1. You are a client-focused trader (market-maker) at a large US…
Question Answered step-by-step 1. You are a client-focused trader (market-maker) at a large US… 1. You are a client-focused trader (market-maker) at a large US investment bank assigned to trade the highly-liquid stocks of large technology companies. Your bank’s research analyst has just publicly released a report expressing her view that Facebook stock is likely to go up 30% over the next year. Based on your experience, you think it’s likely the stock will be up 10-15% within a few months. a) Should you buy $500 million worth of the shares through the exchange today, with a view that you can sell them in a few months and make a $50-75 million profit?b) How can you work productively with your sales trader partners to capitalize on any opportunities around this research report? 2. You are a senior equities trading manager and you are brought “over the wall” at 1pm to discuss a $400 million block trade with your colleagues in the Equity Capital Markets division. The stock in question is one that your company provides research on, but not one that you personally are very familiar with. You are the person who will ultimately determine the bank’s bid price for the block. This block trade is a transaction in which a private equity shareholder will sell out of some of their position:- at a fixed price to your bank or to a competitor, based on who has the highest bid price- at 4:10pm, shortly after market close- at a discount to the daily closing price- the winning bank has all of the downside risk and upside exposure between the price at which they purchase the block and the price at which they re-sell it- the winning bank will use its salesforce to attempt to re-sell the shares between 4:30 and 6pm, if possible; otherwise it will retain the riskWhat questions should you ask to each of (a) Equity Capital Markets, (b) your research analyst and (c) sales heads and traders (assuming they’re wall-crossed)? 3. You are a sales trader on the high-yield bond desk. A client that you have covered for many years has recently moved from a mutual fund to a small startup hedge fund. For the first time in her career she is allowed to take short positions in addition to long positions. She believes the market is underpricing the risk of defaults in the chemical sector. She asks you to explain her options for expressing this view. Can you explain the two main types of trades she could establish that are related to chemical sector bonds, including the mechanics and pros/cons of each? Business Finance INVESTMENT 5600 Share QuestionEmailCopy link Comments (0)
