Policies need be established that dictate how currency is used (Homaifar, 2003).
Trends in international banking suggests that within Europe while the euro may still be the standard currency used, often throughout the world and in international banks generally, much of currency is denominated in the form of dollars (Bertuch-Samuels & Ramlogan, 2007; Homaifar, 2003). The United States dollar has represented the gold standard among international financial institutions because the U.S. has relatively little exchange rate fluctuation, which lowers the potential risk within the international financial marketplace. To gain operational independence and affirm prices will remain stable, banks want to ensure the currency they use is issued in a country that is stable and holds prestige (Homaifar, 2003). This can easily be assessed by evaluating a country's financial systems, determining whether the banking systems are strong and offer policies and provisions for conducting business using foreign currency as well as domestic currency (Homaifar, 2003;Lim, 2006). The more standard and stable a currency, the more likely global financial institutions are to relinquish any concerns about market barriers so that capital can move more freely between countries and organizations conducting business (Lim, 2006).
Conclusions & Commentary
Financial institutions operating internationally face risk in many forms, including the risk of interest rate increases or foreign exchange rate volatility when working with various currencies (Homaifar, 2003). Multinational banks however, can minimize the risks associated with global financing by evaluating the cost-benefit of doing business with organizations and using various instruments, and analyzing alternate hedging vehicles for managing operations.
Blount (1998) suggests that reductions in risks associated with global financing will stem from cooperative efforts between banks and political leaders....
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