Investment Banking 2013

8/22/2019 Investment Banking 2013

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AN INSIDE LOOK AT

Insidercareeri

nfo:

2013 EDITION

Theinsandou

tsof

investmentbank

ing

Lifeonthejob

and

diferentcareerp

aths

Applicaonan

d

interviewadvice


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AN INSIDE LOOK AT

2013 ED

Insidercareeri

nfo:

Theinsandou

tsof

investmentban

king

Lifeonthejob

and

diferentcareerp

aths

Applicaonan

d

interviewadvice

jpmorgan.com/careers

is your

opportunity.

strengthOur

n is a marketing name of JPMorgan Chase & Co. and its subsidiaries worldwide.

PMorgan Chase & Co. All rights reserved. J.P. Morgan is an equal opportunities employer.

Our strong position in the market has been built on the character and

intelligence of our people. To maintain that strength, we are committed

to recruiting and developing top talent. This means that if you want to

really advance your career, you should become part of our team. Its our

goal to make sure you achieve your goals.

Graduate Deadline: 11 November 2011

Internship Deadline: 11 November 2011 Asset Management,

Finance, IB Risk, Investment Banking, Sales, Trading & Research

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Apply via the Europe section of our careers website:
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CONTENTSINTRODUCTIONIntroducon.............................................................................................................................

About Inside Buzz....................................................................................................................

Whats in this guide?................................................................................................................

THE INS & OUTS OF INVESTMENT BANKINGInvestment banking explained.................................................................................................

Whos who in an investment bank?.........................................................................................

CORPORATE FINANCEWhat is corporate nance? .....................................................................................................

Whos who in corporate nance? ...........................................................................................My 24 hours in corporate nance: an IPO...............................................................................

SALES & TRADING

EqUITIESWhat are equies? ..................................................................................................................

My 24 hours in equies...........................................................................................................

FIxED INCOMEWhat is xed income? .............................................................................................................

FOREIGN ExCHANGEWhat is foreign exchange? ......................................................................................................

My 24 hours in foreign exchange.............................................................................................

COMMODITIESWhat are commodies? ..........................................................................................................

WHAT YOU ALSO NEED TO KNOWBuy side vs. Sell side: what are they, what the heck is a hedge fund

and which role is right for you?.... ..........................................................................................

Investment banking vs. Investment management: whats the

dierence and which one is best for you? ..............................................................................

07

07

08

10

11

15

1618

22

25

26

28

30

32

34

38


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THE BANKING INTERVIEWTricky interview quesons.......................................................................................................

Interview Advice & Tips on Geng Hired................................................................................

Analysing Financial Statements...............................................................................................

THE ABCS OF INVESTMENT BANKING..........................................................................

ACKNOWLEDGEMENTS.......................................................................................................

INTRODUCTIONYouve probably heard a lot about investment banking in the news, and may even have a vague

you want to work as a n investment banker. But how well do you really understand the industry?

want to work in equies or corporate nance? Will the buy-side or sell-side be right for you? Kn

DCF from your EBITDA? And your spreads from your spots?

It can all be a bit overwhelming, especially if you dont know where to start. But thats where we

in! This guide will tell you everything you need to know about investment banking: from the ins

of the sector, to the dierent roles and divisions, to what professionals think of their everyday w

praccal ps and interview advice.

Weve consolidated all of these juicy bits in one handy place so that you can m ake sure that inve

banking is right for you, and also ensure that you only apply to jobs that you want. Securing a jo

investment banking is not easy, especially in this economy. But with a lile help from Inside Buz

have all of the tools necessary to wow in your interview and land that job as an investment ban

Good luck!

The Inside Buzz editorial team

40

46

48

51

57

A BIG THANK YOU TO OUR SPONSORS


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JP Morgan, Credit Suisse, Goldman Sachs, RBA,

Barclays. No doubt you are familiar with those

staples of the investment banking landscape if

you are at all interested in the world of nance.

You may be thinking that a career in investment

banking would be the ideal move for you. But do

you know what investment banks actually do? Its

not a straighorward thing to explain, but lets

start by stang that its not invesng, nor banking.

Investment banking is really the raising of capital

(money companies need to help their business grow)on behalf of clients by buying and selling securies

(something that represents a monetary value,

such as a stock or bond). They are not like retail or

commercial banks because they do not take deposits

from individuals.

Companies that have turned into the investment

banks we know today began by oering services

called merchant banking. Somemes this name is

sll used, but today people are more likely to call it

corporate nance. These are serv ices investment

banks oer to helps companies raise capital so that

they can improve their business. This can mean

advising a company on buying another company,

orchestrang an IPO or brokering a merger between

two companies. In an investment bank today, the

sales and trading of other instruments such as bonds,

foreign exchange and commodies are lumped

in with corporate nance under the umbrella of

investment banking, though tradionalists would

consider them slightly separate. But because banks

have a commercial branch and an investment banking

branch, sales and trading sit in the investment

banking side and have started to become grouped

together with the merchant banking acvies.

In the structure of a typical investment bank, youll

nd the roles are broken down into three categories,

or places within the bank: the front oce, middle

oce, and back oce. The front oce is really the

face of the bank, they are the ones that have the

most interacon with clients and actually perform

the transacons. The middle oce watches over

the front oce, making sure that they are not taking

too much risk with the banks capital and that all

regulatory rules and compliance procedures are

followed. The middle oce also includes HR and

some other support roles. The back oce handles

the tasks of making sure the numbers are correct on

all trades, as well as IT and assistant dues. In these

pages well break down this large industry to help you

beer understand how it all ts together, what the

dierent divisions actually do, what daily life is like

should you become an investment banker and how

to ace your interview.

But do you know what a derivave is? Or what a

spot price means? Or how you go about valuing a

company? If any of those quesons intrigues you,

then you are ready to delve into the wild world of

investment banking.

INVESTMENT BANKING ExPLAINED

Its not a straightforward thing to

eplain, but lets start by stating that its

not investing, nor banking.

Themaindierencebetweenaninvestment

bankandacommercialbankisthata

commercialbanktakesdeposits.Theyhave

nothingtodowith,forexample,bondor

stockmarketslikeinvestmentbanksdoand

thedepositsarethewaythattheyraisefunds.Thinkofacommercialbankasakind

ofbroker,providingloansanddierent

typesofaccountsforindividualsand

companies.Aninvestmentbankplayswith

longerinvestmentstotrytomakemoney.

Investment banks are huge, mul-naonal

corporaons, so they need an army of employees

to keep the business going. In its simplest form,

an investment banks employees are broken down

into three categories: front oce, middle oce

and back oce. Though there are a lot of dierent

roles within each category, these broad divisions

will give you clues as to whether a certain posion

is client-facing, deals with internal policies or

is tasked with making sure the banks image is

maintained in the media.

The front oce is the face of the investment bank

or fund. They meet with cur rent and potenal

clients, execute the trades that make money and

determine the direcon of the company. The roles

considered part of the front oce include:

Sales:

Salespeople are responsible for speaking to

their various clients, suggesng trades for them

and communicang orders to the trading desk.

