3. International banks risk management procedures when considering foreign direct investment Bank goes abroad in the form of foreign direct investment. In doing business internationally, the bank might face types of risk Types of risk? - Credit risk - Interest rate risk - Currency risks - devaluations, balance of payments, prone to capital flight, does the country have a strong balance sheet, fixed/floating FX rate - Liquidity risk - Political risks - corruption, cronyism, violence, social contract - Country risks - protect foreign interests, legal structure, - Operational risks - international banks more complex, sufficient monitoring, enough skilled personnel, principal-agent problem, Nick Leeson, Jerome Kervie - Economic risks - do they know the market, credit risks, concentration risk. How can a bank mitigate these risks? Besides the risk management process she suggests below, you should pay attention to refer to: Risk management process in Circular 13/2018 of the State Bank with 4 steps: Risk identification, risk measurement, risk assessment, risk control. Know the market & customers and increase presence at a steady pace (representative office-low presence, foreign branch-high presence) start with low cost, low risk products & services (revolver loans & overdrafts) - Counterparty & country limits reduce risk, check management team, accounting info, monitoring loans. - Share risks - syndicated loans. - Use derivatives to hedge FX risk, credit risk and interest rate risk. 3. Conclusion/Concluding remarks Citing sources in Harvard style