A change in economic environment will stimulate financial institutions to search for financial innovations. Change in demand conditions, especially in interest-rate risk, change in supply conditions, especially improvement in information technology, and the desire to avoid costly regulations have been major driving force behind financial innovations. International banking has benefited from these changes and therefore has hurt profitability in banks traditional lines of business and has led to decline in traditional banking.

1. How financial innovations influenced the growth of international banking? Can you indicate some of the financial innovations that contributed to the profitability of international banking?