Salespeople can deal with individuals, companies,

investment funds and even hedge funds. All of

their clients are called the buy side because

they are the ones buying the securies. The

investment banks themselves are considered the

sell side because they are the ones that are

selling investments. Sales people need to be able

to mul-task and listen to various conversaons

at once. For example, if your traders are talking

about a great deal or something in which they

have a great price, you need to be paying

aenon to that conversaon while at the same

me thinking about which of your clients might

want in on that trade. You will also need t

up on the markets and know whats going

the world at all mes including polical, s

economic issues. Many salespeople write

roundups about their thoughts on certain

and events and spend lots of me on the

as well. There are many salespeople out t

the successful ones maintain strong rela

with their clients by suggesng creave an

lucrave trades that neither the client, no

compeng salespeople have thought of.

Traders:

Traders, of course, make the trades based

the orders from the salespeople and clien

traders dont just do what they are told b

salespeople! A traders main aim is to kee

investment bank liquid (make sure that as

not ed up and can be sold easily with mi

loss. The most liquid asset is cash), so the

also perform trades where they make som

on the spread. This means that they will b

(bid) a security at one price and sell (ask)

higher price, keeping the gain from the bid

dierenal. Obviously traders need to be

with numbers and be able to do quick cal

in their head. Though many traders focus

one or a small secon of markets (for exa

gold or cocoa) they nonetheless need to b

to multask and pay aenon to the ny

changing on several screens at once. Trad

WHOS WHO IN AN INVESTMENT BANK

They need an army of employees to

keep the business going.

AstheconalGordonGekkosaidtoB

inWallStreet:No,no,no,noyoudon

understand.Iwannabesurprised.Ast

mepal.NewinfoIdontcarewhere

howyougetitjustgetit.Gordons

onbutawordofvaluableadvice:don

anythingillegaltogetthatpreciousin


7/31

need to have the ability to make hard decisions

very fast if it looks like a trade may be cosng

money, but youre not sure whether or not to

get out of it, a few m inutes indecision could see

millions wiped o your book. If you are trading in

internaonal markets, be aware that you may be

in for some long days and also have to trade from

home in the middle of the night in a market on the

other side of the world.

Research/Analyst :

This is also considered a front oce funcon.

Basically, researchers research! They read tons

of data, arcles, and anything else they can get

their hands on to help salespeople and traders

make good calls about the markets. They also use

their data to suggest trades and help guide the

direcon of the investment bank by construcng

nancial models. Analysts in the corporate nance

department help with IPOs, specically gathering

the informaon for pitchbooks. Though not as

client-facing as sales and trading, the research

sta can be involved in client meengs from me

to me. Analysts do have contact with all posions

in the bank and oen work closely with managing

directors. The MDs main job is to culvate various

relaonships with clients so they do not have

me to know everything they need to know for

a specic meeng or IPO pitch, and thats when

the analysts come in. MDs and associates depend

on the researchers to provide them with the

informaon they need to make successful deals

and approach the right kinds of clients. They may

not get much of the glory, and may be involved

in several all-nighters, but its a fact that an

investment bank would cease to run without the

research department.

MDs:

The managing directors of the bank are the head

honchos but usually have worked their way

up through the bank. Their main job involves

maintaining relaonships, networking and trying

to impress potenal clients.

Corporatenanciers:

Corporate nance sits a bit apart from the other

sales/trading divisions of the bank. They are not

trading and making markets, but rather helping

companies with certain nancial situaons. They

act as a broker or consultant when companies

need to raise capital, are looking to merge or buy

another company or want to issue debt all of

which may enhance the value of their company.

This can include helping to manage investments

or even suggesng a mergers and acquisions(M&A) strategy. In this instance, the corporate

nance people at the investment bank will help

the M&A deals go through. Corporate nanciers

must not only know whats going on in the

nance world, but also have clear philosophies on

invesng, stocks and how to value companies. You

can use your creavity here by listening to what

your client wants to achieve and then suggesng

interesng and potenally groundbreaking ways

they can go about making their thoughts a reality.

Yes, the corporate nance team gets a lot of the

glory and while salaries can go sky high, youll

have to work hard for it.

Investorrelaons(fundsonly):

IR sta are responsible for PR as well as keeping

all investors and shareholders abreast on whats

going on in the bank. Regular work can consist of

pung together reports and seng up meengs

and events for potenal investors. IR work can

also be unpredictable and involve lots of crisis

management. Markets move very fast and this

can impact funds posively and negavely and the

investor relaons team needs to make sure that

they can answer any potenally uncomfortable

quesons that may arise.

Like the name suggests, the middle oce bridges

the gap between the front and back oces. These

are the kinds of roles that look into what is going

on in the front oce and makes sure its not

The managing directors of the bank

are the head honchos but usually have

worked their way up through the bank.

negavely aecng the bank overall. The middle

oce is comprised of:

Risk management:

The biggest part of the middle oce is probably

the risk management team. These people make

sure that the traders are not taking too much risk

and that theyre not doing things like leaving their

posions exposed overnight. Risk people also have

the ability to cap how much traders can actually

trade, if they feel that they are taking on too much

risk. Employees in the risk department must not

only be good with numbers but m ust also have the

guts to stand up to traders who are being careless

with their books.

Compliance:

Another important role in the middle o

compliance. This should not be overlooke

investment banks are now being scrunis

than ever; making sure every trade is don

book is just as important as making mone

The back oce consists of all of those ni

roles that keep the place running smooth

This includes:

Operaons:

The operaons people are the ones who c

over every trade to make sure the numbe

correct and the trading desk has bought o

Herearetwocauonarytalesofroguetraderscausingmajordamage.Theyunderlinethe

importanceofcontrols,riskmanagementandeecveoversight.

BaringsBank:in1995LondonsoldestmerchantbankcollapsedbecauseofNickLeeson,wh

washeadofderivavesintheirSingaporeoce.Leesonwasmeanttobearbitraging(mea

buyingafuturescontractononemarketandsellingitataslightlyhigherpriceonanother

marketalmostimmediatelyandmakingasmallprotonthedierence)futurescontractsf

theNikkei225indexwhichwerelistedontheOsakaSecuriesExchangeinJapanandthe

SingaporeInternaonalMonetaryExchangeinSingapore.ButLeesondecidedtoholdonto

futurescontractsinsteadofsellingimmediatelybecausehewasconvincedthattheJapane

marketwouldstrengthenandmakehimmoremoney.Whenhewasprovedwronghedecid

startforgingdocuments,forexamplesayingthata200millionlosswasactuallya102mi

gain.Intheendhelostthebank827million,morethantheyhadandtherewasnowayto

recover.PartoftheproblemwasthatLeesonwasthetradingoormanagerandinchargeo

selementoperaons,sowhenhebeganforgingtradedocuments,noonesaw.Intheend

blamedthefactthatnooneatthebankcouldseehowthisarrangementcouldspelldisaste

thatpeopleweretooscaredoflookingfoolishtodosoandthosethatdidthinksomething

upwereignored.

