comp 7370

Chuck的复习手记

chapter 1

Financial Institutions

Help the financial systems operate efficiently and transfer funds from savers to investors

Financial Markets

Physical locations or electronic forums that facilitate the flow of funds

Regulatory compliance

An organization’s adherence to laws, regulations, guidelines, and specifications relevant to its business.

（optional）↓

Monetary System:
most significant functions：medium of exchange

chapter3 Deposits and Lending

• Deposits and Lending
– Introduction
– Opportunities and challenges
– Managing counterparty risk
– Transaction lifecycle
– Credit evaluation processes
– Architectural considerations of core banking systems

Retail banking context
1. Unsecured credit
2. Mortgages and other secured credit

Opportunities Increasing size and diversity of loan portfolio to reduces relative risk

Challenges: Managing complexity
– Variable attributes
– Variable approval structures
– Integration with external parties0

Approaches to Counterparty Credit Risk Management
1: Dividing and distributing credit limit allocations
2: Implementing limit-checking functions as part of a central limits management system

credit default swaps (CDS) 信用违约掉期

Secured Lending Lifecycle

chapter4 Credit Card

Credit Card
– Introduction to Credit Card Business
– Technologies used

• advantages
  
  1. A convenience method of payment
  2. A convenience source of credit
  3. Reduction in transaction charge
  4. An aid to budgeting
  5. The world-wide

**Lost/stolen/damaged cards :**notify the Bank immediately

Charges and Fees
– Annual fee
– Additional card annual fee
– Replacement fee
– Finance charge
– Penalty charge 罚款
– Finance charge for cash advances 财务费预付现金
– Cash advance handling charge 手续费预付现金

Technologies used
1. VisionPLUS 2. CardPac & CardLink

Credit Card Authorization

• Approval
• Actions
• Denial
• Referral
  

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chapter5 E-Banking

E-Banking
– What is E-Banking?
– An Overview of E-Banking
– E-Banking Technologies
Back Office Systems

E-Banking: A new service delivery channel to deliver banking services

• lower delivery cost
• Higher sales

• convenience for customers

  E-Banking Technologies
  • The Internet
  • Mobile Banking Technologies
  • Backend Systems
  – Product Applications
  – Data Warehousing
  – Knowledge Management Systems
  – Customer Relationship Management Systems
  • Middleware
  • Website Development Issues

  Problems with the Internet:
  – Information overload
  – Security and privacy problems
  – Rapid technological change
  – High initial cost
  – Uncertainty about information reliability

  Two main types of technologies available for use in mobile Banking:

• Wireless Application Protocol (WAP)
  
  • an application environment and set of communication protocols
• Wireless Internet Gateway (WIG)
  
  • A Short Message Services (SMS)-based services

Legacy Systems: several different computer applications for bank products

• Problems:

  1. difficulties in integrating them with each other and with newer systems
  2. inflexibility in terms of expansion or scaling down
  3. rising costs of maintenance

• Solutions

  1. Replacement, but often high costs and unacceptable risks make this option unattractive
  2. Reengineer these systems first and then wrap them with new technology, which can provide functionality as a service to other systems and allow changes to the core banking systems without the need to redevelop all systems
  3. Outsourcing, as there are standard software packages available to manage most banking products

Back Office Systems
• Email Systems
• Instant Messaging Tools
• Office Automation tools
• Job-oriented tools

chapter6 Remittance

Remittance
– What is Remittance?
– International Payment Systems
– Effects of Technology on International Payment Systems

Remittance: a transfer of funds from one country to another through banks

Remitter, Remitting Bank, Paying Bank, Beneficiary Bank, Beneficiary

3 common methods
– Demand Draft (DD)
– Mail Transfer (MT)
– Telegraphic Transfer (TT)

Clearing: the transfer and confirmation of information
Settlement: the actual transfer of funds

International Interbank Communications:

• Fedwire Funds Service
  
  • Real Time Gross Settlement Funds Transfer system
• The Clearing House Interbank Payments System (CHIPS)
  
  • A main privately held clearing house for largevalue transaction

• VS:

  • private VS part of a regulatory body
  • real-time gross settlement system VS netting engine ( not real-time)

• Society for Worldwide Interbank Financial Telecommunication (SWIFT)

  • A network that send and receive financial transactions.
  • establish common standards for financial transactions
  • sends payment orders
  • provides a centralized store-andforward mechanism

Two categories of international financial flows:
1. Industrial circulation (corporate and retail payments)
2. financial circulations

Effect of Technology on International Payment Systems
1. adding to the choices available to individual and corporations
2. does not require speed of transaction
3. add control over payments, increased volume of payments in better way
4. add foreign exchange fluctuations provide a great incentive for using electronic transfers

chapter7 International Trade

International Trade
– Workflows
– Technologies used

International Trade: buying and selling of goods from countries to countries

payment method
– Open account
pay only when the goods are received,not be attractive to the seller
– Payment in advance
pay before receipt of goods
– Collections
bank acts as an agent
– Letters of credit
bank undertaking halp each other without questioning the credibility

