Chapter 10 – Investment Banking Careers, Opportunities, and Issues
Q1. What are core differences between Investment Banking and Sales & Trading career
paths?
A. IB typically involves longer working hours than Sales & Trading, but o en slightly
Q2. Describe what a “Chinese Wall” is, which U.S. regulator would be concerned with
issues involving the wall and what is meant by being brought “over-the-wall”.
A. “Chinese Wall” is a term describing procedures within investment banks
designed to eliminate communica!ons regarding material, non-public
informa!on and generally limit contact between banking, research and sales and
Q3. Describe the benefit and risks of mortgage securi!za!on.
A. benefit include:
1.Banks that originate mortgages can shed risk and add liquidity by selling pools
of mortgages. 2. By crea!ng a market for previously illiquid mortgages,
securi!za!on offers more efficient pricing of mortgages, which lowers interest
Risks include:
1.Mortgage securi!za!on creates an agent-principal problem as lenders who
underwri!ng standards. 2. Massive amounts of subprime mortgages bundled
Q4. Describe a Credit Default Swap. What are regulators trying to do to mi!gate risk in
the CDS market?
A. A CDS is a financial instrument used to either hedge against borrower default on
a loan or bond obliga!on, or to speculate on the credit of the issuer of a bond or
Q5. Describe the risks associated with bridge loans extended by Investment Banks
A. Bridge loans are meant to be short-term loans, but in the event of a credit crisis
investment banks that have extended bridge loans to large clients may /nd
Q6. Discuss how CDS can be used for hedging and specula!ve purposes.
A. Debt investors buy CDS contracts as protec!on against credit default.
Q7. Describe the areas that fixed income sales focuses on.
A. Fixed-income sales is divided into the following areas: (a) investment grade
corporate bonds, (b) high yield corporate bonds, (c) securi!zed products, (d)