A bank may establish a multinational operation for the reason of regulatory adva

Question

A bank may establish a multinational operation for the reason of regulatory advantage. The underlying rationale being:

Select one:

a. Banks follow their multinational customers abroad to prevent the erosion of their clientele to foreign banks seeking to service the multinational's foreign subsidiaries.

b. Multinational banking operations help a bank prevent the erosion of its traveler's check, tourist, and foreign business markets from foreign bank competition.

c. By maintaining foreign branches and foreign currency balances, banks may reduce transaction costs and foreign exchange risk on currency conversion if government controls can be circumvented.

d. Multinational banks are often not subject to the same regulations as domestic banks. There may be reduced need to publish adequate financial information, lack of required deposit insurance and reserve requirements on foreign currency deposits, and the absence of territorial restrictions.

Explanation / Answer

The answer is:

c- By maintaining foreign branches and foreign currency balances, banks may reduce transaction costs and foreign echange risk on currency erosion if government controls can be circumvented.

This in turn enhances the way banks do business, reducing the risk and also increasing the presence overseas.

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