Unit 1 - Financial services industry

Question 1

What’s the difference between investment banks and custodian banks?

Answer 1

IB
- trade as principle/ agent (i.e. for themselves/ broker)
- market making - liquidity providers
- research

Custodian banks
- safekeeping of assets

Question 2

Who gets paid first in case of liquidity?

Answer 2

Debt holders (creditors) before shareholders (therefore returns are lower than for shareholders)

Question 3

Difference between custodians and depositories?
Who does this service for hedge funds?

Answer 3

Both offer safekeeping in relation to investment portfolios but custodians also offer admin services

For hedge funds it’s a prime broker

Question 4

Role of central banks?

Answer 4

1. set short term interest rate
2. control money supply
3. act as banker + lender of last resort to banking system
4. manage national debt