In2008itemergedthattraderJeromeKervielatFrenchbankSocieteGenerale,wasforging

indexfuturestrades.SocGenhasclaimedthatalloftheseroguetradestotaled49.9billion

waymorethanKervielwasauthorisedtohandle.Whenthebankeventuallyuncoveredthe

illegaltrades,theydecidedtogetoutofthoseposionsimmediately.Closingoutthosetra

costthebank4.9billioneuro.ThoughKervielclaimsthatwhathedidwaspraccedregula

othertraders,andsomepeoplethinktheremusthavebeenpeoplehelpinghimwiththefr

insteadofworkingalone,SocGenmaintainsthateveryfewdaysbeforetheseposionswo

havetriggeredanautomacwarningfromthetradingsystem,Kervielwouldcloseoutthet

andmovethemsothatnoonewouldndout.Ontheoccasionsthathewasquesoned,h

wouldsaythatthetradewasamistake,cancelitandthencreateanothertradewithadie

instrumenttoreplaceit.Butbecauseitwasinanotherform,noonenoced.Itwouldhave

averyeagle-eyedriskmanagertohaveavoidedthisdisaster.


8/31

what they were supposed to (if the trade was

to buy USD but instead the cket says selling

USD, well then, youve got a problem). They also

constantly reconcile trades and open balances

with banks and other nancial instuons. T hese

are the editors and the proofreaders who make

sure the execuon is awless. This is another

role that may be overlooked by people on the

outside, but any investment banker knows that

a bad operaons team can cause unnecessary

headaches and completely mess up a protable,

well-working team. For an operaons role youll

need to be comfortable working on a variety of

IT systems or at least learning them quickly. Of

course, an eye for detail is extremely important

as is good listening skills. If a trader asks you to

check something urgently, they will be very upset

if they have to repeat it. The operaons teamalso communicates, usually by phone, with other

operaons teams as well as salespeople at the

other banks who are doing business with them, so

youll need a good rapport with people, especially

when lots of money is on the line.

IT:

Another increasingly important role in an

investment bank that is considered part of the

back oce is the IT department. No longer just

xing desktops that are slow, IT departments in

investment banks are now in charge of complex

computer networks, trading plaorms, and

communicaons systems. They may also be tasked

with developing bespoke soware to facilitate

the banks trades and content management. And

not only the upkeep is important, but also the

security of those systems as well. If any sensive

informaon gets out, it could spell real trouble for

the bank. Nowadays praccally all trading is done

electronically and sensive informaon is also

kept electronically.

Investment bankers are also always looking for

easier and faster trading and content management

systems so its up to the IT sta to suggest

possibilies and implement them. Traders are also

now increasingly set up to work from home so

that they can trade out of oce hours, another

thing IT will have to look aer. No one can do

their job if the system goes down, something

investment bankers will not tolerate, so the IT sta

need to be proacve in systems upkeep as well as

suggesng cung-edge technology that will give

the investment bank a clear edge over

the compeon.

Investment banks deal with a wide range of

nancial instruments and clients, and therefore

have tons of dierent roles to ll. The work is

high-pressure and days can be extremely long,

but it can also be sasfying, interesng and

the paycheck usually makes all that hard

work worth it.

On6May,2010,theDowJonesIndustrial

Averagesuddenlyplummeted1,000points.

Peoplestruggledtogureoutwhatcould

causesuchasudden,massivedrop.One

theorywasthatsomeonehadpurposely

orinadvertentlyaddedafewextrazeros

toatradeordertosellshares.Aerthat

somecompaniessharesactuallyendedup

tradingatapenny!Therewasa20minute

windowwhenpriceswenthaywireandall

ofthosetradesendedupbeingcancelled.

Thereareallkindsofconspiracytheories

astotheroleofcomputersandelectronic

tradingplaormsinarguablytheweirdest

daytheDowhasseensofar.

The paycheck usually makes all that

hard work worth it.

Within an investment bank, the corporate

nance team acts as a nancial advisor for

large companies, corporaons and even some

governments. When a corporaon wants to grow

the value of their company they will approach

the corporate nance team at an investment

bank to rstly, suggest ideas about how to reach

their goals, and may also ask them to actually

help broker the deal(s). Most of the me a

corporate nance team will suggest a merger or

the purchasing of a company or part of a companyif the client wants to expand their business and

increase prot. If the client wants to raise funds

they might suggest an IPO (Inial Public Oering,

also known as oang) issuing stock or

advise issuing other securies such as debt.

They may also bring up things like joint ventures,

long-term investments, merger and acquision

possibilies, debt restructuring or management

buy-outs (or buy-ins). The dierent suggesons

may come about through nancial modelling or

simply a deep understanding of that parcular

industry/experience within that industry.

Even within the corporate nance division

there are lots of teams, each one handling a

dierent way that the client can implement their

nancial plan for the future. One team may

only deal with IPOs, one team may only deal

with manufacturing companies, so once y

on a team, it is your job to know that indu

inside and out so as to be able to advise y

clients with expert knowledge. Keeping ta

industry news and moves by other compa

the sector are important as well, so that w

comes to actually guiding an IPO, you pric

appropriately that will make the deal a su

Corporate nance is one of the most dem

areas of investment banking. Forget 9-5 o

7-7, your hours are set by your clients and

the opening and closing of markets. But fo

those hours and hard work, you will be re

Analysts are expected to crunch numbers

know about the clients, competors and o

potenal clients in the industry. Associate

sll responsible for data, but also have acc

management dues so are client-facing. M

and VPs leave the details up to the a nalys

are mostly concerned with keeping clients

fostering new relaonships with potenal

and general networking to keep the bank

know about industry moves. There are m

dierent roles within corporate nance b

challenging, interesng and can be very lu

WHAT IS CORPORATE FINANCE?

Once you are on a team, it is your job

to know that industry inside and out so

as to be able to advise your clients with

epert knowledge.

Forget 9-5 or even 7-7, your houset by your clients and not the op

and closing of markets.


9/31

nighters to get it all done). But banks will have

some nice perks that can make the many long

nights slightly more bearable such as free food

and complementary taxis home in addion to

the standard perks of free or heavily subsidised

gym memberships, dry cleaning services and free

ckets to concerts and sporng events. Youll

work very long hours and might not get much of

the glory, but you will be an integral part

of your team.

Associates

Associates are higher up in the pecking order

than analysts, but somemes not by much. They

might handle the more complicated models,

but they generally oversee and hand out work

to the analysts as well as concern themselves

with the pitches to the clients for whatever deals

the team thinks are best. This takes the form of

pitchbooks and generally associates work with

analysts to create these. The pitchbooks are used

to gain new clients and usually for each potenal

client, the associates and analysts create two: a

general pitchbook outlining the bank and what the

corporate nance division has accomplished, and

then a more specic one that contains parcular

models aimed at exactly what this client wants

to achieve. So though associates sll have to do a

bit of the grunt work of the analysts, they do also

get face me with clients, which can be a nice

change. This also means that while you need to

be technical, you also need good so skills and

need to be able to meet and socialise with clients.

