GLOBAL FINANCE WITH E-BANKING

PART I INTERNATIONAL FINANCE

International Finance Defined

International Finance - is the branch of financial economics broadly concerned with

monetary and macroeconomic interrelations between two or more countries.
International Finance - examines the dynamics of the global financial system,
international monetary systems, balance of payments, exchange rates, foreign direct
investment, and how these topics relate to international trade.

The social and economic development of any country greatly depends on an

efficient financial system. It is responsible for financing vital programs and projects that
promote and accelerate social and economic development.

The rich countries like the United States, Japan, France, Great Britain and other
Western European Countries are in a much better position to implement their plans of
development because they have sufficient funds. Their financial systems are not only well-
developed but also very efficient in their operations. On the other hand, the poor countries
cannot even finance many of their basic development programs, such as irrigation, roads and
bridges, communication facilities, and other development projects. The reason is, of course,
the lack of funds. Thus, the last option is to borrow funds form the rich countries and
international financial institutions like the World Bank, International Monetary Fund, and the
Asian Development Bank.

Relevance of Finance for Development

Finance plays a very important function in the economy, especially in a free enterprise
economy. It deals with the principles, institutions, instruments and procedures involved in
making payments of all types in the economy. Such payments include goods and services
which are purchased in cash and on credit. These also include payments for intangible claims
to wealth like stocks and bonds. Furthermore, finance is concerned with utilizing money that
has been saved available for investment in business and government.

A well-developed financial system is the lifeblood of the economy. Large scale

production and a high degree of specialization can only function with the framework of an
effective financial system. Such system facilitates the payment of goods and services which
are used in consumption or production. Under this situation, businesses can obtain the funds
it needs to purchase capital goods like machinery, buildings and equipment.
 In the same manner, the national government and other government agencies can
implement their various programs and projects if there are efficient ways of making
payments and of borrowing money. In the case of the private sector, the goods to be
produced and sold are determined by the price system. Goods that give more profits to the
businessmen are given top priority in production and marketing. Ultimately, only the most
efficient producers/sellers remain in business. And the financial system plays a decisive role
in creating an economic environment conducive for both producers and consumers.
International Business Finance

Companies with foreign operations are called global organizations, international

corporations or multinationals. These firms consider financial factors, which may not directly
affect local companies, such as foreign exchange rates, differing interest rates from one
country to another, complex accounting methods for foreign operations, foreign government
intervention, and foreign tax rates.

Similar with domestic firms, principles of business finance also apply to foreign
operations. They also seek to invest in projects that create more value for the shareholders
than they cost and to arrange financing that raises cash at the lowest possible cost. In other
words, the net present value principle holds both for foreign and domestic operations,
although it can be more complicated to apply time value of money to foreign investments.

One significant complication of international business is foreign exchange. The foreign

exchange markets provide important information and opportunities for an international
corporation when it undertakes capital budgeting and financing decisions. These financial
variables including international exchange rates, interest rates, and inflation rates, are closely
related.

Global Banking

Many years ago, international business was mainly an international trade. Agricultural
countries exported raw materials to the industrial countries. The finished products were then
sold back to the agricultural countries. With the growth of international trade, international
finance and investment developed to support manufacturing. The industrial countries have
invested their surplus funds in the economies of the underdeveloped or developing
countries. Such investments were strictly financial in nature and involved the flow of financial
resources through banks, investment houses and governments.

Transnational Banks
= are international finance institutions which do their business in many countries of the world.
= are special types of transnational corporations whose field of specialization is global banking
or international finance.

The roots of transnational banking had a colonial beginning. Colonial empires, mostly
European countries like Great Britain, France, and Spain, established the branches or offices
of their financial institutions in their colonies in order to facilitate trade. For instance, during
the British colonial empire, banks were put up in their colonies to conduct foreign exchange
operations and to supply short- term funds to both exporters and importers. And as trade
expanded, banks grew in number. Wherever there was trade, banks followed. In fact, the
British banking system even reached the shores of our country during the Spanish time.

Since England is the cradle of the Industrial Revolution, it started the factory system
of production. This made England the leader in international trade. And subsequently, a
pioneer in the development of financial institutions- later on global banking.

Other countries followed the footsteps of England. French financial institutions began
overseas operations in the 1870s. German banks likewise participated in international
banking in 1886 with the establishment of an overseas bank in South America. United States
banks also became transnational. Their global banking operations began after the Act of 1913
which authorized the establishment of overseas branches of national banks in order to
bolster the foreign trade of the United States. A late comer in global banking is Japan.
Japanese banks started their international banking operations in the late 1950s. It is noted
that transnational banks expanded only during the last twenty years. The growth of the
transnational corporations and their control over production and trade all over the world
have stimulated the proliferation of global banks.

