Nowadays the banking systems all over the world are considered to be the circulatory system of the world economy. That is why it is very important to investigate, explore and to get deep knowledge in all aspects of the banking system area in order to be prosperous in running international business and being up-to date participant of the global business world. That is why in our research we would like to explore the banking strategy and risk management of international portfolio investment. This aspect of participation in international business is very up-to date, because the functionality options of the global economy are not limited by the international lines. In order to achieve the highest revenue rates and to be legal participant of the international business, it is very important to get deep knowledge of the international banking system, to know the legislative background of that issue and also to outline the risk points and to calculate whether the operation on the international financial market, especially investment into the foreign economy development is profitable and rational investment.

In our research we would outline the basic information, concerning the international banking system, portfolio investment and risk management and we would give the general recommendations concerning international business effective running.

The main purposes of our research are the following:

1. To explore efficiency of portfolio investment and its influence on the international banking system development and functioning.

2. To elaborate methodology of international banking system improvement with the tools of portfolio investment, including the calculations of the risk and generation managers decision, concerning the economical solutions for international business running.

3. To investigate the efficiency of worked-out strategy in the international banking system development.

The object of research is the international banking system and its organisation

The subject of the research is the strategy and risk management of international portfolio investment.

The research methods are: analysis of scientific and of methodological literature, economical observations, the ascertaining and the main managerial experiments, such as determination of the economical development and functional state of the banking system with the help of instrumental measurement technique – economical analysis.

The scientific novelty of our research includes the following issues:

· Grounded planning of the foreign portfolio investments;

· Scientifically grounded requirements to the organization and to the functioning of the international banking system with the foreign portfolio investments;

· Achievement of the highest revenue rate as a result of the reasonable planning of the portfolio investments risk and its profitableness.

In order to achieve the above listed research objectives we would like to outline the basic information concerning portfolio investment and international banking system and the risk management.

Portfolio investment is the tool of purchasing, stocks, bonds and money market instruments by the citizens of foreign country. Such economical activities are carried out for getting financial return after investment into the foreign country economical field, which offers an opportunity to get profits and to participate passively in fulfilment those economical cells which have not been occupied yet by the local businessman due to some reasons. Williamson, J. (1995) outlines the following important issues, concerning the portfolio investment: the investor does is not the owner of some enterprise or company, one does not carry out the foreign management and is not provided with the permissions of legal control. As examples of the portfolio investments it is possible to outline the following economical activities: purchasing some shares or stocks in the foreign company; purchasing some bonds, offered by the government of the foreign country; acquisition of some assets in the foreign company. Uppal, R. (1993) considers the participation in the foreign business is passive- investor only provides some international company (in our case banking system) with the capital and gets the handsome dividends for his money.[1] All actions, decision making and organisational structure of the company cannot be influenced by investor. [2]

Thomas, S., and M. Wickens (1993) consider the portfolio investment as a contrast to a direct investment –or foreign direct investment (FDI) – long term participation in such fields of the economical activity as joint-venture, transfer of technology and expertise and management. [3]

Wihlborg, C. (1978) outlines the following factors, which affect the international portfolio investment:

· Interest rates – the possibility of getting the highest income rate in the chosen country. That aspect depends on the state policy of the country, directed to the foreign investments attracting and to the openness of the national economical system to the foreign participants.

· Tax rates- the possibility of choosing those enterprises or banking systems to invest money in, which are located in the country the lowest tax rate.

· Exchange rates – the most attractive are those financial market, which have got the tendency of their local currency strengthen.[4]

One more important issue, concerning the portfolio investment into the bank system is that it is included into the organisational account on the balance of payments statistics.[5]

In order to outline the general impact of the portfolio investment into the bank system, it is necessary to give the brief analysis of the banking system.

The bank system is the set of different types of national and international banks, crediting establishments, which carry out their activities in concordance with the general money-and-credit mechanism. The bank system includes the Central bank, the set of commercial banks and other crediting and calculating centres. The Central bank carries out the following activities: national emissive and currency policy and it is the basis for the national reserve system. Commercial banks carry out all types of the banking.[6]

Nowadays, with the development and popularisation of the management science, there is such a relatively new direction as a risk management. It is a very important tool in identification, evaluation and prevention of risks in the different fields of economical activity. her activities. This tool allows controlling the probability and impact of the unfortunate factors and to generate the instruments of their prevention or complexity management.

There are different sources of risks, in accordance to the Hubbard classification. Among them it is possible to outline the following: uncertain financial markets, natural disasters accidents, attacks from adversary, credit risks, project failures and judicial liabilities[7]

In our research we would like to outline those factors, which should be taken in consideration, while choosing the country and the banking system to invest money in. According to the Solnik, B. (1994),it is very important to investigate the current political and social factors of the foreign country – collecting of the information, concerning the economical stability and prosperity. The deep analysis of the political situation, which may have its significant impact on the economical and as a result on the banking system of the country, should be carried out. In such case it is very important to outline the duration of the current State power, its main economical achievements, attitude towards current banking system – whether they are willing to carry out the reformation or to support the system with the governmental dotations. [8]

Shumway, T. (1996) outlines another important issue is the economical stability and prosperity. The investor should make a deep analysis of the current situation in the different areas of the local economy and to outline its strong and weak points in order to predict and prevent risks.[9]

After the deep analysis, the investor is provided with the following tools – regulators of the risk: it is possible to transfer risk to another party, to avoid the risk, to reduce its negative impact and to carry out the transformation to the particular risk status- by finding the consequences. Alberts, C. (2008) concerns the lack of well-defined system of measurement the risks as the weak point of risk management.[10]

Finally, we would like to consider the efficiency of portfolio investment as one of the most acceptable variants of participation in international business. It allows the investor to get stable incomes with law rate of taxes, exchange rates and with the high interest rates. The above listed economical prosperity factors are achievable in case of deep analysis of possibilities and risks and in the well-grounded business planning before making a decision , concerning oparticipation in the international business.

For the state policy of banking system improvement it is very important to attract the foreign investors and in such manner to get the additional financial aid for the local economy.

In other words, the portfolio investment can be applied as the tool of international banking system improvement with in combination with the risk calculations and generation of managers’ decision, concerning the economical solutions for international business running and participation.

Finally, we would like to stress on the issue that investigation of the efficiency of worked-out strategy in the international banking system development can be done with the help of the annual reports of the bank, which has got the financial aid from the foreign investor. The competitiveness rate of such bank would increase, because the capital flow would be directed for the reconstruction, development and support of the existent system and that in turn would attract additional clients and increase the revenue rate.