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17

Flow trading is in spirit very similar to market making - such firms make a profit by earning a spread. There are 3 common ways this is done. Suppose a client wants to buy 100k shares of XYZ, which is publicly quoted at 1M@10.01 bid, 1M@10.03 ask. For sake of simplification, assume sub-penny pricing is not accepted in the jurisdiction where XYZ is listed. ...


13

Asking questions like "what is your sharpe ratio" is, IMO, not a good idea. Ask questions that demonstrate your interest in making their firm a success. What markets do you trade? (you listed this one) Describe the firm's high-level process for taking an idea, developing a model, and moving it into production. What constraints do you place on new models? ...


12

Fed funds futures settle into the average daily Fed Funds effective rates over the month. The December 2015 futures contract therefore covers the current Fed funds target rate (0-25bp) for 16 days, and then the new rate range (expected to be 25-50bp) for 15 days. To compute the exact probability of a rate hike involves some assumptions. For simplicity, let'...


12

CVA desks are not front office as they have no dealings with external clients. They can be considered "smart middle office" as they are a necessary part of the plumbing to facilitate the core activity of the bank, which is to trade as many derivatives as possible with clients, all of whom have varying levels of credit risk. Essentially, it allows traders in ...


6

In some banks the CVA desk is not expected to make profits (or losses). If they are having profit it is because they are overcharging CVA from other internal desks (and hence making those desks less competitive to external clients). If they are making losses it is because they are not pricing correctly the CVA (and therefore not able to buy enough hedges ...


6

Today (1 day after the fact) the following headline appeared in the Financial Times: "September Fed rate lift-off put in doubt, Fallout from China’s currency move turns market mood". If true, this would certainly explain why the USD declined (i.e. the interest rate rise that everyone expected has been postponed). However, in my experience it is very hard to ...


5

(1) Often there is some collateral behind the loan (a building, etc.) which with enough effort and time can be sold to recover at least SOME of the value of the loan. However this is not necessarily what the bank is good at or wants to do. Their business is to lend money, not make real estate deals or dispose of dubious merchandise. (2) A smart buyer will ...


5

First point to consider : some banks are by nature "positive" in their account to the central banks , for instance classical saving banks tend to get more deposit than loans; conversely others are more engage in loans activity (investments banks..) and are by "nature" borrowers on Interbank markets. Secondly (the point you underestimate), mandatory ...


4

Overnight funding is made through an auction, a fixing as you name it and it is achieved successfully (usually, i.e. when Lehman Brothers doesn't go bankrupt) because of the huge amounts on BOTH sides of this auction (i.e. liquidity). If you do an auction every minute, you will have more volatility as prices will potentially vary every minute and there will ...


4

Per the comments and conversation with Tal in chat, this question is on-topic. Therefore, I'll formally take a stab at answering it. I had to deal with requests like this when I was a research analyst at the Federal Reserve. If you can't find anything via internet searches, the best thing to do is call institutions that may know where to find the data. ...


4

You might want to check what FDIC has. They have a lot of quarterly data for bank balance sheets. Unfortunately, I don't think they have data for all US banks, only the ones they insure.


4

U.S. Government DID save American International Group (AIG) from bankruptcy, since it was considered too big to fail, actually: a lot of financial institutions were insured by AIG. This Investopedia page is a nice summary on the topic about AIG's bailout. Here (Investopedia again) about Lehman Brothers, that became really too much leveraged and exposed to ...


4

The U.K. Government is not in the business of owning banks. The investment was never supposed to make money - it was to rescue RBS during the financial crisis.


4

Delta one trading desks provide synthetic exposure to their clients. OK, so what does that mean? Delta One desks give their clients exposure to a product (stock index, ETF, or even a single stock) without the client actually buying the underlying product. For example, a customer can take their money and buy the stocks in the SP500 index. Or, they can ...


3

Well, I do not think there is a large difference: Given you deposit money at a Bank the value of this deposit changes according to $$\frac{dB_t}{B_t} = r dt$$ which simply means there is no uncertainty with respect to this evolution (instead of incorporating a risky component $dW_t$. If you really want to interpret the risk-less asset as a bond you are ...


