Finance Revision

FINANCIAL INSITUTIONS AND
MARKETS REVISION
MONEY:
1. There are a number of financial institutions, each of which have

various roles in the process of money supply. Firstly, you have
the commercial banks, whom, inheriting the framework of
Charles Montagu's central depository system, accept deposits
from their customers. A fraction of these deposits is taken by the
bank, where the remaining excess reserves can be lent out,
leading to the creation of new money and therefore contribution
to the money supply.
You then have investment banks whose role in the process of

money supply extends to raising capital for companies who
want to sell their stocks or securities to the public, by purchasing
and reselling their stocks/bonds to individuals and investors.
The returns generated from the premium investments of

insurance companies into bonds, stocks and real estate also
contributes to the flow of money (money supply) and the overall
financial health of the organisation.
The return investments of pension funds, when they invest the pooled
contributions into stocks, bonds and real estate, help grow the fund,
enabling the supported payment to pension fund members and
allowing for spending and investment (therefore also contributing to
the money supply).
2. Investment banks AFFECT the money supply through various
ways. Firstly, they can increase or decrease interest rates.
Increasing interest rates, limit public spending and lower money
supply. Decreasing interest rates, vice versa. They also affect the
money supply through the creation of money that comes from
the selling of government bonds in the open market. They can
also create money and contribute to the money supply by
lending money to commercial bank.
3. Bond markets enable entities such as governments, corporations

and investors to buy and sell bonds (debt securities) and
therefore raise their capital. It can also diversify the portfolios of
investors. Equity markets enable the buying and selling of
ownership shares (known as stocks or equities) to increase
capital for companies and to also enable the buying and selling
of those shares by investors (links to investment bank). Money
markets enable the short-term borrowing and lending of low-risk
and highly liquid tradable assets (debt securities being traded for
one day, one year) treasury bills. In foreign exchange markets,
currencies are exchanged (bought and sold) - being highly liquid
- bought and sold without the price being affected significantly.
This acts as a medium for international trade and investment.
Currencies are exchanged at an agreed upon exchange rate.
POWERPOINT:
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BANKING:
To:Richie Smartt
Thu 08/02/2024 01:37
1. Bank capital is the net worth of a bank based on the difference between
its assets (which namely consists of mortgages, loans, governmental
securities, equities etc.) and its liabilities (the funds stored in depositor's
accounts which the bank needs to pay back). This capital can act as a
form of financial security when it comes to unprecedented events such
as market crashes or bank runs. By raising these funds (capital) they can
ensure that their external stakeholders such as bondholders and
depositors can be paid back, and therefore absorbing their losses
through solvency. A real-world example of how capital can rescue a
bank in unprecedented circumstances would be the collapse of
investments in CDO bonds during the 2008 financial crisis. In the case
study of BarcSan and Mecurial that we had looked at in lectures, we
could see that both banks had identical loans and reserves but different
capitals, which strongly determined how they survived. Since BarcSan
had a higher capital, they were able to absorb their losses, in
comparison to Mercurial who couldn't. Thus, a bank's capital is crucial
to its financial health and stability. A reason as to why banks like
BarcSan may have a larger amount of capital on their balance sheet
could be due to the prudent management of the bank itself, in addition
to stringent adequacy regulation (the implementation of the Basel III
framework after the 2008 financial crisis, where specific minimum
capital ratios were to be maintained by these banks). Also, higher
returns on bank assets can increase their net income and therefore
result in a higher ROE (Return on Equity, which is net income of the
company divided by the average shareholder's equity)
POWERPOINT:
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INVESTMENT BANKING:
1. There were multiple factors which led to the

insufficient success of Snap inc (parent company
of snapchat's) IPO (Initial Public Offering). One of
the many reasons that Morgan Stanley, who
initially brought Snap inc public (whose IPO price
had fallen below the initial $17 a share), had
downgraded the stock was due to the fact that
intense competition from Instagram (spurred by
the release of a similar 'stories' feature to
Snapchat) had affected the user growth on the
platform, with user numbers not meeting
investors' expectations and therefore diminishing
investor sentiment. This was echoed by Brian
Nowak, the leader of the Morgan Stanley analyst
team at the time, who said that 'Instagram
competition is increasing' in his 'note to investors'.
He also stated how Instagram was accumulating
more user engagement than Snap inc, with
instagram downloads appearing to be 'holding
up/growing much better' in contrast to snap inc
whose efforts to increase iOS alerts indicate a
'need to drive growth'. In addition to this, the IPO
was also unsuccessful due to scepticism
surrounding Snap Inc's ability to monetize its user
engagement effectively through advertising with
Brian Nowak going on to say, 'SNAP's ad product is
not evolving/improving as quickly as we expected'.
2. In 2010, non-public information was leaked to

