INTERNATIONAL Banking Final Assignment

Final Assignment Report

Money and Banking Course

INTERNATIONAL BANKING

A Report Submitted by:

Group: 02
Muhammad Mubbashir BB6620
Haider khan bb 7053
Maryam Firdos (BB6975)
Huda Younus BB6997
Behroz BB7025
Submitted to: Ma'am Nasreen Azeem

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INTERNATIONAL Banking Final Assignment

April, 30, 2024

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Table of Contents
Chapter 1: Introduction............................................................................................... 5

Chapter 2: Types of International Banking.........................................................................6

Chapter 3: Policies of International Banking......................................................................8

Chapter 4: Agreement.....................................................................................................9

Chapter 5: How these system works...............................................................................10

Chapter 6: Benefits of International Banking.................................................................11

Chapter 7: Technology ..................................................................................................12

Conclusion ......................................................................................................................13

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Chapter 1: Introduction
International banking is a cornerstone of the global financial system, facilitating
crossborder transactions, supporting international trade, and enabling the flow of capital
across countries. It encompasses a diverse range of financial services provided by banks
operating internationally, including multinational banks, global investment banks, and
international branches of domestic banks.

The evolution of international banking has been driven by globalization, technological

advancements, and changes in regulatory frameworks. Historically, international banking
primarily focused on trade finance and foreign exchange services. However, with the
advent of globalization, the scope of international banking has expanded to include a wide
array of services such as crossborder lending, investment banking, wealth management,
and capital markets activities.

International banks play a crucial role in fostering economic growth and development by
providing financing, risk management, and advisory services to businesses, governments,
and individuals with global operations. They facilitate international trade by offering trade
finance solutions, manage currency risks through foreign exchange services, and support
investment activities in diverse geographical regions.

Regulatory oversight of international banking is conducted by national regulators,

supranational organizations, and international regulatory bodies. Compliance with
regulatory requirements is essential to ensure the stability and integrity of the international
banking system and to mitigate risks associated with crossborder activities.

Overall, international banking serves as a vital conduit for global financial intermediation,
promoting economic integration, and facilitating the efficient allocation of capital on a
global scale.and submission rules, as well as other deliverables, are defined in the project
booklet.

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Chapter 2: Types of International Banking

International banking encompasses various types of financial institutions and
services that cater to the needs of clients operating across borders. Here are some
common types of international banking:

2.1 Multinational Banks:

Multinational banks are financial institutions that have a presence in multiple

countries and offer a wide range of banking services, including retail banking,
corporate banking, investment banking, and wealth management. These banks have
subsidiaries, branches, or representative offices in different countries, allowing
them to serve clients with international operations.

2.2 Global Investment Banks:

Global investment banks specialize in providing advisory services, underwriting,

and capital markets solutions to corporations, governments, and institutional clients
worldwide. They assist clients in raising capital through debt and equity issuance,
mergers and acquisitions, and strategic advisory services. Global investment banks
also engage in trading activities across various asset classes, including stocks,
bonds, commodities, and derivatives.

2.3 International Commercial Banks:

International commercial banks focus on providing financial services to

businesses engaged in crossborder trade and investment. They offer a range of
services such as trade finance, foreign exchange transactions, working capital
financing, and cash management solutions to support international business
activities. These banks help facilitate trade transactions, mitigate risks associated
with currency fluctuations, and optimize liquidity management for multinational
corporations.

2.4 Correspondent Banks:

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Correspondent banks establish relationships with other financial institutions in

different countries to facilitate crossborder transactions and provide access to local
banking services. They act as intermediaries for international fund transfers,
clearing and settlement of payments, and foreign currency exchange.
Correspondent banking relationships enable banks to offer their clients access to
global financial markets and payment networks.

2.5 Offshore Banks:

Offshore banks are financial institutions located in jurisdictions with favorable

regulatory and tax environments, commonly known as offshore financial centers
(OFCs). These banks offer financial services to nonresidents, including
international corporate entities, highnetworth individuals, and institutional
investors. Offshore banks provide benefits such as tax optimization, asset
protection, and confidentiality for clients seeking to diversify their financial
holdings internationally.

