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

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International Business- Dr. R. Chandran
OFCs to non-residents. Offshore banking is an increasingly attractive
alternative to heavily regulated financial markets of emerging economies.
They exploit the risk return trade off by being more profitable than onshore
banks and in many instances they have more leverage.
OFFSHORE BANKING – METHOD OF OPERATION
Offshore banks deal mostly with other financial institutions and transact
wholesale business in currencies other than that of the country hosting the
OFC. Offshore banking is carried out typically through offshore
establishments that are offshore branches. Offshore branches are legally
indistinguishable from parent banks onshore, which facilitate intra-branch
transfers. Offshore activities may also take place through what are called
parallel-owned banks. These are banks established in different jurisdictions
having the same owner(s), but at the same time they are not subsidiaries.
Offshore banks are mainly engaged in three types of transactions;
Foreign currency loans and deposits, the under writing of bonds, and Over
the Counter (OTC) trading in derivatives for risk management and
speculative purposes. Foreign currency transactions form the bulk of
offshore banking operations. They include transactions between banks and
original depositors, between banks and ultimate borrowers, and between
banks themselves on the inter bank market. Underwriting of bonds floated in
international capital markets is also a significant part of offshore banking
activities.
OFCs IN DEVELOPED COUNTRIES AND EMERGING
ECONOMIES
In the developed countries, OFCs appear to be losing their attractiveness and
appeal for financial institutions, which are operating in liquid, increasingly
competitive and well-regulated financial markets. With competition under
prudential supervision and capital account convertibility being increasingly
adopted, the distinction between onshore and offshore banking is
progressively disappearing in industrialized countries.
In Aisa, offshore interbank markets developed after 1968 when Singapore
lauched the Asian Dollar Market (ADM) and introduced the Asian Currency
Units (ACUs) and Japan established the Japanese Offshore Market (JOM).
Only for Private Circulation