Offshore banking offers a way to get around the limitations on currency movements
for both companies and individuals. Contrary to popular thought, offshore
banking does not legally prevent assets from being subject to personal income tax
on interest. Offshore banks are located in places that provide financial and
legal benefits. There is less restraining legal regulation and low or no taxation
in such places. Also, in terms of regulation, these places provide easy access
to deposits and protect against local political and financial instability.
Some offshore banks provide higher rates of interest than the home country because
of their lower cost base.
Despite the advantages touted by offshore banks, there are potential disadvantages
too. Laidback regulations on money movement and strict privacy laws have two
effects:
It makes offshore banks perfect for money laundering, and It provides little or
no protection for account holder deposits when bankruptcy or outright fraud occurs.
The returns on some offshore banking accounts could be considerably lower
than regular bank accounts. Thus the benefits of offshore banking come at
a high cost. At some offshore banks, the fees and minimum deposits required
to open and operate accounts makes them inaccessible to the general public. Some
popular offshore financial centers:
* Bahamas
* Bermuda
* Cayman Islands
* Channel Islands (Jersey and Guernsey)
* Hong Kong
* Isle of Man
International Banking Facility
International banking facility refers to banking services provided across national
borders. The banks operate in more than one country, with the headquarters
in one place and the bank may open branches or offices in other countries.
International banking services can be both commercial and pertaining to investment
banking and are regulated by the international banking laws. International
banking sector is popular in industrialized nations. These countries are expanding
their trade areas and competing for global business, using their expertise in other
diversified markets.
Foreign currency products including foreign currency banknotes, foreign wire transfers,
foreign currency drafts and cashing foreign drafts are all important elements of
the international banking system. This currency exchange is essential to all
forms of international business.
The main international banking sectors are:
* Head and representative offices
* Foreign branches and foreign subsidiaries
* Edge Act and Agreement corporations
* Export trading companies
Banks have many reasons to go international and offer customers international banking
facility. The knowledge developed on home soil can be used abroad with low
marginal costs to the organization. Multinational banks offering international
banking system have always had a high prestige, liquidity and deposit safety. This
can be used to attract clients abroad. Also, they are not subject to the same
regulations as domestic banks and their activities follow the international banking
laws.
By offering international banking facility the banks can prevent erosion of the
traveler's check, tourist and foreign business market by foreign banks. Maintaining
foreign branches and foreign currency balances help banks lower transaction costs
and foreign exchange risk on currency conversion, but government controls must be
evaded. International banking offers new markets to obtain customers, because
growth in the home country may be limited. Banks can also be assured of greater
stability of earnings with international diversification.