An associate with an MBA might have a beer

work life than one without, as this can mean more

experience and thus more responsibility and more

leeway from the bosses. Expect long hours again,

though not as long as when you were an analyst.

This is simply a reality of working in corporate

nance your regular leaving me might

around midnight and youll probably have

weekends regularly at rst, then possibly

10 hours on weekends once youve had a

years as an associate. Here you dont nec

have to be a maths wiz to shine, but as lo

possess general business knowledge,

business sense and an overall grasp of the

markets and your clients, you can really st

out as an associate.

VicePresidents

As you may have guessed, VPs are on the

rung of the ladder. They oversee the ana

and associates and while they sll keep a

on the modelling, meet with the analyst

associates to go over work and make any

to models or presentaon, they really doany themselves. They do, however, overs

pitches because one of the main respons

of the VPs is client management. These a

people who spend me with most of the

and so will be in lots of meengs and dis

for many working lunches and dinners. V

paid more, have more responsibility, but

travel a lot vising clients, so they are so

barely in the oce. They regularly are ca

to client sites on a moments noce so pl

a work week or even a weekend at home

be dicult and nearly impossible. They a

probably the ones who represent the co

at various conferences and industry gath

trying to gain new business and network.

the grunt work is over by this point and y

probably geng paid quite a bit, but you

not have much me to spend your mone

your family as oen as youd like.

Directors/Managing Directors

This is where all that nancial modelling

MDs sit at the top of the corporate nanc

chain so they prey much get to do what

want. They are in the oce only when th

to be and only visit the clients that they w

usually the most important c lients are

the directors handle themselves. The dir

real job is to represent the team, make su

clients are happy and drum up as much n

business as they can.

The whole corporate nance secon is split up

into deal teams and within those teams are the

dierent roles. Though one team may only be

concerned with M&A and another might only

work with the oil industry, their structure is

basically the same.

Analysts

First you have the analysts. They are at the

boom of the ladder and unfortunately, thats

most likely where youll have to start. Analysts doa lot of the not-so-fun work that is necessary for

transacons to go through. As an analyst youll

nd yourself evaluang nancial statements

as well as reviewing things like management

structure. You may also have to value a company

based on similar companies in the same industry

and see how your client measures up.

Aer analysis comes the nancial modelling

that will tell the team if a proposed deal is a

good idea or not and from there youll draw

your conclusions as to what the best strategy

is does the client need to raise more cash?

Should they be purchasing a competor or is it

beer to let a competor purchase them? You

might already know what DCF Analysis is, and

that is an example of a nancial model. There

are many other kinds of models and which ones

youll use obviously depends on which team

you sit, but you could be tasked with looking at

balance sheets to predict a companys future

prots, thinking broadly about a company and

its situaon (what if this happens or what if

that happens), or you could be asked to use a

complicated mathemacal algorithm dealing with

risk, credit or interest rates. If you are an analyst,

spreadsheets will become your best friends.

If you are into maths, you may love being an

analyst; or you may only be using the posion

as a way to move up. Either way, you will be

worked hard as an analyst. A VP or director

might have a hunch about a certain deal, but it

is you who will provide the data to either back

up or disprove his (unfortunately it usually is a

his) theory. This means that you are on a short

lead and cannot get anything wrong. Before

you submit any work make sure it is double and

triple checked for errors as well as grammar

mistakes. Tradionally analysts work long and

varied hours. If no deals are going on the oce

might be quiet and youll simply have to keep

up on the news or maybe work on a new model

youve been discussing with colleagues. But then

it can seem like everything happens at once and

youll have so much work that leaving the oce

aer midnight will become a regular occurrence.

You could be working on a pitchbook for an

IPO one day, then handling the models for a

proposed merger the next, then making changes

to the pitchbook, then doing some last-minute

wring for a transacon on lile noce. Analysts

are expected to work fast and provide the data

asked for without quesons (since directors are

only concerned with selling the bank to clients,

they will usually promise them mulple reports,

models and presentaons in a few days me,

which means you might have to pull some all-

WHOS WHO IN CORPORATE FINANCE?

First you have the analysts. They

are at the bottom of the ladder and

unfortunately, thats most likely where

youll have to start.

Banks will have some nice perks such

as free food and complementary tais

home in addition to the standard perks.

As long as you possess general

business knowledge, business sense

and an overall grasp of the markets and

your clients, you can really stand out asan associate.


10/31

and its achievements, similar deals that the bank

has done to highlight their experse in the area,

the projected value of the company based on

other companies in the same industry that have

issued shares and highlighng the banks place in

a league table of other underwriters.

Theactualpitch

Its probably annoying for the analyst andassociates that work so hard on the pitchbooks

(the VPs and MDs also work on them, but not

as much as the analyst and associates do) that

they dont get to make the actual pitch, but

thats how it goes! An MD and a VP and maybe

a stock analyst, who will deal with the shares

once they are issued, will be the ones to give the

presentaon to the company to try to persuade

them to use their bank a s an underwriter. Because

at this point in the deal, M Ds and VPs from several

banks are parading in and out of their oces, this

is generally referred to as the beauty contest.

Youvewon!Nowtherealworkstarts

Once your team has been named as the manager

of the IPO, next you have to get together with

the other parcipants who will be helping out

with the deal. This list usually includes: the

main players of the company itself like the CEO,

CFO and any important department heads; the

accountants for the company; the companys

lawyers; the lead manager; any co-managers and

lawyers or council for the underwriters.

Then the due diligence begins. Before the stock

is issued, there needs to be a lot of research

undertaken to make sure the meline and the

price the stock is issued at is correct so as to make

the deal a success. The rst step in this research

is to speak at length with the management of the

company as well as to get to know that company

and the industry inside and out. This could mean

researching other similar companies or m

site visits to the companys dierent plant

or factories. The idea is to get a sense of o

growth, health and general direcon so th

performance of the company in the short

well as long term, can be assessed.

Draing

The prospectus is the basic markeng too

get people to invest, or buy the stock that

issued. The prospectus is put together, or

aer the due diligence is nished and is th

labour intensive step aer the second pitc

The rst dra of the prospectus is wrien

the issuing companys lawyers, then gets

around from team to team as dierent dr

the document are made. The more teams

are involved in the deal, the longer the dr

stage as everyone has dierent ideas abo

tone, the style, what should be included a

what should be le out. There are mega d

sessions where the various teams meet to

the prospectus and those meengs can e

involve some analysts and associates on o

Usually this stage takes up to 10 weeks an

mes ends up at an all night nancial prin

company to get it completed on me.

And this isnt just a case of agreeing on th

and then hing print. Usually for an IPO

might need as many as 20,000 copies of t

Though the deals within corporate nance can

take on many dierent forms, a regular one is an

IPO. IPO stands for Inial Public Oering (if you

hear a company is oang or considering a

otaon or an oering, they are considering

an IPO) and this is when a company decides to

issue stock, primarily to raise funds. The corporate

nance team in an investment bank comes in byarranging the deal and taking some of the risk.

