This document provides an overview of banking operations and products. It explains that banks exist to provide financial products and services to corporate and individual clients. It describes various banking business lines including retail banking, commercial banking, investment banking, and treasury services. It also discusses key banking products like foreign exchange, securities, commodities, and derivatives. It provides examples of how foreign exchange, bond, equity, and derivative trades work and the role banks play in facilitating these transactions.

3. Who are clients Banks Corporate Individuals Deutsche Bank Citibank ABN Amro Deutsche Asset Management Fund Managers Multinational Small / Mid size firms High Street Banking (Chase Bank) US Only High Net Worth Individuals (Millionaires / Billionaires)

5. International Banking Locations North America Latin America EMEA Asia Pacific

6. Banking and Banking operations Bank is a commercial institution licensed as a receiver of deposits. Banks are mainly concerned with making and receiving payments as well as supplying short-term loans to individuals. Exists to help you make the most of your money Assist you with your monetary requirements and promote savings How do they do it ?? By offering different products and Services Banking Services Deposits Loans Services Capital Market Short Term Long Term Retail Institutional Fund based activities, greater market risk Fee based activities, lesser market risk E.g. Savings Current Fixed E.g. Overdraft E.g. Auto Loan Home Loan E.g. DDs Lockers Bill Pay E.g. Bank Guarantee Trade Finance E.g. DP Custodian Merchant Banking Debenture Trustees

8. Different types of Banks Types of Banks Central Bank (RBI) Non Banking Finance Companies (NBFCs) Commercial Banks Term Financial Institutions State Finance Corporations (SFCs) Indian Financial Institutions E.g. IFCI NABARD SIDBI Public Sector Private Sector Foreign Co-operative Banks Regional Rural Banks E.g. SBI PNB BOB E.g. HDFC Bank UTI Bank ICICI Bank E.g. Citibank ABN Amro HSBC State/Central Private Primary Credit Societies

12. Financial Markets

14. SEBI – Securities Board of India SEC – Securities & Exchange commission (USA) FSA – Financial Services Authority (UK) Capital Markets – Regulators

17. Custodian An agent, bank, trust company, or other organization which holds and safeguards an individual's, mutual fund's, or investment company's assets for them. Bank An organization, usually a corporation, chartered by a state or federal government, which does most or all of the following: receives demand deposits and time deposits, honors instruments drawn on them, and pays interest on them; discounts notes, makes loans, and invests in securities; collects checks, drafts, and notes; certifies depositor's checks; and issues drafts and cashier's checks. Capital Markets intermediaries

23. Products: Foreign Exchange Trade Date Receipt Instructions Payment Instructions 2 Counterparties Broker Booked Right Way Round Value date Exchange rate Amount Currencies Component The day the deal was agreed Where we are receiving our currency to? Where are we paying the currency to? The entities involved in the trade Helps to arrange a trade on behalf of others Shows which currency we are paying and receiving. The day the trade will settle. i.e. the funds will be debit / credit from / to your account The price of one currency expressed in another A numerical figure that shows the value of the trade Has to be two of these for the exchange to be possible Explanation

25. Products: Foreign Exchange Example BMW Munich Gear Box Supplier USA Citibank Supplies gear boxes at agreed price. BMW need to pay in USD BMW need to import gearboxes that have been made in the US. Cost $5,000,000 BMW now need to pay in USD but only have a EURO account The Solution: Do a Foreign Exchange Trade Contact Citibank: Want to Buy $5,000,000. Will pay for it in EURO’s. JPMorgan will ask what date they want the currency (Value Date) JPMorgan will advise the Exchange rate. (How much will $5mio cost in EURO) Rate is 1.27 (Euro 1 = $1.27) Pay EURO 3,937,008. Pay USD 5,000,000 to BMW (for Gear Box Supplier)

26. Speculation Example JPMC Microsoft USA Microsoft speculates that GBP price will increase from $1.7 to 1.9 in 3 months time Contact JPMorgan: Want to Buy GBP 1,000,000. Will pay for it in JPMorgan will ask what date they want the currency (Value Date) JPMorgan will advise the Exchange rate. (How much will GBP5mio cost in USD) Rate is 1.7 (GBP 1 = $1.7) sell 1.7M USD buy GBP1M Citibank USA Sell GBP 1 M Rec $1.9 M

27. Currencies What currencies do you know? Have a name: Eg United States Dollar, Japanese Yen Have a 3 figure code Eg, USD and JPY

30. Commodities What are Commodities? Commodities Categories Example of a trade Products: Commodities

31. Products: Commodities What are Commodities? Review cards and put them into 4 categories Put a name to the 4 categories

