Chapter 03 Flashcards
Money mkt deposit accts (MMDAs): key features
- liquid balances
- covered by deposit insurance
- max 6 xfers/ pre-auth. debits a month per month (after 6, FI may convert to DDA or charge fees)
- unlimited in-person teller transactions
Bank Identification Code (BIC)
SWIFT is most common
Int’nl Bank Acct Number (IBAN)
mostly europe, middle east, Caribbean
Bank/account identification
varies between banks and countries (no universal standard, although some have been set– none 100% globally accepted)
Bank/account identification
varies between banks and countries (no universal standard, although some have been set– none 100% globally accepted)
Commercial paper (CP)
- unsecured, discounted, ST promissory notes, issued by cos. or commercial bank hold cos. - credit rating agencies rate for default (influences interest rate)
municipal securities (“munis”)
- bonds/notes issued by city, county, or state govt. entities (e.g. sub-soverign securities) - generally interest expense has some income tax exemption benefits - credit rating agencies rate for default (influences interest rate)
municipal securities (“munis”)
- bonds/notes issued by city, county, or state govt. entities (e.g. sub-soverign securities) - generally interest expense has some income tax exemption benefits - credit rating agencies rate for default (influences interest rate)
Examples of “fiduciary svcs” FIs could provide to corp customers
- Est./maintain empl. pension or benefit plans
- Trustee for bond/stock issuance
- Monitor bond indenture compliance
- Transfer agent (records stock/bond purchases/sales)
- Registrar (maintain current stock/bondholders list for dividend/interest pmt. remittance).
- Paying agent (FI rcvs. $ from stocks/bonds issuer to pay dividends (stockholders) and principle/int. (bondholders)
- Custody svcs (e.g. securities safekeeping; buy/ sell/ rcv/ deliver, per custody agreement)
Services typically provided by investment banks…
typically through investment banking arm of commercial bank’s holdco…
- securities underwriting
- facilitate M and A, divestitures, corp reorg
- broker/fin. advise (institutional clients)
Securities “underwriting”
purchase all/part of securities block issued by a corp.
- investment bank = intermediary btwn. issuer and investing public)
- investment banking syndicate = invest. bank invites other IBs in the invest. underwriting process (shares risk)
- (lead bank = “lead underwriter”)
2 main types of securities underwriting
- full- invest. bank/syndicate owns entire issuance (all risk)
- price risk - not sell entire bk of securities @ anticipated mkt price
- marketability risk - not all securities will sell.
- best-efforts- invest. bank for advises firm, markets the issuance for corp, for a fee (i.e. invest. bank does NOT underwrite– just helps place shares through group/ brokerage firms.)
Securities “distribution” by an investment bank
sale of the securities
- full-svc invest. banks offer both:
- underwrite/ distrib. (“sell side of house”)
- invest. advisory/ mgmt (“buy side of house”)
- keep separate – not share material non-public info (MNPI), even internally
Brokerage firms: what do they specialize in? two types of brokerage firms?
sale of securities by executing distribution of an investment bank’s intermediation function (e.g. IPO or new securities/debt from an already public firm) two types:
- institutional brokers - clients mostly LRG. institutions (hedge funds, large corps)
- retail brokers - typically smaller invest. accts and transactions for individuals
- discount brokerages - let investors trade at lower prices w/ little/no advice.
- full svc - plus analysis/advice (fees)
Captive finance company
type of industrial bank (special purp. FI)
subsidiary of lrg. industrial corp, solely finances customers’ purchases of corp’s products
parent extends credit to customers w/ min. risk