2.6 Development Banks:

Development banks, including multilateral development banks (MDBs) and

regional development banks, focus on providing financial assistance and
development financing to support economic growth and infrastructure projects in
developing countries. They offer concessional loans, grants, and technical
assistance to governments and private sector entities for initiatives such as
infrastructure development, poverty alleviation, and environmental sustainability.

2.7 Digital Banks and Fintech Companies:

With the rise of digitalization and financial technology (fintech), digital banks
and fintech companies are increasingly offering international banking services
through online platforms and mobile applications. These innovative financial
institutions provide borderless banking solutions, including international money
transfers, foreign currency accounts, and crossborder payments, catering to the
needs of digitally savvy consumers and businesses with global connectivity.
These are some of the main types of international banking institutions and services
that facilitate crossborder financial activities and contribute to the functioning of
the global economy. Each type of international bank serves distinct client segments

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and offers specialized products and services to meet the diverse needs of customers
operating in international markets.

Chapter: 03 Policies of International Banking

International banking policy encompasses regulations, agreements, and standards that

govern the operations of banks across borders. It covers areas such as capital requirements,
risk management, money laundering prevention, and financial stability. These policies are
often established by international organizations like the International Monetary Fund
(IMF), the World Bank, and the Bank for International Settlements (BIS), as well as
national regulatory bodies and agreements between countries.

3.1 How it's work:

International banking policy works by establishing rules and standards that banks and
financial institutions must adhere to when operating across borders. These policies are
typically developed and enforced by international organizations, national governments, and
regulatory bodies.

1. Policy Development: Collaborative efforts among international organizations,

governments, and regulatory bodies to establish rules and standards.

2. Policy Implementation: Adoption of regulations and directives by national banking

authorities to enforce compliance with international standards.

3. Compliance Requirements: Banks adhere to regulations regarding capital reserves, risk

management, and antimoney laundering measures.

4. Monitoring and Enforcement: Regulatory bodies oversee banks' adherence to policies

through audits and examinations, imposing penalties for noncompliance.

5. Adaptation and Updates: Regular review and revision of policies to address emerging
risks and challenges in the global financial landscape.

3.2 How International Banking Policy Implement in Pakistan:

In Pakistan, the State Bank oversees adherence to global banking standards. Banks comply
with regulations on capital, risk, and antimoney laundering, enforced through inspections
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and audits. Participation in global initiatives strengthens antifinancial crime measures,

while continuous review ensures alignment with international norms, bolstering financial
stability.

Here some live example:

1. Regulatory Alignment: The State Bank of Pakistan (SBP) ensures that domestic
banking regulations align with international standards, such as those outlined by the Basel
Committee on Banking Supervision.

2. Implementation: Pakistani banks follow regulations set by the SBP regarding capital
adequacy, risk management, and antimoney laundering measures, as per international
banking standards.

3. Enforcement: The SBP conducts regular inspections and audits of banks to monitor
compliance with international banking policies. For instance, in 2023, the SBP imposed
fines on several banks for violations related to antimoney laundering measures.

4. Capacity Building: The SBP organizes training programs and workshops for bank
personnel to enhance their understanding of and compliance with international banking
standards.

5. Global Initiatives: Pakistan actively participates in international efforts to combat

financial crime, such as the FATF. For example, Pakistan implemented FATF
recommendations on enhancing its antimoney laundering framework, contributing to
global efforts to combat illicit financial activities.

6. Continuous Review: The SBP regularly reviews and updates banking regulations to
ensure alignment with evolving international standards, as demonstrated by its recent
revision of capital adequacy requirements in line with Basel III guidelines.

Chapter: 04 Agreements

International banking agreements are treaties or arrangements between countries or

international organizations that govern various aspects of banking and financial activities
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conducted across borders. They aim to promote cooperation, facilitate transactions,

enhance stability, and combat financial crimes. Examples include Basel Accords, Financial
Services Agreement, Single Euro Payments Area, Multilateral Memorandum of
Understanding, and FATF Recommendations.

