International-Business-Dr-R-Chandran-E-book

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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.
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