Slide: Currency Swaps – A Tool for Reducing Currency Risk

• Definition of Currency Swap:

o A currency swap is an agreement between two parties to exchange one currency for
another, often to reduce the risk of currency fluctuations. Typically, this involves two
borrowers with loans in different currencies.

• Example of Currency Swap:

o Company A (U.S. corporation) has a loan in pounds and needs pounds to make
loan payments.

o Company B (U.K. corporation) has a loan in dollars and needs dollars to make its
loan payments.

o Under the swap:

▪ Company B provides pounds to Company A to cover the payments due on

its loan.

▪ Company A provides dollars to Company B to cover the payments due on

its loan.

o This exchange allows both companies to avoid the currency risk associated with
their loans and access the currency they need without needing to convert large
sums in the open market.

• Advantages of Currency Swaps:

o Efficiency in Borrowing: Makes it easier for borrowers to tap international financial

markets and get the best deal by borrowing in the currency they need most.

o Long-term Contracts: Currency swaps can be set up for extended periods (years),
unlike other short-term hedging tools like futures or options.

o Customization: Can be tailored to the specific needs of the swap partners, unlike
standardized hedging tools.

o Hedge Currency Risk: Helps reduce currency risk exposure for international
borrowers.

o Revenue Generation: Banks can arrange swaps for customers, generating fee
income and serving as swap dealers or guarantors.

• Role of International Banks:

o Heavy borrowers in foreign currencies, international banks use swaps to manage

their currency risk exposure.

o Serve as intermediaries, generating income from arranging swaps and ensuring the
parties fulfill contract terms.
 • Global Impact of Currency Swaps:

o Currency swaps have become one of the largest financial markets in the world,
facilitating trade, risk management, and helping central banks shape their
economies.

Speech to Accompany the Slide:

"Now, let's explore currency swaps, a powerful tool used by businesses and international banks to
manage currency risk. A currency swap is an agreement between two parties to exchange one
currency for another. For example, a U.S. corporation might need pounds to pay off a loan but only
has access to dollars. On the other hand, a British corporation might need dollars but only has
access to pounds. Through a swap agreement, the companies exchange these currencies at
mutually agreed-upon terms, reducing the risk of currency fluctuations and ensuring they can meet
their loan obligations.

Currency swaps have several key advantages, including the ability to set up long-term contracts
and customize the swap according to the parties' needs. For international banks, swaps help
manage their own currency risk and generate fee income by facilitating these agreements for
clients. The swap market has grown to become one of the largest financial markets globally,
enabling businesses and governments to hedge risks and allowing central banks to influence
economic conditions.

In summary, currency swaps not only help companies and banks manage currency risk but also
serve as a significant global financial instrument that fosters trade and financial stability."

4o mini

You said:

Note Issuance Facilities Most international bank loans are short-term, carrying floating interest
rates tied to some international base rate. The most popular rate of this type is LIBOR, the London
Interbank Offer Rate on borrowings of short-term Eurodollar deposits between banks. Increasingly
in recent years, however, international banks have provided credit guarantees for their customers'
borrowings in the open market. One of the most popular is the note issuance facility (NIF). NIFs are
primarily medium-term credit agreements between international banks and their larger corporate
and governmental customers. The NIF customer is authorized to periodically issue short-term
notes, each of which usually comes due in 90 to 180 days, over a stipulated period (such as five
years). International banks pledge to either buy up any notes not bought by other investors or grant
supplemental loans. In most cases, the customer's notes are in large denominations (e.g., $1
million U.S. or larger). Europaper International banks have also played a key role in the
Eurocommercial paper (ECP) market, where multinational corporations raise short-term credit
covering weeks or months. This short-term loan market has attracted international banks and
nonfinancial corporations as investors. While most ECP borrowers are based outside the United
States, a growing cadre of U.S. companies whose credit ratings are not strong enough to crack the U
.S. commercial paper market or who need to sell longer-maturity paper are placing their notes in
the Europaper market. A recent spur to this market has come from financial deregulation in Japan,
which permits Japanese bank affiliates abroad to underwrite international commercial paper,
while both Japanese and non-Japanese firms have recently been allowed to issue and buy yen-
denominated commercial paper. International banks are heavy buyers of ECPs for themselves and
their investing customers and are also among the leading sellers of ECP issues, though this market
as well as the U.S. paper market weakened substantially in the wake of the global credit crisis of
2007- 2009 and following recent natural disasters. Username: Gary MongioviBook: Bank
Management & Financial Services, 9th Edition. No part of any book may be reproduced or
transmitted in any form by any means without the publisher's prior written permission. Use (other
than pursuant to the qualified fair use privilege) in violation of the law or these Terms of Service is
prohibited. Violators will be prosecuted to the full extent of the law. Key URLs To explore more fully
the characteristics of depository receipts (DRs) see especially www.adr.com/ and invest-
fag.com/articles/ stock-adrs.html. Key Video Link @ http://video.cnbc .com/gallery/?video=
1591756436 watch a video about the Singapore Exchange introducing a platform for their investors
to trade in ADRs. Factoid Which do you suppose is biggest-the revenue from loans held at the
foreign offices of U.S. banks or the interest expense on the deposits held at these foreign offices?
Answer: They are often close in amount but deposit interest has often outstripped loan revenue at
U.S banks' foreign offices in recent years, quite unlike the situation inside the United States where
loan revenue received usually outstrips deposit interest paid out to customers. Chapter Twenty
International Banking and the Future of Banking and Financial Services 675 Issuing and Managing
Depository Receipts A related form of assistance that international banks provide customers is the
issuance of depository receipts (DRs). A DR is a negotiable instrument representing an ownership
interest in the stock or debt securities of a foreign institution. This instrument usually arises when
a broker purchases securities issued by a foreign entity and delivers them to a custodian who, in
tum, instructs a depository bank to issue DRs representing the securities. Depository receipts are
usually denominated in a leading international currency-most prominently the U.S. dollar but also
in euros today. This transformation into dollars or euros makes it easier for a foreign borrower to sell
its securities in the global marketplace. To date DRs have been issued in more than 70 countries.
When the borrowing company issuing securities approves of such an arrangement the DR is said to
be "sponsored" by the issuer. However, a broker can simply choose to package any foreign
securities that might be of interest to international investors and request a bank to issue and
distribute DRs without the approval of the issuing company, resulting in an "unsponsored" DR.
Today sponsored DRs are generally popular with investors while unsponsored DRs appear to be
fading due, in part, to lack of control. Quality sponsored DRs that meet the rules often trade on
major securities exchanges. One of the principal attractions of depository receipts for international
investors is the absence of currency risk. For example, through an American depository receipt
(ADR) the value of a foreign security is literally converted into U.S. dollars. Another advantage is that
international investors can geographically diversify their portfolios and thereby reduce country risk.
Moreover, an investor usually can recover his or her funds more quickly by liquidating a DR than by
attempting to sell a foreign-issued security. I want to put these content in 2 slides

