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What makes international banking a high-risk venture?
AThe absence of any demand for loans across borders
BThe need to hold reserves at every central bank
CPolitical and economic uncertainty in other countries
DThe ban on lending to a foreign government at all
Answer & Solution
Correct answer: C. Political and economic uncertainty in other countries
1. Money routinely flows across international borders, so demand for cross border banking is strong.
2. What makes the business risky is political and economic uncertainty in the countries involved.
3. Banks in Europe and Asia were not immune when a financial crisis spread, and several economies took years to recover.
4. Lending to foreign governments is in fact a standard part of the business, so no such ban exists.
_Source: OpenStax Introduction to Business (CC BY 4.0), Ch 15 "Understanding Money and Financial Institutions", section 15.5 International Banking_
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