Success in International Banking despite Covid19 pandemic under VUCA world.

1. Ramesh Kumar Nanjundaiya
Sunnyvale, CA 94086
April 25,2020
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Brief Overview - International
Banking and International
Finance in today’s Covid19
pandemic driven VUCA world

2.  The Bretton Woods Institutions are the World Bank and the
International Monetary Fund (IMF). They were set up at a meeting
of 43 countries in Bretton Woods, New Hampshire, USA in July
1944. WW2 had not ended fully.
 Their aims were to help rebuild the shattered postwar economy
(after WW2-1939 to1945) and to promote international economic
cooperation. The original Bretton Woods agreement also
included plans for an International Trade Organisation (ITO) but
was only created when the World Trade Organisation (WTO) was
created in the early 1990s.
 Before Bretton Woods most countries followed gold standard.
After this, each member would redeem its currency for US dollar.
Why dollars because the US held 75% of the world’s supply of
gold. No other country had this position.
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3.  Main Functions:
 1. Funds across a country’s borders
 2. Financing Imports and Exports
 3. FOREX rate determination
 4. International Capital Markets (stocks and
 bonds), debt flows, interest rate differential,
 offshore banking
 5. ALCO management- Manage interest rate risk,
 to avoid mismatch of assets and liabilities.
 6. FOREX – Foreign Exchange. Biggest
 international banking activity.
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4.  Globalization of finance. - is an aggregate concept that
refers to increasing global linkages created through cross-
border financial flows.
 International Banks are also called as Correspondent
Banks, Foreign Branch Bank, Subsidiaries and Affiliates,
Edge Act Banks, Offshore Banking Center.
 Example: A "Swiss bank account," commonly referred to in
Hollywood movies, is an example of an offshore banking
center's services.
 Example: Petrodollars are oil revenues denominated in U.S.
dollars. They are the primary source of revenue for many
oil-exporting members of OPEC, as well as other oil
exporters in the Middle East, Norway, and Russia.
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5.  The deeper meaning of each element of VUCA serves to enhance the strategic
significance of VUCA foresight and insight as well as the behaviour of groups and
individuals and organizations. It discusses systemic failures and behavioural
failures, which are characteristic of organisational failure.
 V = Volatility: the nature and dynamics of change, and the nature and speed of
change forces and change catalysts.
 U = Uncertainty: the lack of predictability, the prospects for surprise, and the
sense of awareness and understanding of issues and events.
 C = Complexity: the multiplex of forces, the confounding of issues, no cause-
and-effect chain and confusion that surrounds organization.
 A = Ambiguity: the haziness of reality, the potential for misreads, and the mixed
meanings of conditions; cause-and-effect confusion.
 PLUS to be added major global confusion- Global Covid19 pandemic?
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6.  International banking is a facilitator for international trade
and provides Flexibility, accessibility, international
transactions and account maintenance.
 Notwithstanding the Covid19 pandemic, international
trade is an ongoing activity and cannot be reduced but
increases year on year.
 If therefore your business wishes to expand internationally
due to large volume of potential imports and exports
activities, for financially sound acquisition overseas, a
supply chain shift or an opportunity to tap into emerging
economies, you need the expertise of International
Banking.
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7.  International cash management,
 Trade finance including guarantees-bonding
 Working capital financing
 Foreign exchange solutions - FOREX.
 An international bank is one which should
support a business through every stage of its
client’s international business life cycle,
customizing solutions to navigate the
complexities of global payment flows and
international market nuances.
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8.  Forex (FX) is the marketplace where various national currencies
are traded. The forex market is the largest, most liquid market in
the world, with trillions of dollars changing hands every day.
 There is no centralized location, rather the forex market is an
electronic network of banks, brokers, institutions, and individual
traders (mostly trading through brokers or banks).
 Many entities, from financial institutions to individual investors,
have currency needs, and may also speculate on the direction of
a particular pair of currencies movement. They post their orders
to buy and sell currencies on the network so they can interact
with other currency orders from other parties.
 The forex market is open 24 hours a day, five days a week,
except for holidays. Currencies may still trade on a holiday if at
least the country/global market is open for business.
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9.  Introduction – Meaning – Elements – Importance –
Evolution of Exchange Rate System – initially the
central bank of the country.
 International Monetary System – Gold Standard –
 Types of Exchange Rates – Fluctuations in
Foreign. Fixed rare floating rate - pegging
 Exchange Rates. Changes in pips – 100 pips
 Need for stable foreign Exchange
 Determination of exchange rate – market demand
and supply.
 Value date and good value transactions....
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10.  A 24 hours of global FOREX business comprises
roughly of an amount of $6.6 trillion - (data April
2019).
 Break-down is as follows:
 $2 trillion in spot transactions
 $1 trillion in outright forwards
 $3.2 trillion in foreign exchange swaps
 $108 billion currency swaps
 $294 billion in options and other products
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11.  In finance, a derivative is a contract that derives its value from
the performance of an underlying entity.
 This underlying entity can be an asset, index, or interest rate,
and is often simply called the "underlying".