2/2

ChatGPT said:

ChatGPT
Here’s how you could structure the content for two slides:

Slide 1: Note Issuance Facilities (NIF) and Europaper

• Note Issuance Facility (NIF):

o A medium-term credit agreement between international banks and large

corporate/government customers.

o Allows customers to issue short-term notes (90–180 days) over a stipulated period
(e.g., 5 years).

o Banks guarantee to buy unsold notes or provide supplemental loans.

o Denominations are often large (e.g., $1 million or more).

• Europaper:

o A short-term loan market for multinational corporations, where they raise credit for
weeks or months.

o International banks and non-financial corporations actively participate as

investors.

o Financial Deregulation in Japan: Japanese bank affiliates and firms can now issue
yen-denominated commercial paper.

o This market experienced a downturn following the 2007-2009 global credit crisis
and recent natural disasters.

Slide 2: Depository Receipts (DRs) in International Banking

• Depository Receipts (DRs):

o A negotiable instrument representing an ownership interest in a foreign

institution’s stock or debt securities.

o Issued when a broker purchases foreign securities and delivers them to a custodian,
which instructs a depository bank to issue the DRs.

o DRs are generally denominated in U.S. dollars or euros for global accessibility.

o Sponsored DRs: Issuer’s approval required (more popular with investors).

o Unsponsored DRs: Issued without issuer's approval (less common due to lack of
control).

• Advantages of DRs:
 o Absence of currency risk: DRs like ADRs convert foreign securities into U.S.
dollars, eliminating exchange rate fluctuations.

o Geographic diversification: Investors can diversify their portfolios, reducing

country risk.

o Faster liquidity: DRs can be sold more quickly than foreign-issued securities.

These two slides will summarize the key concepts in Note Issuance Facilities, Europaper, and
Depository Receipts in international banking. You can elaborate on the points during the
presentation to give additional context.

4o mini

You said:

Supplying Payments and Thrift (Savings) Instruments to International Customers Payments