You may have heard of the term underwring -

this is what the investment bank does in an IPO,

they advise the company releasing their shares

and then they take on some of the risk involved

in actually being able to sell those securies. IPOs

can make up a large am ount of what corporate

nance teams do so it s important to know exactly

what goes into one and what the meline of a

deal looks like.

Hearitthroughthegrapevine

When a company wants to issue shares because

they may want to raise money w ithout borrowing

- many mes the informaon leaks out and

then dierent investment banks rush to pitch

their services to that company. This is where the

relaonships that the directors and VPs culvate

come in. If they have a great network of people

they know in the business, they are more likely

to be the rst to know that a company is thinking

about an IPO. The directors get paid the giant

sums to basically keep up on what everyone in

the industry is doing and to keep relaonships

going. It may seem like all they ever do is go out to

dinner with clients and potenal clients, but this

will be how the bank nds out about upcoming

deals and how companies will think of your bank

rst when they want to do a deal.

Generalpitching

Once a higher up in the corporate nance team

hears that a company might be considering an IPO,

they will go back to their analysts and associates

and have them put together a pitchbook. The rst

pitchbook usually assembled is a general one that

outlines key points about the bank and highlights

any successes that the corporate nance teamhave had. Obviously this is the pitch to the

company to use this bank as their IPO manager.

Then the higher-ups will try to schedule at least

a few follow-up meengs in the hopes that they

are one of the investment banks hired to manage

the deal. And usually there is more than one bank

working on one public oering so being on good

terms with corporate nance teams from other

banks is important too. One bank will usually take

the lead on an IPO (the manager), but there may

be another or even two other banks in charge of

specic areas of the deal.

Secondpitchbookwithmoredetail

Then aer some inial contact, the corporate

nance team will produce their second pitchbook.

This pitchbook is much more detailed and will

use nancial modelling to get the data needed.

This is a lot of work, much more so than the rst

pitchbook you might want to bring a pillow and

a toothbrush to work cause youll probably be

spending a night or two in the oce. A reason

the second pitchbook may be very complicated

is if this specic company has never previously

issued stock and therefore there is no data

to present! If there is no history of what will

happen, how much money they will be able to

raise, etc. the analysts and associates must do a

lot of comparable analysis, and that takes me.

These pitchbooks will probably have the following

informaon: general informaon about the bank

MY 24 HOURS IN CORPORATE FINANCE AN IPO

MDs and VPs from several banks are

parading in and out of their offices,

this is generally referred to as the

beauty contest.


11/31

preliminary prospectus (called the red herring,

or red for short) and 10,000 copies of the nal

version! These nancial printers are set up so

that the teams that oversee the nal dra of the

prospectuses can work uninterrupted for two

days in a row if needed. T hey get food delivered

to them whenever they want and there are even

showers on site great for not smelling, bad for

taking away excuses to leave.

Gengthewordout

At this point the prospectus is nalised, printed

and has been sent to as many potenal investors

as the team can think of. Now you need to follow

up to get the greatest number of investors on

board as possible. Both the VP and MD of the

lead manager and the management of the issuing

company will come up with a presentaon toshow to as many potenal investors as they can.

Other markeng materials are constructed by

analysts and associates such as selling memos

and other documents that salespeople will use to

ence their clients into invesng.

This part of the whole process is somemes

called the road show because the companys

management, along with the representaves

from the managing corporate nance team, will

somemes make hundreds of presentaons in

loads of dierent cies. It can basically mean

weeks of hotel rooms and airplanes. And at a road

show, the associates role unfortunately amounts

to lile more than babysing and making sure

everyone has their luggage and hasnt le their

passport at home.

Isthepriceisright?

Part of pung the prospectuses together means

pricing the stock that will be oered. Usually a

range will be set by the underwr ing team while

doing the due diligence. Hopefully the team have

got it right and the stock ends up trading at the

high end of the range. The best case scenario is a

stock that trades above the top of the range and

that happens when there is a lot of buzz behind

the stock and it becomes a very sought-aer

investment. Conversely, if no one cares about

your new stock then it may trade below yourpredicons, which is not good.

Then when the stock is issued its up to everyone

to watch how it performs, some may go up

slightly while others may look healthy on the day

the stock is issued and then drop on day two.

Hopefully the due diligence and markeng phases

have worked together to create a good product

that is well publicised.

DownloaD our guiDe:

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Find out whether a career in investment banking is the right one for you.

In this guide you will nd:

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12/31

The equies desk in an investment bank deals

with company stock (called shares in Europe).

Depending on where you are, you will have to

follow the various indices around the world such

as the FTSE, NASDAQ, Dow, CAC and the DAX. Not

only will you have to pay aenon to the numbers

which stocks have gone down and which are up

but you will have to learn about how companies

are valued. Youll have to form opinions on how

companies become overvalued and undervalued,

good investment strategies for those looking toinvest in stocks and how certain social and polical

events can aect companies share price.

Whatisastockmarket?

A stock market is an aucon where stocks are

traded; stocks are traded on a stock exchange.

Tradionally the stock exchange is an actual

locaon where people, banks and hedge funds

call in their orders and then the order is placed.

Examples of stock exchanges are: the New York

Stock Exchange, the Frankfurt Stock Exchange and

the London Stock Exchange. Nowadays there are

also virtual stock exchanges where everything is

done over computers. The NASDAQ is an example

of a virtual stock exchange.

The NASDAQ

This stands for Naonal Associaon of Securies

Dealers Automated Quotaons and though it is

US-based, is completely virtual and electronic.

Started in 1971, it came out of over-the-counter

trading model, which means there is no physical

exchange to go through, all orders are processed

by computers and can be completed from

anywhere. Besides being ahead of its me by

using computer systems to buy and sell stocks, it

was also the rst exchange where people could go

online to trade stocks.

The London Stock Exchange

This exchange has been in existence since 1801

but buying shares stared as early as the 1680.

This came out of the need to raise money for two

marime trading voyages, one to China and one

to India. It is thought that by 16 95 there were

140 companies whose shares were being sold

and traded. The moo on the coat of arms of the

exchange translates to: My word is my bond.

Whatisanindex?

The indices listed below are a way to keep track

of various stocks and whether their stock price

is moving up or down. An index will only track

a certain part of a stock exchange. For example,

the FTSE 100 only tracks 100 companies but it is

considered a great indicator at the overall health

of the Brish economy.

TheFTSE100

First youll have to know how to pronounce it

(footsie) then youll need to know that it stands

for the Financial Times Stock Exchange 100. It was

started in 1984 jointly by the newspaper and the

London Stock Exchange (which has now turned

into the FTSE Group, which is an independent

company all together) to list blue chip (or large

cap) companies appearing on the exchange. So

many instruments are based on the FTSE and it is

broadly regarded as a way to determine the health

of the UK economy.

TheS&P500

This is an index of 500 blue chip companies in the

US. Blue chip companies are large companies that

are thought to be stable, well-run and protable.