 Derivatives can be used for a number of purposes, including
insuring against price movements (hedging), increasing exposure
to price movements for speculation or getting access to
otherwise hard-to-trade assets or markets.
 Some of the more common derivatives include forwards, futures,
options, swaps, and variations of these such as synthetic
collateralized debt obligations and credit default swaps.
 Most derivatives are traded over-the-counter (off-exchange) or
on an exchange such as the Chicago Mercantile Exchange.
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12.  International Banking or International Finance is also
about having knowledge about local markets across
the globe.
 A business that is stepping into overseas markets
needs financial tools and services as foreign
exchange, arranging global trade mechanism via
letters of credit, merchant services and international
financing.
 This is to help business clientele with optimizing
payments to improve transparency and manage
operating as well as counterparty risks.
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13.  International finance is a study that deals with
the economic interactions between multiple
countries, rather than narrowly focusing on
individual markets.
 In diplomacy this is called multilateralism.
 When only two specific countries enter into
trade and investment relations, this is called
bilateralism.
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14.  Yes: Since then the world has changed dramatically,
bringing extensive prosperity and lifting millions out of
poverty. In many ways the IMF's main purpose is to provide
financial stability globally.
 Today the IMF continues to:
 Provide a forum for cooperation on international monetary
problems
 Facilitate the growth of international trade, thus promoting
job creation, economic growth, and poverty reduction;
 Promote exchange rate stability and an open system of
international payments; and
 Lend countries foreign exchange when needed, on a
temporary basis and under adequate safeguards, to help
them address balance of payments problems. Also help
countries in their import and export activities.
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15.  Banks issue different types of guarantees
including bid (tender),advance payment,
performance bond, deferred payment
guarantees, retention bond and financial
guarantees.
 Guarantees or bonding facility are used for
different reasons instead of cash. Often, they are
included in arrangements between a small firm
and a large organization issued by local and
international banks. Banks also issue payment
guarantees as well on a fully secured basis.
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16.  International Banking helps you in using the right
and timely financing tools to increase your
working capital and win sales against foreign
competitors.
 Getting paid for the transfer of goods is the end
goal in an export transaction and the seller must
choose a financing option that minimizes
payment risk while also meeting the buyer’s
needs.
 There are many payment methods that can assist
you in financing your export operation both pre-
and post-export. Commercial LCs, Standby LCs,
Open account, revolving LCs, non LC
documentation presentation via banks methods.
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17.  Protects exporters against non-payment if
the exporter meets the terms in the LC;
mitigates cross-border risks
 Leverages the bank’s compliance and control
mechanisms
 Manages payment and document exchange,
governed by global standards
 Offers flexible financing options
 Banks deal in documents only not goods
 LC commission 1% to 1.25% pa. (recovered on
quarterly rests)
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18.  Risk of non-payment is entirely on seller: full
counterparty, country, currency and cross-
border risks
 Compliance, control and anti-money
laundering issues managed by seller
 No third-party oversight or guarantees
 Simple, streamlined and inexpensive
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19.  A flexible and secure financing option in which the
issuing bank (importers bank) is liable for payment
even if the importer defaults. The terms and
conditions of the letter of credit can be tailored to the
needs of the exporter, thereby reducing risk while
still having a fair and legally binding contract in
place.
 Exporters can pass financing costs on to their buyers
and receive payment sooner than an open account—
once the terms of the letter of credit have been met—
which can help to improve cash flow and shorten the
days sales outstanding (DSO). Exports documents
under LC can be negotiated and discounted. By the
exporters bank in the exporter’s country.
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20.  Emirates NBD's smart TRADE portal offers Emirates
NBD Transaction Banking clients a comprehensive
range of functionalities, allowing them to submit
requests for LC or trade loans completely online, thus
benefitting from a shorter turnaround time.
 The bank has recently revamped the platform to
make it easier for clients to obtain trust receipt
financing by allowing them to submit a request
instantly online instead of visiting a bank branch.
 Customers also receive real time updates on the
status of their transactions through email and SMS
notifications.
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21.  Fraud connected to the Libor (London Inter-bank Offered
Rate).
 Libor is an average interest rate calculated through
submissions of interest rates by major banks across the
world.
 The scandal arose when it was discovered that banks were
falsely inflating or deflating their rates so as to profit from
trades, or to give the impression that they were more
creditworthy than they were.
 Libor underpins approximately $350 trillion in derivatives.
Because Libor is used in US derivatives markets. An
attempt to manipulate Libor is an attempt to manipulate
US derivatives markets and thus a violation of American
law.
 Mortgages, student loans, financial derivatives, and other
financial products often rely on Libor as a reference rate.
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22.  One of the main purposes of capital markets is to
create economies of scale and promote economic
efficiency.
 On the international level, it denotes ease of
buying and selling securities and seamlessly
converting it into cash when necessary. It aids in
immobilizing idle savings and channels it into a
direction of more productive investment.
 They balance the supply and demand of funds
driving financial security, thereby, ensuring
optimal use of resources, which further helps in
capital formation and development of the
economy.
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