Services International banks are essential to the functioning of global commerce through the
offering of payments and thrift instruments. Not only do they provide foreign currencies for a
customer making cash payments overseas, but they also issue and accept drafts in payment for
purchases of goods and services across national borders. These irrevocable commitments to pay
may be in the form of sight drafts, due and payable upon presentation, or time drafts, payable only
on a specific future date, usually just long enough for goods to be shipped to another country. Time
drafts usually arise when an importer requests its bank to issue a letter of credit, guaranteeing that
the bank will pay an exporter of goods if the importer fails to do so. The exporter may then draw
through one of its correspondent banks a bill for payment, which is presented to the importer's
bank for acceptance and eventual payment. International banks also issue traveler's checks
denominated in foreign currencies and will wire funds anywhere a customer designates. Savings
(Thrift) Services International banks encourage thrift-short-term and long-term savings-by their
customers. Most of these savings instruments are certificates of deposit (CDs)- interest-bearing
receipts for funds deposited in a bank. While CDs were developed largely to be fixed-rate savings
instruments, today a sizable portion carry floating interest rates tied to movements of a specific
base rate (such as LIBOR). Each day, major international banks post CD rates for the most popular
deposit maturities, posting higher or lower rates depending on their need for funds. The
tremendous success of this bank fund-raising instrument led to an expansion of the CD concept
around the world in the form of the EuroCD, a deposit sold I million-dollar units. Today, most
EuroCDs are issued by branches of the largest U.S., Japanese, Canadian, European, and British
clearing banks. Large-denomination EuroCDs traded in the interbank market are often called tap
CDs, while packages of smallerdenomination EuroCDs sold to a wide range of investors are called
tranche CDs. While most Eurodollars are fixed-rate deposits, floating-rate CDs (FRCDs) and
floating-rate notes (FRNs) are also issued to protect investors and borrowers against interest rate
risk. These flexible-rate investments tend to be medium- to long-term in maturity, ranging from
about 1 year to about 5 years in the case of FRCDs and up to about 20 years for FRNs, with the
attached interest rates typically adjusted every three to six months to reflect current market
conditions.
ChatGPT said:

ChatGPT

Here’s how you could structure the content for two slides on Payments and Thrift Instruments for
International Customers:

Slide 1: Payments Services in International Banking

• Foreign Currency Payments:

o Provide foreign currencies for customers making cash payments overseas.

• Drafts for International Payments:

o Sight Drafts: Payable upon presentation.

o Time Drafts: Payable on a specific future date, often after goods are shipped.

o Letter of Credit (LC): Importer’s bank guarantees payment to the exporter if the
importer defaults.

• Other Payment Services:

o Issuance of traveler’s checks in foreign currencies.

o Wire transfers to any designated destination.

Slide 2: Savings (Thrift) Instruments for International Customers

• Certificates of Deposit (CDs):

o Interest-bearing receipts for deposited funds.

o Fixed-rate and floating-rate CDs tied to base rates like LIBOR.

o Rates are updated daily depending on the bank's need for funds.

• EuroCDs:

o Euro-denominated CDs sold in $1 million units by large international banks.

o Tap CDs: Large-denomination EuroCDs traded in the interbank market.

o Tranche CDs: Smaller-denomination EuroCDs sold to a wide range of investors.

• Floating Rate Instruments:

o Floating-rate CDs (FRCDs) and floating-rate notes (FRNs):

▪ Adjust interest rates periodically to reflect market conditions.

 ▪ Medium to long-term: FRCDs (1-5 years), FRNs (up to 20 years).

These slides summarize the core concepts related to international payments and savings
instruments provided by international banks. You can expand on each point during your
presentation to provide more details and examples.

4o mini

You said:

I want to keep this in 1 slide

ChatGPT said:

ChatGPT

Here’s a condensed version of the content that you can use for one slide:

Payments & Savings Instruments in International Banking

• Payments Services:

o Provide foreign currencies for overseas cash payments.

o Drafts: Sight (due on presentation) and Time (due on a future date), often linked with
Letters of Credit to ensure payment.

o Issue traveler’s checks and facilitate wire transfers to any destination.

• Savings Instruments:

o Certificates of Deposit (CDs): Interest-bearing instruments, available as fixed-rate

or floating-rate tied to base rates (like LIBOR).

o EuroCDs: Large-denomination deposits sold in $1 million units, available as Tap

CDs (interbank market) and Tranche CDs (smaller units for broader investors).

o Floating Rate Instruments (FRCDs & FRNs): Adjustable rates, typically for
medium- to long-term investments (1–20 years), reflecting market conditions.

This version captures the key points and can fit into a single slide.

4o mini

You said:

Underwriting Customer Note and Bond Issues in the Eurobond Market The development of note
issuance facilities (NIFs) by international banks, discussed earlier, is but one example of the
growing role of international banks in underwriting new securities issues in the open market.
Another example is the Eurobond market, where borrowers issue bonds outside their home
country. One reason for the growth of such a market was the increasing number of U.S.
corporations, led by firms the size of Ford Motor Co. and Campbell Soup Co., that decided to tap
Eurobonds to fund their overseas ventures. When U.S. interest rates rise, even purely domestic
firms may find that Eurobond borrowings look cheaper by comparison. Leading international banks
active in this market include Lloyds Bank PLC, JP Morgan Chase, and Citigroup. In an effort to
broaden the market's appeal for the future, recent innovations have appeared. Among them are
debt securities denominated in European currency units (ECUs), representing currencies issued
by various European countries. Helping Customers Market Their Products through Export Trading
Companies An increasingly popular device for aiding customers to sell their goods abroad is the
export trading company (ETC), developed originally by the Japanese. ETCs research foreign
markets, identify firms in those markets that could distribute products, and then provide or arrange
the funding, insurance, and transportation needed to move goods to market. While larger
manufacturers often have extensive foreign trading operations, thousands of smaller firms have not
maximized their opportunities in export markets, in part due to a lack of adequate market research
and few contacts abroad. Inside the United States ETCs have been developed by leading money
center banks and by several smaller regional and community banks. Leading U.S. institutions
launching ETCs at various times include Bank of America, Bankers Trust Co. (now affiliated with
Deutsche Bank), JP Morgan Chase Corp., Citigroup, and Fleet Boston (now part of Bank of America).
Despite widespread interest, however, the growth of export trading activity via ETCs based in the
United States has been somewhat disappointing. To be sure, external developments have played a
major role in limiting ETC activities, particuarly the difficulties many less-developed countries
have faced in finding resources to pay for imports from the United States and in servicing their
international debt. Lack of management experience with the ETC form and lack of distribution
channels and adequate market data from abroad have proven to be major hurdles, especially for
smaller banks. U.S. banks have also complained of heavy capitalization requirements, regulatory
limits on credit extended from banks to their ETC affiliates, and legal restrictions on the proportion
of income that must come from exporting activities. For example, at least 51 percent of ETC income
must come from U.S. exporting activities, and a U.S. international bank can invest no more than 5
percent of its consolidated capital in an ETC nor lend more than 10 percent of its capital to its own
ETC. I will keep this in 1 slide

ChatGPT said:

ChatGPT

Here’s a condensed version of the content for one slide:

Underwriting Customer Note & Bond Issues in Eurobond Market & Export Trading Companies
(ETCs)

• Eurobond Market:

o Eurobonds: Bonds issued outside the home country, popular among U.S.
corporations like Ford and Campbell Soup.
 o Benefits: More cost-effective when domestic interest rates rise.

o International Banks Involved: Lloyds Bank PLC, JP Morgan Chase, Citigroup.

o Innovations: Debt securities denominated in European Currency Units (ECUs).

• Export Trading Companies (ETCs):

o Role: Help firms sell goods abroad by providing market research, distribution,
funding, insurance, and transportation.

o Challenges: Smaller U.S. banks struggle due to limited resources and regulatory
issues, including capital and credit limits.

o U.S. Banks Involved: Bank of America, JP Morgan Chase, Citigroup.

o Limitations: Restrictions on income from export activities and capital investment in

ETCs.

This version captures the key points in a concise format for a single slide.

4o mini

You said:

Protecting Customers against Interest Rate Risk International banks help protect their customers
against interest rate risk-the risk of loss due to adverse interest rate movements. Rising interest
rates can increase a customer's borrowing cost and threaten to erode the profit margin on
investment projects supported by borrowing. Conversely, an international bank's customer may
suffer a loss in the event interest rates fall if the customer's funds are placed in investments with
floating interest yields or in other short-maturity investments that must be renewed at lower
interest rates. Similarly, a customer with a fixed-rate loan fails to benefit from lower market interest
rates unless steps are taken to cover that eventuality. Interest-Rate Swaps International banks can
help their customers limit interest rate risk exposure by arranging interest-rate swaps. As
described in Chapter 8, these contractual agreements require each party to pay at least a portion of
the interest bill owed on the other party's loan. Not only can interest-rate swaps reduce interest
expense for each party, but they also permit each swap partner to more accurately balance cash
inflows generated by its assets with cash outflows traceable mainly to its liabilities. Interest-Rate
Caps International banks also limit the interest rate risk exposure of borrowing customers by
imposing caps (maximum rates) on a customer loan for a fee. For example, the customer
requesting a $100 million loan with an interest rate based on LIBOR may ask for an 8 percent
interest-rate cap so that a rise in market interest rates does not send the loan rate above 8 percent.
Such caps transfer interest rate risk from borrowing customer to international bank and often carry
a stiff fee to compensate the bank for its risk exposure. Financial Futures and Options International
banks are also active in assisting their customers with trading in financial futures and option
contracts. For example, if the customer faces substantial loss from a rise in interest rates, then a
short futures hedge (as described in Chapter 8) can be used to offset losses due to a higher loan
rate; alternatively, a put option could be employed. The prospect of customer losses from falling
interest rates, on the other hand, could be hedged through a long ( or buying) futures hedge or
through the use of a call option. I will put this in one slide

ChatGPT said:

ChatGPT

Here’s a concise version of the content for a single slide:

Protecting Customers Against Interest Rate Risk

• Risk Overview:

o Rising interest rates: Higher borrowing costs, lower project margins.

o Falling interest rates: Losses on floating-rate investments, missed benefits for fixed-
rate borrowers.

• Risk Mitigation Tools:

o Interest-Rate Swaps:

▪ Contractual exchange of interest payments.

▪ Balances cash inflows (assets) with outflows (liabilities).

o Interest-Rate Caps:

▪ Caps the loan rate (e.g., LIBOR + 8%) for a fee, protecting against rate spikes.

o Financial Futures & Options:

▪ Short Hedge: Offsets losses from rising rates.

