Explain the role of correspondent banking units (CBUs) role in doing business across borders

Question

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Answer 1

Foreign currency exchange, letters of credit and their confirmations, and other services that enable firms to do business across borders are provided by the correspondent banking units (CBUs) of commercial banks. These CBUs are responsible for managing a set of relationships with banks in other countries, referred to as correspondent banks, that provide agreed-upon banking services (e.g., confirming letters of credit) to one another. Without these correspondent banking relationships, it would be virtually impossible for companies to conduct any cross-border trade. Correspondent banks provide account and trade services to each other that facilitate the efficient movement of payments across borders and provide protection to both the sellers and buyers doing business across borders.