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Pricing Schools Business

Features Pricing Schools Business

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Trading Practices in Banking

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Questions and Answers

What is the main difference between proprietary trading and trading for third parties?

Proprietary trading is client-oriented, while trading for third parties is self-focused.

In proprietary trading, the bank trades for itself, while in trading for third parties, it trades on behalf of clients. (correct)

Proprietary trading involves long-term investments, while trading for third parties focuses on short-term gains.

In proprietary trading, the bank acts as an intermediary, while in trading for third parties, it trades directly with the market.

What do sales designate in the context of banking?

Sales refer to the bank selling its investment portfolio.

Sales designate advisory services offered by banks.

Sales designate activities like private banking and asset management.

Sales refer to trades conducted on behalf of clients by the bank. (correct)

What does the 'buy side' represent in banking terminology?

The clients availing private banking services.

The clients, corporations, and asset managers who buy products. (correct)

The bank selling products to end-users.

The bank engaging in proprietary trading.

Why might banks share inside information on corporate clients?

To inspire trades based on undisclosed information. (B) Signup and view all the answers

What kind of risks are primarily associated with activities like private banking and asset management?

Operational and legal risks (C) Signup and view all the answers

What do advisory services offered by banks typically involve?

Consulting services to corporations considering potential acquisitions (C) Signup and view all the answers

What is the repricing gap in the repricing model?

The difference between assets and liabilities that will be repriced in the future (A) Signup and view all the answers

How is refinancing risk defined in the context of interest rate risk?

The risk that the cost of rolling over or reborrowing funds will rise above the returns being earned on asset investments (B) Signup and view all the answers

In the context of the repricing model, what does a negative gap (RSA < RSL) indicate?

Exposure to refinancing risk (D) Signup and view all the answers

What is meant by a rate-sensitive asset or liability according to the text?

An asset or liability repriced at or near current market interest rates within a maturity bucket (A) Signup and view all the answers

What financial metric represents the value of an FI to its owners?

Net Worth (A) Signup and view all the answers

If an FI has a positive gap (RSA > RSL), what type of risk is it exposed to?

Reinvestment risk (A) Signup and view all the answers