▪ Long Hedge: Mitigates losses from falling rates.

▪ Options: Use puts (rate rise) or calls (rate fall) for additional flexibility.

This layout is concise, visually balanced, and perfect for a single slide presentation.

4o

You said:

Developing Better Methods for Assessing Risk in International Lending International Loan Risks The
greatest source of risk for most international banks lies in granting foreign loans. Foreign lending is
generally more risky than domestic lending because information sources overseas are often less
reliable than those at home, it's easier to monitor a loan made nearby rather than one made
thousands of miles away, and the court systems needed to enforce contracts and conduct
bankruptcy proceedings are often absent in the international arena. This is country risk. A related
type of risk, usually called sovereign risk, occurs when a foreign government takes actions that
interfere with repayment of an international loan, such as by repudiating all foreign debt,
appropriating private property, or suspending loan payments to conserve the home government's
foreign exchange reserves. The result is that financial institutions choosing to lend abroad must
analyze both the individual borrower and the country and government where the borrower resides.

ChatGPT said:

ChatGPT

Here’s a concise version of the content for a single slide:

Assessing Risk in International Lending

• Key Risks:

o Country Risk:

▪ Limited access to reliable overseas information.

▪ Challenges in monitoring distant loans.

▪ Lack of robust legal systems for enforcing contracts or handling

bankruptcies.

o Sovereign Risk:

▪ Government actions impacting loan repayment, e.g.,:

▪ Debt repudiation.

▪ Property appropriation.

▪ Loan payment suspension to conserve foreign exchange reserves.

• Bank Strategy:

o Assess both the individual borrower and the host country/government.

This concise format highlights key points effectively for a single slide presentation.

4o

You said:

what is debt repudiatrion

ChatGPT said:

ChatGPT
Debt repudiation occurs when a borrower, typically a government, formally refuses to honor its
debt obligations. This means the borrower denies responsibility for repaying part or all of the
borrowed money.

Key Characteristics:

1. Intentional Default: Unlike default caused by financial inability, debt repudiation is a

deliberate decision.

2. Political or Economic Factors: Governments may repudiate debt due to:

o Political changes (e.g., a new regime refuses to recognize previous debts).

o Economic crises (e.g., prioritizing domestic spending over external debt payments).

3. Impact on Creditworthiness:

o Repudiating debt damages the borrower's reputation and access to future

borrowing in global financial markets.

Example:

In the early 20th century, Russia's Bolshevik government repudiated debts owed by the previous
Tsarist regime. This strained Russia's relations with international lenders for decades.

4o

You said:

Possible Solutions to Troubled International Loans Troubled foreign loans, like problem domestic
loans, may be restructured so that a new loan agreement is put together to replace the old
agreement. The new loan may assesses the borrower a lower interest rate and grant a longer
maturity until final payment in return for a restructuring fee. The net cost (concessionality) to the
lender is usually measured by the difference in present value of the original loan versus the (usually
lower) present value of the newly restructured loan. Alternatively, a troubled loan can be sold in the
1216484 2015/09/04 110.52.100.70 Username: Gary MongioviBook: Bank Management & Financial
Services, 9th Edition. No part of any book may be reproduced or transmitted in any form by any
means without the publisher's prior written permission. Use (other than pursuant to the qualified
fair use privilege) in violation of the law or these Terms of Service is prohibited. Violators will be
prosecuted to the full extent of the law. 680 Part Seven Managing the Future in a Global
Marketplace Factoid Which nation today seems to promise the most rapid economic growth but
also the greatest barriers to foreign bank entry? Answer: The People's Republic of China. secondary
market for international loans that has grown up since the early 1980s and is centered around
commercial banks and security dealers in New York and London. Many international banks have
found at least some buyers for discounted foreign loans among large corporations, other banks,
and wealthy investors seeking speculative investments with the potential for high return. Selling
international loans removes these credits from the lender's balance sheet, provides funding for
new assets, and may raise the value of the selling bank's stock. Still another method used to deal
with troubled international credits is to write off all or a portion of a foreign loan, recognizing that
loan as a probable loss. The result is a credit against taxes that, in effect, shares the loan loss
between the international bank's shareholders and the government. Another alternative is for
international banks to accept exit bonds in lieu of loan repayments. These debt securities are
typically valued below the loans they replace and usually require lower or longer-term debt-service
payments. Exit bonds may be backed by government securities or other acceptable collateral. For
example, during the 1990s the U.S. Treasury Department announced plans to sell zero-coupon U.S.
government bonds to Mexico at prices below their market value in order to support a refinancing
agreement worked out between the government of Mexico and leading international banks. Mexico
could use these bonds to pay off exit bonds issued to international banks lending to that nation.
Other nations, including Argentina, Brazil, and the Philippines, converted some of their loans into
bonds bearing longer maturities and lower interest rates than the original loans. These swaps of
bonds for international loans were frequently supported by the central bank of the country where
the borrower resides, providing a quality loan guarantee. In most cases, a combination of remedies
for troubled international loans has been used. The package of remedies may include restructuring
delinquent loans and rescheduling their interest and principal payments, supplemental financial
support by the International Monetary Fund (IMF) and other international agencies, stimulation of
exports, and reduction of imports by indebted nations in an effort to buy time so these countries
can move toward debt retirement and a stronger domestic economy (such as in Europe make me
understand this in simple word

ChatGPT said:

ChatGPT

Here’s a simplified explanation of how international banks handle troubled international loans:

1. Restructuring the Loan

• The bank renegotiates the loan with the borrower.

