International-Business-Dr-R-Chandran-E-book
International-Business-Dr-R-Chandran-E-book International-Business-Dr-R-Chandran-E-book
5.OFFSHORE BANKING 66 International Business- Dr. R. Chandran No other resources will be effective in the absence of financial resources and that too, at the right time. Non-availability can cause major damage to international operations. The purpose of offshore banking is to provide international business firms funds at cheaper cost, at a high place and at right time. Learning value: After completion of the chapter the reader will learn: 1. Concept and practice of offshore banking 2. Operation mechanism of offshore banks 3. Attractive centres for offshore banks 4. South East Asian offshore banks 5. Initiatives in India for offshore banking Any international business unit, whether manufacturing or trading is always looking for funds for their operations. Every company cannot take funds from its home country due to strict regulations or interest cost or taxes. All over the world the business community is in search of locations where their investments are safe and the funds can be taken out without any barriers and invested comfortably for any ventures in any part of the wo9rld. Currently, Mauritius, Malta, Panama, Man’s Island, Cyprus, Seychelles and Hawaii are a few centres attracting offshore banks. Since 2003, the Government of India has permitted banks to set up offshore banking operations in Special Economic Zones. Hence, the system of offshore banking has become part of international business. Offshore banks are banking units set up by foreign banks in territories where the restrictions and regulations are limited and the intervention of the country of location is minimal. Offshore banking units bring foreign Only for Private Circulation
67 International Business- Dr. R. Chandran currency funds from non-residents and the international money market, and invest them in the host country or in projects set up by the host country in a third country. In short, it is a hassle free and safer banking system for saving and borrowing funds for business. ESTABLISHMENT OF OFFSHORE BANKING UNITS The origin of offshore banking units can be traced to the growth of financial activity in tax havens. A “tax haven” is a place where non-residents can receive income or own assets without paying high taxes. Some such places are Bahamas, Bermuda, Hong Kong, the Netherlands, Panama and Switzerland. Some features of these tax havens are: 1. Low rate or complete absence of income tax on foreign investment and income. 2. High degree of economical and political stability and a political system, which directly or indirectly encourages and fosters business activity at the center. 3. Strict and well enforced rules of banking secrecy. 4. Absence of exchange control 5. Availability of supporting infrastructure such as an efficient communications and transportation network. 6. Presence of well developed legal system and professional accounting expertise. 7. Investor’s confidence due to past credential. 8. No incidence of violence or criminal activities. These features encourage various types of business operations some of which are bona fide but most of them generate what has been termed as ‘dirty offshore funds’. OPERATIONS OF OFFSHORE BANKS Offshore banking centres are an integral part of the foreign currency markets. Therefore, the operations of banking units set up at these centers comprise foreign currency transactions, in the form of accepting and placing of funds in foreign currency outside the country of issue. The functional offshore centers engage in the issue and placement of foreign currency certificates of deposits, loan/credits and bonds. Only for Private Circulation
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5.OFFSHORE BANKING<br />
66<br />
<strong>International</strong> <strong>Business</strong>- <strong>Dr</strong>. R. <strong>Chandran</strong><br />
No other resources will be effective in the absence of financial<br />
resources and that too, at the right time. Non-availability can<br />
cause major damage to international operations. The purpose<br />
of offshore banking is to provide international business firms<br />
funds at cheaper cost, at a high place and at right time.<br />
Learning value:<br />
After completion of the chapter the reader will learn:<br />
1. Concept and practice of offshore banking<br />
2. Operation mechanism of offshore banks<br />
3. Attractive centres for offshore banks<br />
4. South East Asian offshore banks<br />
5. Initiatives in India for offshore banking<br />
Any international business unit, whether manufacturing or trading is always<br />
looking for funds for their operations. Every company cannot take funds<br />
from its home country due to strict regulations or interest cost or taxes.<br />
All over the world the business community is in search of locations where<br />
their investments are safe and the funds can be taken out without any<br />
barriers and invested comfortably for any ventures in any part of the wo9rld.<br />
Currently, Mauritius, Malta, Panama, Man’s Island, Cyprus, Seychelles and<br />
Hawaii are a few centres attracting offshore banks. Since 2003, the<br />
Government of India has permitted banks to set up offshore banking<br />
operations in Special Economic Zones. Hence, the system of offshore<br />
banking has become part of international business.<br />
Offshore banks are banking units set up by foreign banks in territories where<br />
the restrictions and regulations are limited and the intervention of the<br />
country of location is minimal. Offshore banking units bring foreign<br />
Only for Private Circulation
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