customers involving three share issues to three
companies, namely Inpex (an oil and gas
producer), alongside Tokyo Electric Power and
Nippon Sheet Glass. Suspicious trading activity
was flagged by these companies prior to the shares
going public (the trading volume increased with
shares rising to more than 5% in Tokyo, which
induced suspicion). As such, an investigation was
launched by the Japan Securities and Exchange
Surveillance Commision (SESC), which resulted in
the discovery of an insider trading scandal
involving Nomura sales officers who leaked the
share offerings. This resulted in the resignation of
Kenichi Watanabe (chief executive of Nomora) and
Takumi Shibata (chief operating officer) who
stepped down from their positions in order to take
responsibility for the scandal. Koji Nagai (president
of Nomura securities) replaced Mr Watanabe who
emphasised that he would chart a 'new global
stratergy' in a 2012 press conference. However,
Nomura itself had stated that may not be
completely rid of these insider trading scandals,
saying on the 26th July 2012 that it was 'highly
possible' that there more insider trading cases
than the three which were already identified. Then,
Nomura was shown to indeed, not completely be
rid of these activities, when on May 24th 2019, it
was announced that Koji would take a 30% cut off
his salary in reponse to leaked information to a
researcher at a partner company regarding the
Tokyo Stock Exchange index (which rank the
financial performance, 'first class' etc. of
potentially investible companies).
3. Research departments and propriety trading

investment banks seem more likely to suffer from
conflicts of interest due to a couple of factors. In
regard to research departments, an analyst has
control over how they handle the information
they've gathered (information which has enabled
them to make 'precise inferences' about the value
of securities). A conflict of interest may arise when
the analyst could favour some investors with the
information than others, particularly investors
who are 'favourable trading clients' with 'large and
high-commission paying hedge funds'. In addition,
the analyst could also make the decision to share
the information with the bank, to their 'proprietary
trading desk' where such information can be
geared to action highly profitable trades. In regards
to investment bank trading desks,
[TEXTBOOK]
INSURANCE:
h ps://app.glean.co/event/ba4aae5d-8ce2-4e63-a3b1-6976f3778a40
[TEXTBOOK]
POWERPOINT:
h ps://app.glean.co/event/ba4aae5d-8ce2-4e63-a3b1-6976f3778a40
STOCK EXCHANGE:
h ps://app.glean.co/event/f10fe32c-f2c8-4c44-bc9a-f29612e6b2ed?card=a06b4f16-03e0-4d1e-
b4c7-29e20efa814f
DEBT MARKET AND CREDIT RATING AGENCIES:
POWERPOINT:
h ps://app.glean.co/event/5d74aad5-596e-48c7-8a5c-ebe610dbb 5
[REFER TO THE TEXTBOOK AND POWERPOINT]

FINANCIAL REGULATION:
POWERPOINT:
h ps://app.glean.co/event/3b58b47e-da2b-43fd-b405-e0376dc75fda
[TEXTBOOK]
UNDERSTANDING RISKS AND MARKET RATES:

FUNDS OF FUNDS:
[TEXTBOOK]
HEDGEFUNDS:

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FINANCIAL INSITUTIONS AND

1. There are a number of financial institutions, each of which have

You then have investment banks whose role in the process of

The returns generated from the premium investments of

3. Bond markets enable entities such as governments, corporations

1. There were multiple factors which led to the

2. In 2010, non-public information was leaked to

3. Research departments and propriety trading

DEBT MARKET AND CREDIT RATING AGENCIES:

[REFER TO THE TEXTBOOK AND POWERPOINT]

UNDERSTANDING RISKS AND MARKET RATES:

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