They are called blue chips because in poker the

blue chips are the most valuable. Like the FTSE

100 in the UK, the S&P 500 is a good gauge of the

US economy. All of the companies on this index

are public and also trade on the New York Stock

Exchange and the NASDAQ. Since 1957 the index

has been published by Standard & Poors, which

actually publish many dierent indices.

The CAC

The CAC 40 is a French stock index of the 40

French companies on the Euronext Paris Exchange

(formerly the Paris Bourse) with the highest

market capitalisaon. Market capitalisaon, ormarket cap, is when you determine how much an

enre company is worth based on its share price.

So if the share price is x, you mulply that by all of

the shares that have been bought by shareholders,

in theory giving you the value of the enre

company. The CAC 40 includes companies such

as LOreal, BNP Paribas and AXA but market cap is

calculated regularly and companies may drop out

of the CAC 40 if their market cap falls. Though the

companies are French, many of the stockholders

are internaonal and come from Britain, Japan,

Germany and the US. Because many of those

companies listed are mulnaonal, the CAC 40

has a very internaonal feel and aects other

internaonal markets too.

The DAX

The Dax, or the Deutscher Aken IndeX, has

been around since 1988 and lists the 30 biggest

companies trading on the Frankfurt Stock

Exchange. Each quarter they review the list of

companies named on the index and make any

appropriate changes so the largest companies are

always represented on the index. Again, this is a

great general benchmark for the German economy.

The Nikkei

This is a price-weighted index from Japan.weighted index means that the percentag

index made up of a parcular stock depen

the stock price. So the higher the stock va

larger the poron of the index it will make

This is dierent from a market-weighted i

where the equity market value (value of t

mes number of shares outstanding sha

are out in the market and have been purc

determines how big a percentage the com

gets. The Nikkei was started in 1950 by th

Keizai Shimbun newspaper and is reviewe

Whatmakesstocksmove?

Many changes in a countrys economic sit

to a specic company announcing that th

is stepping down (Google Steve Jobs and

can aect stock price. Perhaps the biggest

for a stock moving is interest rates. The co

price index tracks the price of everyday go

if those prices rise, people fear inaon. W

there is inaon it means that money is n

valuable anymore because it takes more o

to buy things than before. That also mean

interest rates rise to compensate. All of th

investors look to more low-risk moves, su

bonds, as opposed to trading stock.

People also constantly look at the GDP of

country to get an idea of the overall econ

health. If GDP slows down then a recessio

not be far behind. In a recession everythi

Youll have to form opinions on how

companies become overvalued and

undervalued and how certain social and

political events can affect companies

share price.

The FTSE 100 First youll have to

know how to pronounce it!

WHAT ARE EqUITIES?


13/31

down and demand for companies products suer.

The companies prots will shrink and that will

cause their stock price to plummet.

If youre tracking an individual company you need

to pay aenon to the earning per share (EPS).

BOX Companies release this gure quarterly

and it not only tells you about the health of a

company, but whether its stock is overvalued

or undervalued. If analysts have predicted a

companys EPS at one price, but the actual price

is lower, the price of that stock will fall as people

look to sell of a stock that is in worse health than

they thought. If the opposite happens and the

EPS comes in higher than expected, that

stock will rally.

HowstocksaremeasuredandvaluedYou cant just go on the price you see on your

screen. People have developed hundreds of

dierent raos to value stocks and compare them.

These are the most valuable ones you need to

know if you want to work in equies:

P/Erao

This stands for Price to Earnings and simply is the

price of the share divided by the Earnings Per

Share (EPS). This will tell you the price of the stock

related to the earnings of the company. So if a

stock has a high P/E rao that means it s expensive

as you are paying more for those earnings per

share. If two companies have the same EPS but

one has a higher P/E rao, that one is a more

expensive of the two and means you are paying

more for the same EPS. Oen the P/E rao as

expressed by saying that a company is trading at

20 mes its earnings if it has a P/E rao of 20.

PEGrao

This stands for Price/Earnings to Growth rao and

takes the P/E rao and then accounts for how fast

the EPS for the company will grow. A stock that

is growing rapidly will have a higher PEG rao. A

stock that is well priced will have the same P/E

rao and PEG rao. So if a companys P/E rao is

20 and its PEG rao is also 20 some might argue

that the stock is too expensive if another company

with the same EPS has a lower P/E rao, but thatalso means that its growing faster because the

PEG rate is 20.

EPS, or Earnings Per Share, will tell you how much

each share of a company will earn. Its probably

the most important thing to look at when deciding

to invest in a company. The most basic formula

to calculate EPS is prot divided by a weighted

number of outstanding shares. Its important to

use a weighted number as the actual number of

shares bought can change oen.

MY 24 HOURS IN EqUITIESANNELIES VERMEULEN, EqUITY RESEARCH ANALYST(JOINED J.P. MORGAN IN JUNE 2009)

I work in the European Equity Research team here

at J.P. Morgan, which is divided up by industry.

I work in the Property team, with whom I did

my summer internship whilst at university. Our

job involves analysing the companies we cover,

publishing reports and advising clients. Welook at all aspects of the industry and all types

of property, including house prices, shopping

centres, oces and residenal, as well as

transacons made by the big property companies.

I usually get in between 6.30 and 7.00am,

depending on how busy we are.

The rst couple of hours are spent looking at

the newsow and pung together our Daily

research report, which is sent out to clients at

around 9.00am. This includes updates on what

happened in the market the day before, any

newsow from the industry such as acquisions or

disposals (buying or selling properes or property

developments) made by one of our stocks, as well

as transacons or deals across the wider sector.

My team covers around 45 European Real Estate

stocks, which also all regularly report earnings

results. We include results commentary in our

Daily, such as whether results are in line, above or

below expectaons.

Around 9.00am we get breakfast. Then the rest of

the day is very varied if one of our companies

has reported results then well spend the day

updang the models, sending out alerts, going

to meengs, speaking to salespeople and traders

as well as calling clients. Clients will somemes

talk to one of our salespeople rst if they

quesons on a stock, but if they have mo

specic quesons about the company, the

talk to analysts like us.

We also publish a huge, 400-page annual in September the Property Handbook. T

a more fundamental analysis of the prope

market, as well as highlighng our top pi

the year. These are the stocks we would a

clients to invest in.

For each of the stocks we cover, we give e

buy, hold or sell recommendaon, which c

look at when deciding whether or not to i

We upgrade/downgrade stocks periodica

depending on where we think the share p

going to go. When speaking to clients, we

explain the reasons for our recommenda

which are a combinaon of many dieren

We also regularly aend property tours an

site visits of our companies assets and ne

developments. For instance, one of the co

we cover recently acquired The Traord C

Manchester, and organised a trip for analy

investors to see the shopping centre.

Usually I go home around 6.00 or 7.00pm

Occasionally though, when were working

sector report it can be later. Generally, I w

that my days are very varied - it is hard wo

we have a lot of fun too.