• They might lower the interest rate or give more time to repay.

• The bank charges a restructuring fee to cover this process.

• This helps the borrower manage their payments, but the bank loses some money because
the restructured loan is usually worth less than the original.

2. Selling the Loan in the Secondary Market

• The bank can sell the loan to another party, like a corporation or investor, at a discounted
price.

• Why would someone buy it? They’re hoping to make a profit if the borrower eventually pays.

• This removes the loan from the bank’s books, frees up cash, and can improve the bank’s
financial health.

3. Writing Off the Loan

 • The bank might decide the loan won’t be repaid and write it off as a loss.

• This loss is used as a tax deduction, sharing the burden between the bank and the
government.

4. Accepting Exit Bonds

• Instead of cash, the borrower gives the bank exit bonds, which are like IOUs with lower
value or longer repayment terms.

• These bonds might be backed by collateral, like government securities, to make them more
reliable.

• Example: In the 1990s, the U.S. Treasury helped Mexico by selling discounted U.S. bonds to
help Mexico refinance its debts.

5. Combining Remedies

• Often, banks use multiple methods to solve the problem.

• For example, they might restructure the loan, sell part of it, and accept bonds for the rest.

• Additional support may come from organizations like the IMF, which provide financial aid or
encourage the borrower’s country to boost exports and cut imports to improve its economy
and pay back debts.

This way, banks try to minimize their losses while helping borrowers stay afloat.

4o

You said:

write these bullet points in pera

ChatGPT said:

ChatGPT

When dealing with troubled international loans, banks use a variety of strategies to minimize losses
and help borrowers manage their obligations. One common approach is restructuring the loan,
where banks renegotiate terms by lowering the interest rate or extending the repayment period.
While this provides relief to the borrower, it often results in a financial loss for the bank, as the
restructured loan is typically worth less than the original. To compensate, banks may charge a
restructuring fee.

Another solution involves selling the loan in the secondary market at a discounted price. Buyers,
such as corporations or investors, purchase these loans hoping for potential profit if the borrower
eventually repays. Selling the loan allows the bank to remove the troubled asset from its books, free
up cash, and improve its financial position. Alternatively, banks may decide to write off a loan
entirely, acknowledging it as a loss. This loss can then be used as a tax deduction, sharing the
financial burden between the bank and the government.

In some cases, banks accept exit bonds instead of direct loan repayments. These bonds often have
lower value or longer repayment terms but might be backed by collateral, such as government
securities, to make them more secure. For instance, in the 1990s, the U.S. Treasury supported
Mexico by selling discounted U.S. bonds to help refinance its debts.

Often, banks combine multiple methods to address the issue. This might include restructuring
delinquent loans, selling a portion of them, and accepting bonds for the remaining amount.
Additionally, support from international organizations like the IMF can play a significant role by
providing financial assistance and encouraging borrowing nations to stimulate exports and reduce
imports. These combined efforts aim to help indebted countries improve their economies and
gradually work toward repaying their debts.

4o

You said:

write a speech of this

ChatGPT said:

ChatGPT

Speech: Addressing Troubled International Loans

Ladies and gentlemen,

Today, I want to discuss an important challenge faced by international banks: managing troubled
international loans. These loans represent a significant risk, and addressing them requires a blend
of strategic thinking, collaboration, and innovative solutions. Let me share some of the approaches
that have proven effective in tackling this complex issue.

One widely used method is loan restructuring. In this approach, banks renegotiate loan terms with
borrowers by reducing interest rates or extending repayment periods. This helps borrowers manage
their financial strain, though it often means a loss for the bank as the restructured loan is worth less
than the original. To offset some of this cost, a restructuring fee is typically charged.

Another option is to sell the troubled loans in the secondary market. This market has grown
significantly over the years, particularly in hubs like New York and London. Buyers, such as
corporations or wealthy investors, see an opportunity to profit if the borrower eventually repays. For
banks, selling these loans helps free up capital, remove bad assets from their balance sheets, and
improve financial health.

In some cases, banks might write off a loan entirely. While this represents a direct loss, it can also
provide a tax credit, effectively sharing the burden with the government. Alternatively, banks may
accept what we call "exit bonds" instead of direct repayments. These bonds often have longer
repayment terms or lower values but may be backed by strong collateral like government securities
to reduce risk.
For example, in the 1990s, the U.S. Treasury collaborated with Mexico to support a refinancing
agreement. Discounted U.S. bonds were sold to Mexico, which used them to pay off some of its
debts. Similar strategies have been adopted by countries like Argentina, Brazil, and the Philippines
to manage their obligations and strengthen their economies.

