Works cited: Hughes, J. E., & MacDonald, S. B. International Banking: Text and Cases. Chapter 2. Boston: Addison-Wesley, 2002. Print. Smith, R. C., & Walter, I. Global Banking. Chapter 5. NY: Oxford University Press, 1997. Print. Tolumi. “International Banking Guide.” 2008. Web. 17 Jan. 2011. .