4.1 Facts of International Banking:

These agreements play a crucial role in promoting financial stability, fostering cooperation
among countries and organizations, and ensuring the integrity of the global banking and
financial system.

1. Purpose: International banking agreements are designed to regulate and facilitate

banking and financial activities conducted across borders, promoting cooperation,
enhancing stability, and combating financial crimes.

2. Scope: These agreements cover a wide range of areas, including capital adequacy, risk
management, crossborder payments, market access, and regulatory cooperation.

3. Participants: Participants in international banking agreements include countries,

regional blocs (such as the European Union), and international organizations (like the
Basel Committee on Banking Supervision, the World Trade Organization, and the
Financial Action Task Force).

4. Basel Accords: The Basel Accords, comprising Basel I, Basel II, and Basel III, are a
series of international banking agreements that set standards for bank capital adequacy,
risk management, and supervision.

5. Financial Services Agreement (FSA): The FSA, under the World Trade Organization,
aims to liberalize trade in financial services by reducing barriers to entry and promoting
fair competition among member countries.

6. Single Euro Payments Area (SEPA): SEPA is an initiative of the European Union to
create a unified payments market within the Eurozone, allowing for seamless crossborder
electronic payments in euro currency.

7. Multilateral Memorandum of Understanding (MMoU): MMoU, established by the

International Organization of Securities Commissions, enhances cooperation and

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information exchange among securities regulators to combat crossborder securities fraud

and market manipulation.

8. Financial Action Task Force (FATF) Recommendations: FATF sets international

standards and recommendations to combat money laundering, terrorist financing, and other
threats to the integrity of the international financial system.

Chapter: 05 How these system works:

The international banking system operates through a network of financial institutions,

regulatory bodies, and infrastructure designed to facilitate crossborder financial
transactions, manage risks, and ensure the smooth functioning of global financial markets.
Here's how the international banking system works:

5.1Financial Institutions:

International banking involves various types of financial institutions, including

multinational banks, global investment banks, international commercial banks,
correspondent banks, offshore banks, and development banks. These institutions provide a
wide range of banking services to clients operating across borders, such as trade finance,
foreign exchange, lending, investment banking, and wealth management.

5.2 CrossBorder Transactions:

International banking facilitates crossborder transactions by enabling the transfer of

funds, provision of financing, and execution of financial services across different
jurisdictions. Clients, including businesses, governments, and individuals, rely on
international banks to conduct international trade, make investments, remit funds, and
manage their financial assets globally.

5.3 Correspondent Banking Relationships:

Correspondent banking relationships play a crucial role in facilitating crossborder

transactions. Banks establish correspondent relationships with other financial institutions in
different countries to access local banking services, settle payments, and facilitate
international fund transfers. Correspondent banks act as intermediaries, clearinghouses,

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and settlement agents for crossborder transactions, ensuring the efficient flow of funds
between counterparties.

5.4 Foreign Exchange Markets:

The foreign exchange (forex) market is a key component of the international banking
system, where currencies are bought, sold, and exchanged at determined exchange rates.
International banks participate in the forex market to provide foreign exchange services to
clients, hedge currency risks, and facilitate crossborder trade and investment. The forex
market operates 24 hours a day, five days a week, allowing for continuous trading of
currencies across different time zones.

5.5 Regulatory Framework:

The international banking system operates within a complex regulatory framework

governed by national regulators, supranational organizations, and international regulatory
bodies. Regulatory requirements vary across jurisdictions and encompass areas such as
capital adequacy, liquidity management, risk management, antimoney laundering (AML),
and knowyourcustomer (KYC) compliance. Regulatory authorities oversee the activities of
international banks to maintain financial stability, protect consumers, and prevent illicit
financial activities.

5.6 Technology and Infrastructure:

Technology plays a crucial role in the functioning of the international banking system,
facilitating realtime communication, data exchange, and transaction processing. Banks
utilize advanced banking systems, digital platforms, and fintech solutions to streamline
operations, enhance customer experience, and improve efficiency in crossborder
transactions. Infrastructure such as SWIFT (Society for Worldwide Interbank Financial
Telecommunication) provides a secure messaging network for transmitting financial
information and instructions between banks globally.