Addressing troubled loans often requires a combination of solutions. A bank might restructure part
of the loan, sell another part, and accept exit bonds for the remainder. International organizations
like the IMF also play a critical role, offering financial assistance and guiding indebted nations to
take steps like stimulating exports or reducing imports. These measures aim to buy time, allowing
countries to recover and gradually repay their debts.

In conclusion, the management of troubled international loans is not just a financial exercise but a
collaborative effort. It involves creative solutions, partnerships, and a focus on the long-term
stability of both borrowers and lenders. By adopting these strategies, banks can not only protect
their interests but also contribute to global economic resilience.

Thank you.

4o

You said:

Often, banks use multiple methods to solve the problem. For example, they might restructure the
loan, sell part of it, and accept bonds for the rest. Additional support may come from organizations
like the IMF, which provide financial aid or encourage the borrower’s country to boost exports and
cut imports to improve its economy and pay back debts. make it short

ChatGPT said:

ChatGPT

Banks often combine methods, such as restructuring loans, selling portions, and accepting bonds.
Organizations like the IMF may also assist by providing financial aid or encouraging economic
reforms to help countries repay debts.

4o

You said:

in short point

ChatGPT said:

ChatGPT

• Combine methods: restructure loans, sell portions, accept bonds.

• IMF aid: financial support, boost exports, reduce imports.

4o

You said:
International Loan Risks The greatest source of risk for most international banks lies in granting
foreign loans. Foreign lending is generally more risky than domestic lending because information
sources overseas are often less reliable than those at home, it's easier to monitor a loan made
nearby rather than one made thousands of miles away, and the court systems needed to enforce
contracts and conduct bankruptcy proceedings are often absent in the international arena. This is
country risk. A related type of risk, usually called sovereign risk, occurs when a foreign government
takes actions that interfere with repayment of an international loan, such as by repudiating all
foreign debt, appropriating private property, or suspending loan payments to conserve the home
government's foreign exchange reserves. The result is that financial institutions choosing to lend
abroad must analyze both the individual borrower and the country and government where the
borrower resides. I will present this in one slide write it like that, in simple term. and also make a
speech

ChatGPT said:

ChatGPT

Slide Content

International Loan Risks

• Foreign Lending Challenges:

o Information overseas is less reliable.

o Loans are harder to monitor from a distance.

o Weak or absent court systems hinder enforcement.

• Country Risk: Risks from economic or political instability in the borrower's country.

• Sovereign Risk: When governments interfere with loan repayments by:

o Refusing to repay debts.

o Seizing private assets.

o Halting payments to preserve foreign reserves.

• Key Action for Banks:

Analyze both the borrower and the borrower's country/government before lending.

Speech

"Good [morning/afternoon], everyone. Today, let’s discuss the risks international banks face when
granting foreign loans.

Foreign lending comes with unique challenges. First, the information available in other countries is
often less reliable than what banks can access domestically. Additionally, loans made far away are
harder to monitor, and enforcing contracts becomes difficult when court systems are weak or
nonexistent.

This leads to two major risks. The first is country risk, which arises from economic or political
instability in the borrower’s nation. The second is sovereign risk, where governments may interfere
by refusing to repay debts, seizing private property, or suspending loan payments to conserve
foreign reserves.

To navigate these risks, international banks must carefully evaluate not only the borrower but also
the political and economic conditions of their country. This dual analysis is crucial for safeguarding
their investments.

Thank you."

4o

You said:

World Bank to provide $1 billion loan with four conditions Staff Correspondent Dhaka Published: 16
Sep 2024, 18: 51 World Bank World BankFile Photo The World Bank has decided to provide a $1
billion loan to Bangladesh and the global lender has set four conditions to the Bangladesh Bank.
The money must be used specifically for reforming the country’s banking and financial sectors and
strengthening the central bank. In this regard, the World Bank officials held a meeting with
Bangladesh Bank governor Ahsan H Mansur on Sunday. Sources said $750 million of the loan must
be allocated to policy reforms. The central bank expects to receive this assistance in December.
The conditions for securing this loan are: establishing a framework for asset management
companies to recover non-performing loans from banks and financial institutions; formulating
policies to determine the actual beneficiaries of loans; defining the scope of forensic audits for
banks and financial institutions; and creating a separate department within Bangladesh Bank for
regulatory enforcement. The remaining $250 million of the loan will be available for investment
loans and guarantee facilities. Meanwhile, the Asian Development Bank (ADB) has expressed
interest in providing a $1.5 billion loan. An ADB delegation met with the governor on Sunday, and
the funds will be disbursed in three phases. However, this requires redefining the criteria for non-
performing loans and developing new projects for lending in the SME sector. Bangladesh Bank
executive director and spokesperson Husne Ara Shikha told journalists on Sunday that Bangladesh
must meet certain conditions to access these loans. She said these include establishing a private-
sector loan management company, redefining non-performing loans according to international
standards, and setting the scope for forensic audits under a newly formed task force. However,
initiatives have already been taken to address 50 per cent of these conditions, Husne Ara added.
Meanwhile, Bangladesh Bank governor Ahsan H Mansur met with Brent Neiman, the US Treasury
Department’s assistant secretary for international finance on Sunday. They discussed ways to
improve the country’s macroeconomy, including controlling inflation, repatriating illicitly
transferred funds, and promoting growth. The governor was assured of US support for financial
sector reforms. After the fall of the Awami League government on 5 August, the interim government
has focused on reforming the banking sector. Following the appointment of a new central bank
governor, the boards of 11 banks and one financial institution have been reorganized. Among these,
nine were under the controversial S Alam Group’s ownership and control. The group has allegedly
siphoned off nearly Tk 2000 billion from these banks, leading to concerns about recovery. As a
result, normal transactions at these banks have already come to a halt due to liquidity crises. is the
news related to the topics I have discussed now I want to add some Bangladesh perspective in my
slide. that is why I am asking if it is relevant write it