33. What Precious metals do banks trade in? XAU XAG XPT XPD Gold Silver Platinum Palladium (In place of currency codes the chemical elements of the metal are used to identify the metal) Products: Commodities

34. Example: SWISS Tony’s Gold watch Company JPMorgan Watch maker requires gold to manufacture watches Finds a company selling gold Agrees how much Gold Agree on the price Agree on Delivery Want to buy 1,000 oz Price is $300 per oz Total Price is $300,000 Deliver Gold Pay $300,000 Products: Commodities

36. Products: Bonds Bond Trades What is a Bond? How does it work? What role does JPMorgan play?

37. What is a Bond? Our Products: Bonds A certificate of debt (usually interest-bearing) that is issued by a government or corporation in order to raise money The issuer is required to pay a fixed sum annually until maturity and then a fixed sum to repay the principal Effectively it is a loan. The company who receives the money, issues a Bond with terms and conditions stating when they will pay back interest and principle amount to the lender of the money (Investor)

39. Bond Issuer e.g. A Corporation or Government Investor Receives Bond Products: Bonds Conceptual Example Pay $1,000,000 Makes regular payments (Coupons) Bond maturity pay back $1m

40. Big Company Ltd 2. Raising capital: In this example, Big Company A looks to borrow money 3. Raising capital: It borrows money by issuing a BOND. 4.Raising capital: An Investor buys the bond. (can be a bank, corporation, Individual etc etc) Products: Bonds Conceptual Example Investor(s) 5. End Result Big Company Ltd can now finance its purchase of Small Company Inc and will pay the Investors back. How much depends on the bond (loan) terms. Small Company Inc 1. Big Company Ltd want to buy Small Company Inc. In order to do so it needs to raise capital. The purchase price is $1,000,000 Pays $1,000,000 Issues Bond(s) to Investors

41. Big Company Ltd Investor(s) Investors hold the Bond until Maturity Coupons of 5% are paid semi annually by Big Company to Investors. Products: Bonds Conceptual Example Coupon payments made every 6 months for term of bond 10 Year Bond = 20 payments Pay back principle amount (e.g. $1,000,000) at maturity Paid $1,000,000

42. Role of banks in bonds Products: Bonds BMW Want to start design and produce a new model car Estimate they need EURO 5 million to do this They chose to raise this capital by issuing a Bond BMW Contact JPMorgan and appoint them as Lead Manager on Bond Issue JPMorgan Pay BMW EURO 5 Million and receive Bonds Issue Bonds into the market Investors Bond Buyer Investors Bond Buyer JPMorgan Example EURO 5 M Bonds Bonds EURO 5 M Bond Market Pay cash Pay cash Pay cash Receive Bonds Receive Bonds Receive Bonds Investors Bond Buyer

43. Products: Equities Equity Trades What is an Equity trade? How does it work? What role does JPMorgan play?

44. Products: Equities Big Company Ltd Big Company is now looking to expand its operation again and needs to raise cash in order to do this. The company decides it will raise the cash by selling shares Will Issue IPO. Bank It uses a bank to advise how to do this

46. Current Share holders Investor Investor Investor Investor Investor Investor Investor Investor Products: Equities Secondary Market Stock Exchange (Including Stock Brokers)

47. Investor Investor Investor Investor Investor Investor Investor Investor Products: Equities Stock Exchange (Including Stock Brokers) Big Company Ltd Secondary Market

48. Products: Equities How do banks participate in the Equities market? Client A Client A, wants to buy shares in Big Company Ltd JPMorgan (JPMSL) They contact JPMorgan with the details of their requirements Stock Exchange JPMorgan trader contacts Stock Exchange. Wants to Buy 500 shares Current Shareholder Stock Broker JPMorgan and Stock Broker agree price and terms through the Stock Exchange Through Stock Exchange JPMorgan will source a seller of the Shares. A price will be agreed € 20 per share

49. Share name Number of shares Price of share Buying or Selling Currency paying Trade date Value date Payment details Products: Equities What are we looking to confirm? Big Company Ltd 500 EURO €20 Buying Shares EURO 13 th October 2005 15 th October 2005 (T +2) Where to pay shares and cash to (from both parties) Activity

