Technical Knowledge Flashcards
1
Q
What affect business operations and strategy in FIC?
A
- Interest rate changes influence bond yields and trading volumes
- Currency volatility affects FX trading and cross-border transactions
- Economic downturns can reduce corporate financial activity, prompting DB to focus on cost efficiency, restructuring, or diversifying revenue streams
- Regulatory changes or red tape can push DB to invest in compliance to maintain competitiveness
2
Q
Forward markets
A
- DB offer forward markets for currencies and commodities, providing businesses with greater certainty and allowing them to forecast their costs
3
Q
Necessity of banks for economic development
A
- When there is a shortfall in government revenue i.e. a fiscal deficit, the purchase of bonds can fuel investment and economic growth
- These bonds are known as sovereign bonds e.g. UK Gilts, US Treasuries, or German Bunds
4
Q
Global network
A
- DB has established strong bases in all major emerging markets, and therefore has good prospects for business growth in fast-growing economies, including the Asia Pacific region, Central and Eastern Europe, and Latin America
5
Q
6 core values
A
- Integrity
- Sustainable performance
- Client centricity
- Innovation
- Discipline
- Partnership
6
Q
Why do exchange rates fluctuate?
A
- interest rate differentials
- political instability
- central bank policies
7
Q
Integrity example
A
- coaching/tutoring examples - had to ensure clients were getting honest and transparent services despite student asking me not to
8
Q
Sustainable performance example + how DB generally do this
A
- DB do this by prioritising long-term success over short-term gain
- Can mention how I ensure my revision is consistent rather then doing more one day and slacking on other days -> information stays in LTM and is sustainable
- ESG Samsung pitch
9
Q
Innovation value and how DB do this (give example)
A
- DB continuously embrace better ways of doing things while accounting for risks
- DB use AI models to assist in analysing vast data sets to identify potential risks and market anomalies, enabling them to make more informed decision-making
10
Q
What is market-making?
A
When firms continuously buy and sell securities to provide liquidity and reduce price volatility in financial markets.
11
Q
FIC division overview
A
- Trading
- Financing
- Sales
- Structuring
- Emerging Markets
12
Q
Trading in FIC
A
- Apply coding skills to develop models to price bonds and derivatives etc
- You will be a market-maker and so will match client flows on both sides - market insights are key to developing trade ideas presented to Sales and directly to clients
- In contact with other DB teams for insights into client activity and will learn to filter information from a range of financial markets
13
Q
Sales in FIC
A
- Sales people are in touch with institutions, corporations, and individuals
- They suggest appropriate investment opportunities and potential trading strategies and products
- E.g. if a currency appreciates or there is new bond issuance, the sales team informs investors and suggests the best course of actions
14
Q
Emerging Markets in FIC
A
- Emerging Markets business offers a global product platform across many countries, offering clients onshore expertise and connectivity linked to Deutsche Bank’s global network
- Provide clients with market access and multiple solutions on a range of product
- Products include FX, rates, and derivatives
15
Q
Sell side
A
- IBs like DB come under the umbrella of ‘sell side’ firms
- Firms here deal with the creation and selling of public and private securities to those on the ‘buy side’ of the industry
16
Q
Buy side
A
- Hedge funds, pension funds and asset managers are all on the buy side
- They raise money from investors and invest in securities across various asset classes
17
Q
Asset classes
A
- Public side of an Investment Bank accommodates sales, trading, structuring and research professionals who only deal with publicly available information
- The public side will often have business split via asset classes
- An asset class is a grouping of comparable financial securities like Rates, Credit (lending), FX and Commodities
18
Q
Bid/Ask
A
- Two facets to the to the price of a financial product
- Bid is the price the trader in the bank is prepared to buy the security for (from a participant on the buy side)
- Ask is the price at which a trader in the bank is prepared to sell it
19
Q
Securities
A
- Used more broadly as a way of describing the most common types of investments - from stocks and shares to commodities like oil and gold, and bonds
20
Q
Key listed characteristics for FIC
A
- Calm under pressure - dealing with millions of dollars, must stay calm when things get tough
- Interest in financial markets - need an insatiable demand for knowledge about how markets operate
- Natural networker - will often spend time entertaining clients
- Fast learner - need learn applications of knowledge
- Good with numbers - being able to calculate impact of a trader is a big advantage
21
Q
UK regulator of investment banks
A
The Prudential Regulation Authority (PRA)
22
Q
Financial derivative
A
Financial derivatives are financial instruments whose value is derived from an underlying asset, index, or security. They are used for hedging risk, speculation, and leveraging positions in financial markets.