ChatGPT said:

ChatGPT

Yes, the news is relevant to your topics on international loan risks, troubled international loans, and
solutions for managing these loans. Here's how you can relate it to your slide from a Bangladesh
perspective:

Bangladesh Perspective on International Loan Challenges

Recent Developments:

• World Bank Loan of $1 Billion:

o Conditions for reforming Bangladesh’s banking and financial sectors.

o Key conditions include:

▪ Framework for recovering non-performing loans (NPLs).

▪ Policies to identify actual loan beneficiaries.

▪ Defining forensic audit scopes.

▪ Creation of a regulatory enforcement department at Bangladesh Bank.

• ADB Loan of $1.5 Billion:

o Focus on SME lending and redefining NPL criteria based on global standards.

o Requires private-sector loan management initiatives.

Current Challenges in the Banking Sector:

• High levels of non-performing loans, particularly in banks under controversial ownership.

• Liquidity crises leading to halted transactions in several banks.

• Allegations of significant fund mismanagement, such as the Tk 2000 billion siphoned by S

Alam Group.

Government and International Interventions:

• New central bank initiatives under interim government reforms.

• Restructuring of boards in 11 banks to tackle inefficiencies and corruption.

 • Discussions with international organizations like the US Treasury for macroeconomic
improvements, inflation control, and financial reforms.

Implications for Loan Risk Management:

• Reflects the importance of stricter regulatory frameworks and external oversight to manage
risks associated with international loans and foreign lending conditions.

• Highlights the role of policy reforms and institutional capacity in addressing sovereign and
country risks.

This addition can help localize your discussion and provide a clear context for your audience,
showing how these issues are currently being addressed in Bangladesh.

4o

You said:

write a speech

ChatGPT said:

ChatGPT

Speech: International Loan Risks and Bangladesh's Perspective

Ladies and gentlemen,

Today, I want to talk about international loan risks and provide a perspective on how they relate to
Bangladesh’s current challenges.

International lending inherently carries significant risks. Unlike domestic loans, foreign loans are
more difficult to monitor and enforce due to the distance and often unreliable information sources
overseas. This creates what we call country risk—the uncertainty surrounding a nation’s ability to
repay its debts. Adding to this is sovereign risk, which arises when a government takes actions that
hinder loan repayments, such as suspending payments or appropriating private property.

In the context of Bangladesh, we are witnessing how these risks manifest and the steps being taken
to address them. Recently, the World Bank has committed a $1 billion loan to Bangladesh.
However, this assistance comes with important conditions, such as establishing a framework to
recover non-performing loans, defining the scope of forensic audits, and enhancing regulatory
enforcement within Bangladesh Bank.

Similarly, the Asian Development Bank (ADB) has expressed interest in providing $1.5 billion,
focusing on redefining non-performing loans and supporting the SME sector. These efforts highlight
the urgent need for reforms in our financial sector to ensure stability and growth.

The current liquidity crises in some banks, allegations of fund mismanagement, and rising non-
performing loans remind us why international organizations set strict conditions. These measures
aim to reduce risks and ensure that funds are used effectively.
Bangladesh’s government and central bank have already taken steps to address these issues.
Boards of 11 banks have been restructured, new regulatory frameworks are being developed, and
discussions with international organizations like the US Treasury are underway to improve
macroeconomic stability.

These developments underscore the importance of balancing international support with domestic
accountability. It is crucial for Bangladesh to embrace reforms that not only meet the conditions of
foreign lenders but also strengthen the foundation of our financial sector.

In conclusion, managing international loans effectively requires a strong commitment to

transparency, sound governance, and proactive risk management. With these efforts, we can
mitigate risks, foster economic growth, and build a stronger financial future for our nation.

Thank you.