Micro Theory of International Financial Intermediation
Abstract
I. A Taxonomic Approach International financial intermediation can be defined to include three main types of transactions. 1) Financial transactions of a bank (a term used henceforward to include all intermediaries since banks are by far the major participants in these activities) with nonresidents denominated in the currency of the country in which the bank is resident. This item includes, for example, U.S. dollar deposits at American banks by nonresidents of the United States and U.S. dollar loans by American banks to nonresidents of the United States. 2) Financial transactions of a bank with nonresidents denominated in currencies other than the currency of the country in which the bank is resident. This category includes, for example, Eurocurrency deposits and Eurocurrency loans made by Eurobanks with nonresidents of the country in which the Eurobank is resident. 1 3) Financial transactions of a bank with residents denominated in foreign currencies. This category includes, for example, U.S. dollar deposits of Canadian residents at Canadian banks and U.S. dollar loans to Canadian residents by Canadian banks. Making use of these distinctions, one can construct a balance sheet of an individual bank or some aggregate of banks involved in international financial intermediation as follows.
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