Global Banking in the Philippines

The Philippines is a part of the global banking system. The transnational banks
constitute a major part of the Philippine financial system. These global financial institutions
consider our country a good market for lending and even participate actively in the affairs of
the Philippine financial system.
They have their branches, offshore banking units (OBUs) and shares in domestic
financial institutions. Because of their huge credit facilities, they can dominate the Philippine
financial system and even the whole economy under the leadership of IMF, WB and ADB.

Major Customers of the Transnational Banks in our Country

1. government
2. branches and subsidiaries of multinational corporations
3. top 1,000 corporations.

ASEAN and the Philippine Economy

 The Association of Southeast Asian Nations, or ASEAN, was established on 8 August
1967 in Bangkok, Thailand, with the signing of the ASEAN Declaration (Bangkok Declaration)
by the Founding Fathers of ASEAN, namely Indonesia, Malaysia, Philippines, Singapore and
Thailand.
Brunei Darussalam then joined on 7 January 1984, Viet Nam on 28 July 1995, Lao PDR
and Myanmar on 23 July 1997, and Cambodia on 30 April 1999, making up what is today the
ten Member States of ASEAN.

Its aims include accelerating economic growth, social progress, and cultural
development among its members, protection of regional peace and stability, and
opportunities for member countries to discuss differences peacefully.

AIMS AND PURPOSES

As set out in the ASEAN Declaration, the aims and purposes of ASEAN are:
1. To accelerate the economic growth, social progress and cultural development in
the region through joint endeavors in the spirit of equality and partnership in
order to strengthen the foundation for a prosperous and peaceful community of
Southeast Asian Nations;
2. To promote regional peace and stability through abiding respect for justice and
the rule of law in the relationship among countries of the region and adherence to
the principles of the United Nations Charter;
3. To promote active collaboration and mutual assistance on matters of common
interest in the economic, social, cultural, technical, scientific and administrative
fields;
4. To provide assistance to each other in the form of training and research facilities
in the educational, professional, technical and administrative spheres;
5. To collaborate more effectively for the greater utilization of their agriculture and
industries, the expansion of their trade, including the study of the problems of
international commodity trade, the improvement of their transportation and
communications facilities and the raising of the living standards of their peoples;
6. To promote Southeast Asian studies; and
7. To maintain close and beneficial cooperation with existing international and
regional organizations with similar aims and purposes, and explore all avenues for
even closer cooperation among themselves.

The Philippine Economy

The Economy of the Philippines is the 40th largest in the world, according to 2012
International Monetary Fund statistics and it is also one of the emerging markets in the
world. The Philippines is considered as a newly industrialized country, it has been
transitioning from one based on agriculture to one based more on services and
manufacturing. According to the CIA Factbook, the estimated 2012 GDP (purchasing power
parity was 424.355 billion. Goldman Sachs estimates that by the year 2050, the Philippines
will be the 14th largest economy in the world, Goldman Sachs also included the Philippines in
its list of the Next Eleven economies. According to HSBC, the Philippine economy will become
the 16th largest economy in the world, 5th largest economy in Asia and the largest economy
in the Southeast Asian region by 2050.
Primary exports include semiconductors and electronic products, transport
equipment, garments, copper products, petroleum products, coconut oil, and fruits. Major
trading partners include the United States, Japan, China, Singapore, South Korea, the
Netherlands, Hong Kong, Germany, Taiwan, and Thailand. The Philippines has been
named as one of the Tiger Cub Economies together with Indonesia, Malaysia and Thailand. It
is currently one of Asia's fastest growing economies. However, major problems remain,
mainly having to do with alleviating the wide income and growth disparities between the
country's different regions and socioeconomic classes, reducing corruption, and investing in
the infrastructure necessary to ensure future growth.
In the years 2012 and 2013, the Philippines posted high GDP growth rates, reaching 6.8% in
2012 and 7.7% in the first quarter and 7.5% in the second quarter of 2013,the highest GDP
growth rates in Asia for the first two quarters of 2013, followed by China and Indonesia.

In a market economy, the price system determines the allocation of goods and
services as well as credit. Prices of goods and services are determined by the law of supply
and demand. This means when supply is greater than demand, prices goes down. On the
other hand, when demand is greater than supply, a price goes up. Precisely, it is price that
encourages or discourages individual buyers and sellers to purchase and offer goods and
services, respectively. All other thing being constant like income, consumers cannot afford to
buy the same number of goods when price goes up. They have to reduce their purchases.