Deutsche Bank’s Fixed Income Research Group was an internal R&D department for fixed income instruments. One of the group’s primary activities was relative-value. Relative-value groups look for yield curve trades to pitch to clients as well as for their proprietary trading desk. Their mandate was to search for untapped value across bond markets and interest rate derivatives. For the group, one way to find relative-value trades was to compare the prices of traded securities against the prices that the group thought the securities should trade at. The group developed their own proprietary yield-curve model, which was based on three factors: inflation, output gaps, and short rates. After estimating the variables of the three-factor model, the …show more content…
From that perspective, if our model’s rates were lower than Deutsche Bank’s rates, the bond was underpriced in the market; therefore we would recommend buying the bond. This would allow investors to buy at a bargain since they would be paying less than what the bond is actually worth. Based on our results, we recommend that investors purchase the bonds with the maturities of three through nine years and the bond with a maturity of fifteen years. All of these bonds are underpriced in the market and should be purchased to take advantage of the arbitrage opportunities. We also recommend that investors should sell the bonds with maturities of one, twenty, and twenty-five years because their prices were greater than Deutsche Bank’s prices, thus making them overpriced in the market. The bonds with a two-year and ten-year maturities are, by design, equally priced between the two methods, so, nothing should be done with them. These are the findings that our group compiled and further information on our methodology, results, and recommendations will be provided in the paragraphs …show more content…
They do this by taking into account many factors, such as inflation, output gaps, and short rates. This allows Deustche Bank to calculate what we call the “true value” because this should give them the correct spot rates for the bonds. We then calculate our own spot rates using bootstrapping, which effectively gives us the market rate. This allows us to identify arbitrage opportunities. If we find that our spot rate is higher (lower) than the Deustche rate, we can take advantage of this arbitrage opportunity because the bond is underpriced
Prior to Fuller’s transfer, management at the Carson’s location was poorly run using the classical approach. While this approach can be successful, management has to find a good middle ground between caring for the company and caring about their employees. A traditional classical approach recognizes that there are five important factors to running a successful business (Miller, 19). According to text, these factors are planning, organizing, command, coordination and control (Miller, 19-20). These factors can be seen when you look at Third Bank as a whole. In the study, the CEO saw the issues in his company and put a plan together to improve. He had meetings with management, like fuller, to organize a solution. He then commanded all locations
The tax-exempt status creates a high level of demand particularly from investors who seek tax exempt cash flow as a source of annual income and revenue. The buyers of TOBs are for the most part money market mutual funds. Money market mutual funds are guided by certain regulations as to what type of bonds they can have in their portfolio. Specifically, the underlying municipal bonds must be rated at least AA-. The maximum maturity of the municipal bonds is thirteen months and the average weighted maturity of a money market fund’s tax exempt bond portfolio must be no longer than 50 days. This compares to typical maturities of municipal bonds of five to fifteen years. The money fund maturity guidelines combined with a strong demand for tax exempt instruments creates a very active and deep market for these synthetically created short-term tax-exempt securities. The approximate size of the TOB market is $70Bn.
Santander is retail banking financial which was founded in 1857. It is centered in Santander Spain as the name suggests. It has its operations carried in Euro zone widely by its market share and it is known as one of the largest banks in the world for market capitalization. The company has expanded through various acquisitions in 2000. There is a drastic change in the formation of the rules and regulations by the company from acquisitions and merger. Banco Santander had a merger with Banco Central and Banco Hispanoamericano in 1999 thus, considering both the entities equally it is known as Banco Santander Central Hispanoamericano or BSCH. This merger was designed equally so as both the pre-existing firms CEO had took over the control equally
This short report aims to give a brief overview of Deutsche Bank’s alarming situation and describe the sharp decrease of its profitability. It will briefly introduce the context of this crisis and aim to explain it through an analysis of one of the most used indicators of performance for banks, the return on equity (ROE).
It is important for any people who are dealing with interest rate to understand the term structure of interest rate or also known as a yield curve. It is a plot that reflects the relationship between the maturities and interest rates of a security as well as the different pattern it made at different times. There are three different type of shape that are created by the term structure of interest rate.
Flawed financial innovations: the implementation of innovations in investment instruments such as derivatives, securitization and auction-rate securities before markets. The indispensable fault in them is that it was difficult to determine their prices. “Originate to distribute securities” was substituted by securitization which facilitated the increase in ...
The implications of these findings are as follows. The works of these academics highlight the important point that there is higher volatility of capital charges for better quality credits (Goodhart & Taylor, 2004). This is because these credits face a steeper risk curve, as the movement within the ratings scale (from one rating to another) is much greater.
When discussing the cost of equity capital, or the rate of return required by investors for their share expenses, there are three main models widely used for analyzation. These models are the dividend growth model, which operates on the variable of growth and future trends, the capital asset pricing model (CAPM), which operates on the premise that higher returns are a result of higher risk, and the arbitrage pricing theory (APT), which has a more flexible set of criteria than CAPM and takes advantage of mispriced securities
During the past year Wells Fargo, a well-recognized bank of the United States, has been trying to clean its name and the mess it got itself into, when it was brought to the public that the bank was involved in generating fraudulent checking and savings accounts for its clients without their knowledge or their authorization. “The way it worked was that employees moved funds from customers' existing accounts into newly-created ones without their knowledge or consent”
The Goldman Sachs Group, Inc. is an American multinational financial institution which deals with investment banking. It primarily deals with investment banking, securities, investment management, in addition to other financial services. Majority of its clients are institutions.
I was given the task to make an assignment on the subject of Business Information Management. In this assignment, I have to read and analyse a case study entitled RBS failure caused by inexperienced computer operative in India. After that, I need to make a summary of this case study because it shows what I understand in this case study. Besides that, the objective of this case study is to know the factors that have caused the system failure at Royal Bank of Scotland. The reason I want to know this factor because Royal Bank of Scotland (RBS) has faced computer meltdown with the loss of its share price as well as millions of customers unable to access their account.
...e volatility of the bond. Zeros are extremely volatile investments. This means that if the interest rate changes, it can swing the price of the bond in either direction. However, this is only a problem if the bond is sold before maturity. If the bond is held to the mature date, the investor will receive the full face value. If the bond is sold before it matures, there could be a possibility that the investor could lose money.
Keogh, Bryan. "The Trouble with Catastrophe Bonds." Www.businessweek.com. Bloomberg Businessweek Magazine, 21 Apr. 2011. Web. 27 Oct. 2013. .
Hensel, C. R., Ezra, D., & Ilkiw, J. H. (1991). The Importance of the Asset Allocation Decision.
In this case study it was stated that there were a problem happen in the outsourcing for the Royal Bank of Scotland. What happen was there were an error that happen during the routine software upgrade that cause million of that bank customer cant access to their account. The error happen when one junior technician in India was accidently wiped all the information during the routine software upgrade. The member of staff that was working under the program for the Royal Bank of Scotland, NatWest and Ulster Bank and it was based in Hyderabad, India.