23
Q
What is GDPR? (regulation)
A
- General Data Protection Regulation
- Implementing GDPR in financial services means strict requirements and regulations on how to inform data subjects and issue data breaches
24
Q
What is MiFID II? (regulation)
A
- New reform means the organised trading of financial instruments must shift to multilateral and regulated trading platforms or be subject to transparency requirements where traded OTC
25
What do new regulations mean for FIC?
- Enhanced scrutiny and accountability
- Greater workload linked to compliance activities
- Need for continuous education of regulatory updates
- Confidentiality/security measures are very significant in banking due to company/personal financial data - security level has to be very high
26
Metric to measure environmental sustainability of a business
- Carbon footprint (CO2 emissions) measures total greenhouse gas emissions
- Energy consumption & renewable energy usage
- Sustainable supply chain - can involve auditing suppliers and making sure they adhere to ethical and environmental standards - can reduce legal and regulatory costs (fines, lawsuits)
27
Commercial awareness
- Understanding of how businesses operate within an industry and understanding the role of current affairs in decision making
28
What is the biggest change factor you anticipate dealing within the division you applied to?
- Products quite developed so biggest change factor is macroeconomic change and uncertainty
- UK’s potential divergence from EU financial regulations, such as reforms to MiFID II, which could alter transparency requirements
- This would particularly impact fixed income trading desks, as potential changes to transparency could affect liquidity and pricing in bond markets
- AI and automation, particularly in algorithmic trading enhance execution speed, reducing transaction costs, and optimising market making strategies
- However automation does not mitigate the need for clients to talk to sales people to get them to transact with the firm, or the need for traders to manage and position that risk - will always be a human responsibility
- Further automation could result in higher volumes, more clients coming to a bank, and more need for humans
- EVAL OF AUTOMATION - multiple AI systems can detect the same market signal and start selling rapidly, triggering a domino effect and causing prices to drop sharply in seconds
29
Deutsche Banks recent performance
30
Key examples of commercial awareness - go into blockchain
- Blockchain benefits - improves transparency and enhances security by preventing trade manipulation, lowers transaction costs by removing intermediaries (like brokers)
- Blockchain negatives - scalability issues due to slow transaction speeds, regulatory uncertainty creating compliance challenges
31
Explain what government, municipal, and corporate bonds are
- Government (UK gilts, US treasuries or German bunds) - like lending money to a very responsible friend - they offer low risk but usually lower interest
- Municipal - like lending to a city to build a new park - may pay you back with tax benefits, but slightly more risk than lending to gov
- Corporate bonds - like lending to a business to help them grow - get paid back if the business does well (with interest) but if they struggle, you may not get all your money back
32
Financing in FIC
- E.g. direct lending
- DB have a market leading financing business - they offer structured risk and non-flow financing solutions for clients globally, across multiple industries and asset classes
- **Structured risk solutions** are like customised insurance policies to protect against things like interest rate hikes or currency swings
- **Non-flow financing solutions** are creative ways for businesses to secure funding e.g. an investor is willing to buy its future profits in exchange for cash - like when IB's provide private credit
33
Structuring in FIC
- Structuring teams provide products tailored to clients' specialised needs
- E.g. help an institutional investor achieve a required risk profile, or corporates looking to acquire new equipment through financing
34
Explain what credit default swaps are using an analogy
- Imagine your friend lends 10k to someone but worries they won't pay it back
- To protect himself, he pays a small fee to an insurance company that promises to repay the 10k if the borrower defaults
- Even though your friend still owns the loan, he has transferred the risk of default to the insurance company
- In financial markets, an investor pays regular premiums to a counterparty (like a bank) in exchange for protection against the default of a company or gov bond
35
What does it mean if a borrower 'defaults'?
- They fail to meet their debt obligations
- Can be partial or full
- In financial markets, defaults trigger consequences like legal action or asset seizures
36
What is an institutional investor?
- A company/organisation that invests money on behalf of clients or members
37
How may FIC respond to a rise in interest rates?
- May sell lower-yield gilts and reallocate towards newly issued ones with higher returns
- Sales team may offer interest rate derivatives (like swaps or options)
- Increased volatility in the gilt market creates opportunities for traders to profit from bid-ask spreads
38
Explain what interest rate swaps are using an analogy
- It is like two friends agreeing to exchange their allowances because they prefer different payment styles
- E.g. one gets a fixed tenner a week, while another gets an amount that changes based on their parents' mood (like a floating interest rate)
- Essentially swapping fixed-rate payments for floating-rate payments allowing institutions to hedge interest rate risk or speculate on interest rate movements
39
What are mortgage backed securities?
- Can be thought of as a form of ownership of a wide, diverse set of mortgages and the underlying cash flows that come from folks making their monthly mortgage payments
- The holder of the MBS will receive, every month, effectively the principal repayment and interest stemming form the mortgage pool