14/31

Fixed income is an instrument that you as an

investment banker can use to make a prot for

you and your clients. The name xed income

explains exactly what it is: debt securies that

pay an amount of income at xed intervals over a

certain length of me. There are ma ny dierent

kinds of xed income deals you could make and

each work in a dierent way. Here are the basic

xed income products that make up the desk.

BondsThis is the biggie in the xed income market. The

most basic denion of a bond is a kind of loan.

If a company issues bonds and you buy one, you

are basically loaning them money. In exchange,

they will pay you interest on a xed schedule

for the length of the loan, or bond. When the

bond expires, the company will also pay back the

original amount of the bond, or the principal.

Bonds are great for people who feel comfortable

invesng in something that they know will

pay them quarterly, annually, or whenever

is spulated.

Bonds are issued by lots of dierent places; here

are the ones you need to know about:

Government: Government issued bonds are

considered one of the most stable investments

you can make. Actually, there are three kinds

of securies to go for: Treasury bills (or T-bills),

which mature for up to two years; Treasury

notes, that go on from three to 10 years; and

Treasury bonds, which last from 10-30 years. Of

course these are seen as stable because really,

is the government going to default? Well, in

theory, no, but stranger things have happened.

If you keep a close eye on the Eurozone

economies you may not be so sure. But the

amounts of the payments are aected by

interest rates, so theyre not totally without risk.

Municipal: These a re regularly called munis.

They are bonds that are issued by the local

government or a city. Munis are also considered

quite a safe investment, as cies rarely default

(but again, never say never...). You will mostly

hear talk of munis in relaon to the US but a

UK muni market does exist and there are also

operang muni markets in Sweden and

the Netherlands.

Corporate: These are issued by a companyjust like they would issue stock (but dont get

confused a stock is a share in the company

and a bond is a debt security). Issuing bonds

is a great way for a company to raise money if

they are looking to expand or for things

like new oces.

Another important aspect of the bond m arket is

the rangs. Standard & Poors, Moodys, and Fitch

Rangs are the credit rang agencies you need

to familiarise yourself with. Bonds are rated on a

scale from AAA (the best ones, most likely to meet

payments) to D (a greater chance of default which

means youll lose your money). The agencies label

their levels slightly dierently, but in general the

bonds that have a rang of at least BBB are most

likely complete payments. Anything with a rang

lower than that is considered a high-yield bond,

more commonly is known as a junk bond (also

called high-yield or speculave bonds when

you want to be a lile more tacul about it). Well,

the name alone should tell you all about those!

Yes, they can be high yield, but they are so risky

that there is a big chance the issuer will default

and that that means you dont get your money.

Derivaves

Derivaves are tricky. Were used to seeing

something, its got a price tag, and thats how

much its worth. But a derivaves value changes

based on a host of dierent factors. Here are the

basic ones to learn:

Forward: A forward contract means that

someone agrees to buy something from

someone else at a future date for a xed price

got that? So say that you want to buy a car,

but you dont want to buy it for another year.

The car dealership agrees to sell you the car you

want in exactly one year for 20 ,000. Well, in

a years me the value of the car could go up

or down, depending on a lot of things. So if the

value goes up, the dealership sll has to sell you

the car for 20,000 and that means that youhave made a prot, while they have lost money.

Opon: Instead of a forward, you can buy an

opon. So, if in a years me the value of the car

is only 18,000, but you sll have that forward

saying you have to pay 20,000, the opon

gives you the opon to opt out of the deal. That

20,000 is also called the strike price, or the

price that the contract will be carried out for, if

the deal happens.

Interest Rate Swap: If you nd the nance world

interesng, youll love the idea behind interest

rate swaps. Basically, this allows you to swap

one cash ow for another. There are a lot of

reasons for someone to do this, but lets say

that theres a company that pays interest on a

loan and that interest is oang, meani

changes. If the directors of that compan

they dont like being exposed that way,

swap their payments with another com

whose interest rate payments are xed

Company A pays Company B their oa

and Company B pays Company A their

rate. Swaps can be structured in a num

ways, but this is the most basic. Coming

to xed income, this is another way tha

parcular party can ensure that they ar

a payment at a xed interval.

So as you can see, investment banking isn

buy low, sell high. Fixed income is a usef

market to understand, and an essenal to

investment banking world.

WHAT IS FIxED INCOME?

Investment banking isnt just buy low,

sell high.

Imagine your local bookseller, instead o

requiring you to pay 10 for the book i

four weeks me, says to you, If you c

to me in four weeks Ill sell you the boo

at 10 but you are not obliged to buy t

book from me (Your local bookseller is

course, unlikely to give you this opon

free. If anybody oers you a free opon

should generally take it). In this case y

would buy the book from the bookselle

in four weeks me only if the price for

book at all other booksellers were grea

than 10. In other words you would ex

your opon only if it were valuable for

to do so. But even prior to exercise, yo

opon has a value. That value is made

components: inherent value (the amouwhich the market price of the book at t

me exceeds the 10 price tag you and

bookseller have agreed) and me value


15/31

FX, or forex, stands for foreign exchange. Every

bank has an FX desk but its more important

to some banks than others. Forex trades a re

all over-the-counter this means that there is

no centralised body or place where things are

regulated and traded. The trades take place

directly between two pares with no exchange

house in the middle. Every country has its own

central bank where currency is controlled, but

there is not one global body that oversees the

currency market. FX is also interesng sinceanyone can get involved from someone day

trading from home for fun, to global instuons

making a deal ahead of an internaonal purchase,

to hedge funds speculang in more than one

currency, the forex markets are open to everyone.

Some countries decide that they want more

control over the value of their currency and so

they have what is called pegged or xed exchange

rates. Such countries include: Venezuela, the

Bahamas and the city-state of Hong Kong. Their

central bank ensures that their currency is directly

correlated to something else, whether that is

gold or another major c urrency. It is helpful for

controlling inaon and also used by smaller

countries to ease trade, since their currency

is directly related to a major world currency

or instrument. Most countries, though, have a

oang exchange rate, and that rate is dictated

by the markets. Some economists think this way

is more helpful as it allows currencies to work

themselves out in the markets and makes it easier

for countries to deal with any ups and downs the

currency may face. The UK, US and the Eurozone

all have oang exchange rates.

FX desks have a separate group for Emerging

Markets FX. These are currencies from countries

that are experiencing tremendous growth.

They were formerly known as less developed or

Third World countries but now those terms are

now outdated. These countries, such as China,Brazil, South Africa and India, are seen as having

tremendous upside and potenal for investment,

but at the same me carrying a lot of risk.

Many large, mul-naonal corporaons that

are not necessarily in the nance sector may

actually have their own trading division to help

with their internaonal business. For example,

a large construcon rm may employ their own

forex traders so that they can handle converng

one currency into another when there is a piece

of equipment they need to purchase overseas.

So FX can actually reach into many dierent kinds

of business and knowing how to trade currencies

doesnt necessarily mean that youll only be able

to nd work at a bank or fund. But besides those

kinds of situaons, the main hubs for FX markets

are: London, New York, Singapore, Hong Kong

and Tokyo. At one bank there will be FX traders

spread out all over the world so that all me zones

are covered and the desk can take advantage of

moves that may happen when only one market is

open. This is a true 24-hour business, and trading

can take place any me of the day or night (only

on weekdays; youll be happy to hear that markets

are closed during weekends).

