Commercial Banks as Catalyst in International Business
Commercial banks have become a field of raising interest of economy, the banks playa special role to minimize the agency cost between the borrowers and lenders but commercial banks have comparative advantage due to their superior capability to provide debt with inside information.
Commercial banks play important role in not only local business but also in international business. Today all major banks have branches in major cities of the world and they have formed coloration with banks in the other countries to better serve International business community. The banks from a bond of trust between the buying and selling transactions of international market, the indivisible banks offer services like foreign exchange, traveler cheque, electronic transfer and letter of credit (LC) etc.
One of the problem international business encountering doing business internationally IS lack of trust. With the help of financial device commercial banks are able for a bond of trust between international buyers and sellers. In commercial method like commercial collection and letter of credit act as agent to handle payment as well as relevant document. Letter of credit (LC) is most wide acceptable and used method of doing international business transactions, some banks and government agencies offer export credit, in such cases banks offer export credit insurance.
Foreign exchange market is another area where international commercial banks play vital role. Foreign exchange market’ serves two main functions, convert the currency of one country into another and provide some insurance against foreign exchange risk. Multinational corporations constantly needed various currencies for their operations. The international banks provide foreign exchange service to their commercial business clients to complete their business transactions the banks are act as brokers between commercial customers and foreign exchange around the world.
Many commercial banks offer short term as well as long term loans financing to international business many countries have form banks backed by government findings to provide findings for exports and imports. Banks that are serving international trade under stand the crucial role they are required to play. Many large banks maintain world wide correspondent to provide choose your bank for international trade on the basis weather bank can extend advance against the account receivable, bank may however require your account secured through export credit insurance. Bank also let your enter into forward exchange contract with your bank and fix the amount of the foreign exchange you receive when you received when you are dealing in convertible currency. You need your bank to be with you as long as you are in international trade.
In short banking sector play a vital role of catalysts in international business due to technology advances in banking sector communication gap and delays in international business have really narrow down a lot.
