| Which of the following is true of offshore banking? The offshore banks are mainly concentrated in the European Union and the transactions are generally denominated in euro. The offshore banks operate with costly restrictions and pay higher taxes than the domestic banks. The offshore banks usually charge higher rates of interest on consumption loans than the domestic banks. Offshore banks in the U.S. are able to offer a higher rate on dollar deposits and a lower rate on dollar loans than their domestic competitors. Offshore banking transactions are considerably less risky than domestic transactions as they are closely monitored by the government of the nations in which they operate. |
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| Offshore banks in the U.S. are able to offer a higher rate on dollar deposits and a lower rate on dollar loans than their domestic competitors.ExplanationThe domestic banks are required to hold reserves to meet unexpected withdrawals and usually are regulated by the government in regards to interest rate payments. On the contrary, offshore bank’s offer higher rates on deposits than domestic banks. Additionally, offshore banks have a lower rate on dollar loans than the domestic competitors. This difference makes it hard to eliminate the eurodollar transactions because they pose lower risks than the domestic transactions. Reference Macroeconomics, By William Boyes, Michael Melvin Page 272 |