5.7 Risk Management:

International banks employ robust risk management practices to identify, assess, and
mitigate various risks associated with crossborder activities. These risks include credit risk,
market risk, liquidity risk, operational risk, and compliance risk. Banks use risk
management techniques such as diversification, hedging, stress testing, and regulatory

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compliance to ensure the safety and soundness of their operations in the international
banking system.

Chapter: 06 Benefits of International Banking

There are many benefits of international banking, some of them are given below:

6.1 Global Access:

This means you can easily handle your money no matter where you are in the world.
Whether you're traveling, lliving in another country, or running a business internationally,
you can manage your finances without hassle.

6.2 Currency Choices:

With international banking, you can keep your money in different currencies. This is
helpful because it allows you to avoid high exchange rates when you're dealing with
different countries. It also makes it easier to make transactions in different currencies
without constantly converting your money.

6.3 More Investment Options:

International banks offer a wider variety of ways to invest your money. Instead of just
sticking to one type of investment, you can spread out your investments across different
options. This diversification can potentially lead to higher returns on your investments.

6.4 Lower Fees:

Some international banks charge lower fees and offer better interest rates compared to
local banks. This can save you money, especially if you're someone who travels often or
conducts a lot of international transactions.

6.5 Protect Your Assets:

By having accounts in different countries, you can safeguard your money from any
economic or political issues that might arise in your home country. This diversification
helps to minimize risks associated with instability.

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6.6 Tax Benefits:

International banking can provide tax advantages, meaning you might be able to legally
reduce the amount of tax you owe. This can help you keep more of your money in your
pocket.

6.7 Privacy and Security:

Some international banks have stricter rules about privacy and better security measures in
place. This ensures that your money and personal information are safer and less likely to be
compromised.

6.8 Expertise and Support:

International banks have experience dealing with financial matters on a global scale. They
can provide you with valuable advice and support for any international transactions you
need to make, as well as help you with your financial planning needs.

Chapter: 07 Technology

7.1 Online Banking:

This allows customers to access their bank accounts and perform transactions over the
internet. It's like having a bank branch on your computer or phone.

7.2 Mobile Banking:

Similar to online banking, but specifically designed for smartphones and tablets. It lets you
manage your finances on the go, like checking balances or transferring money using a
banking app.

7.3 Blockchain:

Think of it as a digital ledger that records transactions across a network of computers. It's
secure and transparent, making it useful for international transactions as it eliminates the
need for intermediaries like banks.

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7.4 Artificial Intelligence (AI):

Banks use AI to analyze vast amounts of data to detect fraud, assess credit risks, and
provide personalized customer service. It's like having a smart assistant that helps banks
make better decisions.

7.5 Biometric Authentication:

This technology uses unique physical characteristics like fingerprints or facial recognition
to verify a person's identity. It adds an extra layer of security to online and mobile banking.

7.6 Cryptocurrency:

Digital currencies like Bitcoin or Ethereum operate independently of traditional banking

systems. They enable fast and lowcost crossborder transactions, though they can be volatile
and are not widely accepted by banks.

7.7 Cloud Computing:

Banks use cloud services to store and process data remotely, instead of relying on physical
servers. It improves efficiency, scalability, and accessibility of banking services.

7.8 APIs (Application Programming Interfaces):

APIs allow different software systems to communicate and share data with each other.
Banks use APIs to integrate with thirdparty services like payment processors or financial
apps, offering customers more choice and convenience.

These technologies play a crucial role in modernizing international banking, making it

more accessible, efficient, and secure for customers worldwide.

Conclusion:

In conclusion, international banking is a vital component of the global financial system,

facilitating crossborder transactions, supporting international trade, and enabling economic
growth. It is governed by regulatory frameworks and international agreements that promote

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stability, integrity, and cooperation among countries and financial institutions. As

technology advances, international banking continues to evolve, offering greater
accessibility, efficiency, and security for customers worldwide.

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