50. Products: Settling through clearing house Payments: How do they get made? JPMorgan Current Shareholder BNP Frankfurt Citibank Frankfurt JPMorgan and Client send instructions to their Agents. Details of the trade and when to settle The trade will then settle across the Kassenverein Central Depository. Delivery versus Payment (DVP) € 10,000 € 10,000 500 500 Trades can settle over a central depository Before Payment After Payment The Shares are now transferred to JPMorgan’s a/c within Kassenverein They will hold shares on behalf of their client Original Big Company Share Holder, now has €10,000 Central Depository e.g. Kassenverein Share A/C EURO Cash a/c JPMorgan a/c Current Shareholder a/c

53. Derivative Trades What is a Derivative? How does it work? What role does JPMorgan play? Products: Derivatives

55. Futures What is a Future? How does it work? Products: Derivatives

56. Products: Derivatives Futures Definition Standardised exchange-traded contract to buy or sell a commodity at an agreed price for settlement or delivery on an agreed future date How does it work

59. Products: Derivatives Futures Futures Exchange Supermarket UK Potato Farmer Farmer enters into a Futures contract Using the Futures Exchange Agree to sell potatoes Agree to buy potatoes Finds a buyer for potatoes Agrees a price Agrees a delivery date Seller: UK Potato Farmer Buyer: Supermarket Product: Grade A Potatoes Price: £5 / sack Quantity: 5,000 Sacks Delivery: 5 th June 2005 Total Price: £25,000 Future Contract

61. Products: Derivatives Options What is an Option? How does it work?

62. Products: Derivatives The buyer has the right, but not the obligation to buy or sell the underlying product at an agreed price on an agreed date The buyer pays a premium to the seller have this right . Definition Let’s look at an FX Option Options Page 45-49 in Workbook

63. FX Option Products: Derivatives Big Company USA Computer R Us UK (CRUUK) Big Company has ordered a supply of computer components from CRUUK (Computer R Us UK) Computer R Us UK will deliver the computer equipment in 3 months time This will cost Big Company Ltd GBP 1,000,000. in 3 months What needs to happen To Pay for this order Big Company will have to do a Foreign Exchange trade. They need to buy GBP 1,000,000 (to pay CRUUK) And pay for it with USD Have to pay £1,000,000 Deliver Computer Components in 3 months Page 45-49 in Workbook

66. FX Option Products: Derivatives How does it work? Buyer: Big Company Seller: JPMorgan FX Option Details Call: GBP: 1,000,000 Put: USD: 1,500,000 Strike Price 1.5 Expiry Date 5 th March 2004 Delivery date 7 th March 2004 Premium: $5000 Big Company (USA) JPMorgan On January 5 th 2004 Big Company contact JPMorgan Big Company agree to buy an FX Option from JPMorgan. This Option gives them the right but NOT the obligation to use this trade on the delivery date The FX Option Bought By To have this right but not obligation Big Company pay JPMorgan a premium Page 45-49 in Workbook

67. FX Option Products: Derivatives Buyer: Big Company Seller: JPMorgan FX Option Details Call: GBP: 1,000,000 Put: USD: 1,500,000 Strike Price 1.5 Expiry Date 5 th March 2004 Delivery date 7 th March 2004 Premium: $5000 Big company now have the right to use [exercise] this trade for settlement on March 7th The FX Option What are the key dates? Expiry Date: Date that Big Company have to decide whether to exercise the Option Delivery Date: Date that transfer of funds would occur if Big Company Ltd exercise this Option Other FX Option Components Call: Currency that the buyer of the Option would receive Put: Currency that the buyer of the Option would sell Strike: Exchange Rate that would be used if Option is exercised Page 45-49 in Workbook

69. Buyer: Big Company Seller: JPMorgan FX Option Details Call: GBP: 1,000,000 Put: USD: 1,500,000 Strike Price 1.5 Expiry Date 5 th March 2004 Delivery date 7 th March 2004 Premium: $5000 The FX Option Products: Derivatives FX Option RATE Would COST in USD To buy £1,000,000 on Spot Market 1.3 1.7 Exercise Option If SPOT Rate If SPOT Rate $1,300,000 $1,700,000 5 th March To Buy £1,000,000. using the FX Option would cost:? $1,500,000 NO YES Remember: Big Company bought the Option 3 months ago So wouldn’t know what the rates would be today. Buying the Option limits the cost of the Computer purchases to a maximum of $1,500,000. (plus the $5000 premium) Page 45-49 in Workbook

70. ‘ In’, ‘At’ or ‘Out Of’ the Money? Cost in USD Foreign Exchange Spot Rate 1.3 1.5 1.7 $1,700,000 $1,500,000 $1,300,000 Products: Derivatives FX Option: To buy £1,000,000 Out of the Money At the Money In the Money Page 45-49 in Workbook