3

Markit is a pretty good source for CDS information, and their prices are pretty much the standard the industry goes by. Your best bet for finding large spreads would be to look at some of the European Banks or possibly TEPCO after the Japan Tsunami. Derivatives by default aren't "standard," the instruments are designed to be flexible, but the closest ...


3

This is a annuity calculation. Present Value of Annuity $= \text{Payment} \cdot \frac{1-(1+r)^{-n}}{r}$ Therefore: Payment = Present Value of Annuity $\cdot \frac{r}{1-(1+r)^{-n}}$ Present Value of Annuity $= \$\,104,107.4099\,;\,\,\, r = 0.33\,\%;\,\,\, n = 480$ Monthly Payment $ = \$\, 432.5186$


3

Sort of. (But I don't really like the way you put it). The purpose of capital adequacy regulations is to protect the depositors (and senior creditors). The capital is a kind of "cushion" that protects the creditors if assets go bad. The purpose of provision regulation is to make sure that the capital figures are accurate: as soon as losses are predicted ...


3

You should consider the stages of the default process instead of a binary "default", where there are various points the borrower is able to cure the loan. In a traditional credit model, the general process is to predict the state of the loan and then predict transitions between stages over the life of the loan. This is done by simulating macro variables (...


2

Here is another Credit Default Swap database which is rather extensive, daily spreads of roughly 700 entities starting in 2006.


2

The bank in china has to have an account at an intermediary bank, and order a transfer from that account to the account of the US bank. Therefore the chinese bank needs to have the dollars.


2

High level Flow of funds comparative analysis for the U.S., Japan, and Euro Area by the bank of Japan. Country level report from the ECB. It is an 800+ page report so the link may take time to load (alternatively go to ECB data warehouse/reports/Euro Area accounts). Canadian financial flow accounts data.


2

Regarding how the rating agencies gave AAA ratings to CDOs and the like that clearly did not deserve those ratings - straightforward answer. The SEC licences all the ratings agencies as "nationally recognized statistical rating organizations" (NRSRO). It is blindingly obvious that the SEC was not actually overseeing the rating organizations that it was ...


2

The Fed (under the Yellen regime) has always stated that any adjustments to the Federal Funds rate are "data dependent." These data points (CPI inflation, inflation expectations, non-farm payrolls, GDP, et cetera) are only available on a monthly or quarterly basis, (depending on the print) which would cause them to have to make an uninformed decision if the ...


2

It depends what you meant by “bank”. For example in the case of Bank of America, the deposit taking entity is Bank of America NA (BANA) which is a wholly owned subsidiary of Bank of America Corp (BAC). The latter does not take deposits , but it issues most of the unsecured debt and it is the issuer of the listed equity of the company. Hence the WACC of BAC ...


1

Having worked in a bank and often closely to senior managers, I have never heard anyone talking about a balance sheet target. Every dept has its revenue and cost targets.... Would be interesting to see what others have to say.


1

Yes, they definitely do. Most public companies - and that includes most banks - will have quarterly goals for revenue, profits, dividends, retained earnings and so on. So, while they usually won't set a specific target for assets (I'm guessing that's what you mean by balance sheet), you can sure find this target balance sheet by doing the math with the other ...


1

Look at the p.65 of this document. They reveal some information regarding the mapping of the assets and liabilities. Based on this mapping, you could perform gap analysis and see if you have any deficit in a given maturity slot and then hedge accordingly. Joel Bessis' books on Banking Risk Management may also be useful. UPDATE: Alright, here is the ...


1

debt/loan lifecycle could be described as: 1) origination 2) debt is outstanding; borrower makes regular interest payments and prepays (scheduled or unscheduled) if any. debt/loan is considered performing 2.1) if borrower misses interest payment, debt/loan becomes delinquent, grace period starts 2.2) grace period expires, still no payment - debt becomes ...


1

You can think of it as a 3 state Markov Chain: when a loan is made it is considered GOOD. As long as it is good, the bank automatically accrues earnings on this loan. When the bank notices that a payment from the customer has been missed for a certain time (usually 90 days) the loan becomes NPL or non performing loan; the bank stops recognizing income on ...


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