Collections Flow
1. Goods shipped to importer
2. Forward documents
3. Dispatch documents
4. Present documents for payment / acceptance
5. Make payment / accept draft
6. Send payment / acceptance advice
7. Pay exporter / advise acceptance & due date

Documentary Credit (DC) Flow
(1) DC Application
(2) DC Issuance
(3) DC Advising
(4) Negotiation (Beneficiary presents documents to
bank for financing)
(5) Reimbursement (Bank forwards documents to
issuing bank for claiming bill proceeds)
(6) Retirement (Issuing bank releases documents to
applicant against his payment for the proceeds)

Sending instructions from bank to bank using MT700 (Issue of a Documentary Credit)

chapter8 Trading and Investing

Trading: barter goods and services

Equities provided a way of participating in the profits and losses of corporations

different between Trading and Investing

Trading short-term speculative strategies
Investing longer-term strategies

Capital Market Participants

• Capital Market Customers
  
  • Retail customers 零售
    
    • small proportion
    • Large in number, trade infrequently small.
    • little understanding of market and trade
  • Institutional customers 机构
    
    • large proportion of transaction volume
    • few, trade large volume
    • have sufficient knowledge
    • e.g. pension funds, insurance companies, hedge funds, and mutual funds
  • Brokers
    
    • the sell side, sell financial services to customers
    • main intermediaries
    • proxy for customers and route trades to exchanges
    • Must be clearing members of an exchange
  • Liquidity providers
    
    • market maker firms
    • provide quotes to buy and sell
  • Clearing houses
    
    • reduces settlement risk for brokers
  • Regulators
    
    • establishing and maintaining safe, fair, and efficient markets
    • defined rules to help customers

Benefits to be a market marker:
- Reduced transaction costs
- Better view of order flow
- income for the increased trade volume

Institutional Customer Needs:

• the large order itself may affect the execution price
• Large orders and longer execution times lead to increases price slippage

Front running： The broker trade ahead of the customer's order in the market.

• To avoid Front running:
  
  • slice up large orders and use different brokers.
  • divided into multiple parts for execution over several hours or days

strategy conception process： provide the initial validation of ideas and refine their scope

The outcome of strategy definition : identify when and how to enter and exit positions

Trading Lifecycle

Exchange Technology

• Business Considerations

  • Accuracy
  • Capacity
  • Change in market rules and parameters
  • Pre- and post-trade risk management

• Architecture Considerations

  • high reliability and high performance
  • Low latency and high throughput
  • Measuring and Tuning Performance

chapter9 Blockchain

Blockchain: storing records of value and transactions
Decentralized database : removes the need for centralized institutions and databases

Difference between Blockchain and Bitcoin

Bitcoin

• digital currency, used for payments
• use cryptographic technologies and the blockchain to create

Blockchain

• underlying technologies of Bitcoin
• used to record and transfer anything of value

Blockchain in Finance

• NASDAQ， Visa, Citibank, Capital One， Bank of England， Estonia government use it.
• Ripple is a payment network

• Blocks added to the blockchain can’t be tampered with or changed
• uses the SHA-256 algorithm to generate unique
• Each transaction will be signed with a private key by the owner

The first block is known as the “genesis block”

Benefits of Blockchain Technology

Transparency

• Changes are visible to everyone
• transactions cannot be altered or deleted

Removal of Intermediaries

• useful when no trust intermediaries

Decentralization

• Centralized databases are easy to hacking, data loss and corruption
• hard To manipulate the data cause requiring hacking over 50% of the computers at the same time.

Trust

• maintaining trust and security

Security

• Data on a blockchain cannot be altered or changed
• can be traced back to the first “genesis block”

Wide range of potential uses

• everthing can be recorded on the blockchain

Reduced costs

• no intermediaries involved in

Increased transaction speed

• Transactions can be settled almost instantly

Disadvantages of using Blockchain Technology

Lack of Privacy

• the information is public

Security Concerns

• Blockchain-based systems are secure that if Someone has forgotten their private key and cannot access their money

No Centralized Control

• no intermediaries , user take the responsibility and control, creating issues of control.

Risk of 51% attack

• able to block and reverse transactions
• able to “double-spending”
• can not prove the effectiveness

Cost

• requires proof that computing power and resources were contributed before use

Lack of Scalability

• The proof-of-work algorithm make it hard to handle huge number of transactions.
• huge number of transactions on the network.
• Hard to get the trust because the system is runing on not regulated servers , using by criminals.

Regulation and Integration

• Large financial institutions will be wary about it because government regulation is unclear

Hype

• It is still unproven on the effectiveness