DierentkindsofFXtrades

There are dierent ways of trading foreign

exchange and the most common are the following:

Spot This is the shortest kind of trade that

usually is seled in two days. Its the m ost

simple kind of trade as you literally trade x for y

and thats it.

Forward

Weve covered forwards in the chapter on xed

income, but this can play a part in the FX market

too. An exchange rate is agreed but the deal

doesnt actually take place unl a pre-determined

date in the future.

Future

Again, part of xed income but also can be used

in trading foreign exchange. Its like a forward but

more standardised and regulated.

Opon

This is another xed income instrument used in FX

where you put a trade in place but then have the

opon to back out of it before the date where the

trade would be done. You have the right, but not

the obligaon to go ahead with the trade unl the

contract expires.

Swap

An FX swap is when a trade is done but then

reversed later. So you buy x, sell y and then in

three months you sell x back for y. A swap is

usually achieved by making a spot trade and also a

forward at the same me.

Howtoquoteanexchangerate

Every currency in the world has a three leer

code. For the euro it is EUR, the code for the

pound is GBP, the US dollar is USD. To quote an

exchange rate between two currencies, one code

will be listed directly aer the other, usually as:

GBP/USD. In this example wed call GBP the base

currency and USD the counter currency. Aer the

two currency codes there will be a number, for

example 5. If you saw GBP/USD 5 that means that

5 USD = 1GBP (we just used nice round numbers

for this example, its not actually the current

rate. If it were, wed hope that all you Brit

be too busy living the good life somewher

America to be reading this!). In these quo

its always how many of the counter curr

make up one of the base currency.

Whataectsexchangerates?

The rst thing that can make the value of

currency rise and fall is something to do w

that countrys polical system. This can m

anything from elecons, to some kind of s

involving government ocials to a new pr

prime minister/ruling party. Any new part

is expected to radically change policies or

the country into any kind of instability wil

a negave eect on the countrys currenc

will weaken. This will also be the case sho

be quesons about who will actually leadcountry or who is in charge.

The state of a countrys economy will also

the strength of that countrys currency. A

a report comes out about a countrys GDP

decit or surplus, or a change in economi

you will see the currency of that country m

Of course the nature of the announcemen

determine which way the currency goes,

change or announcement having to do w

scal state of a country will aect its curre

Traders themselves can also inuence for

markets. If enough traders perceive one c

to be on the decline, they might pull their

investment in that and invest in another c

that they think is more stable. That will m

demand for that second currency higher,

rst one will suer, all because of percep

is whats called market psychology and is

interesng component of the FX markets

to gure out what people will do when an

occurs. Successfully predicng this is an im

skill possessed by outstanding traders.

WHAT IS FOREIGN ExCHANGE?

Knowing how to trade currencies

doesnt necessarily mean that youll

only be able to find work at a bank

or fund.

Youll be happy to hear that marketsare closed during weekends.


16/31

A typical day goes from 7am to 7pm and

sometimes days can last longer than that,

depending on whats going on. A former FX

salesperson described their typical day as

consisting of the following tasks:

The first thing I do when I get in to work is read

summaries of what happened overnight and

after I left the office the day before. These come

from news outlets and other colleagues in the

business, either from my bank or others.

Then I take the most important points from

everything Ive read and write my own summary

of whats going on and what I think will be

important for the day(s) ahead. The distribution

list for my morning summaries is long as I make

sure that everyone knows what Im thinking in

case they want to do a trade.

After my summary I get on the phone, which is

a very important part of being a salesperson.

Some of my customers always want to be called

in the morning to discuss what has happened

overnight and my general thoughts, others

might call or email me to discuss anything

theyve found interesting in my morning update.

Then I make sure to keep reading news

headlines. Bloomberg News is on constantly

so that we can see whats going on minute-to-

minute. The markets move fast so you can never

ignore the news for too long.

Talking to traders is another important part of

my day. Since they execute orders from me and

my clients its important to know what they see/

what they are thinking and always have a good

relationship with them. Sometimes traders and

salespeople can have their differences but not

always; one of my best friends is a trader.

Again, I do another round of calls with

customers, especially if something important

has happened since Ive been in the office.

Sometimes they call me and ask me to look at

specific things and may ask my opinion on some

issue and then ask me to come up with trades

for that. This is where my creativity comes in

and what makes a salesperson truly good at

their job. The trick is to come up with trades no

one has thought of yet so that your customers

know that they are getting value out of your

relationship and not just the same old ideas

they could get anywhere.

At this point in the day I usually end up doing

trades so I will be communicating with clients as

well as with the trading desk.

By this time the US market is open and its

not unusual for something important to have

happened. In that case Ill call the appropriate

customers again to discuss and hopefully do a

few more trades.

Hopefully its a little quiet by this time so I take

that chance to think about what has happened

that day and try to predict what is going to

happen as a result. Again, this is something

extra that not every salesperson does but itcan really add value for your customers and

help you understand the market better. If your

predictions are proven right, your credibility

will skyrocket but more than that its going that

extra mile to make sure youre prepared and if

you enjoy the markets you wont mind doing it.

I always end the day with more calls to

customers. As a salesperson you cant b

to pick up the phone and talk markets asoon realise that talking to customers is

the number one duty of a salesperson.

MY 24 HOURS IN FOREIGN ExCHANGE

Youll soon realise that talking to

customers is really the number one duty

of a salesperson.

Bloomberg News is on constantly so

that we can see whats going on minute-

to-minute.

Actuallyexecungatradecanhappeninanumberofways.Youcandoadealoverthepho

orprobablymorelikelyyoulldoitelectronically.Ifyourelookingtogetintonance,famil

yourselfwithBloomberg.BeforeMichaelBloombergbecamemayorofNewYorkCity,hecr

acompanythatnotonlyspecialisesinmarketinformaon,butalsoanimportanttrading

plaorm.Everyoneonthetradingdesk(andinsalesforthatmaer)hasaBloombergterm

wheretheycanchattoothertradersandsalespeople,seemarketnumbersandexecutetra

ManypeopleexecutetradesoverBloombergchat(whichisjustlikeIM).Somewilldodeal

thephoneandthenconrmthedetailsoverBloombergchataerwards.Thereareothert

plaormsande-marketplaormstoowherepeoplecanexecuteatrade.Doingatradevia

kindofelectronicplaormisgengmoreandmorecommonplace,andoverthephonede

arebecomingathingofthepast.


17/31

Sometimes investment banking can seem

abstract - you have to pay attention to how the

market reacts to events or you are betting

on which way interest rates will go. Youre not

trading real things you can touch and hold, and

sometimes that can be hard to wrap your brain

around. But one section of an investment bank

that does away with all that is commodities.

Whatisacommodity?

Commodities are products or goods with a

uniform quality and price across the market.

Investment Banking 2013

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Transcript of Investment Banking 2013