Money Market, Fixed Income and Bonds, Foreign Exchange, Equities, CommoditiesBack to chapter
The Balance Sheets of commercial banks are usually not completely homogeneous - based on the character of their business, banks always have a certain imbalance in the maturities of their assets and liabilities, their products have different interest rate profiles, banks use different currencies, etc. For the bank to be able to cope with these problems, it has to have access to financial markets. Trades with instruments of the financial market in the bank's name are usually conducted by the Treasury department.
The main role of the Treasury in the bank is to realize trades on financial markets. Even though this seems simple at first glance, it is necessary to take into account several facts for a complete and correct understanding of the function of the Treasury:
Due to this, Treasury departments of banks can have multiple subordinated sections, depending on the size and type of the bank. These are known as “desks”. Based on the Treasury department, we usually distinguish the following parts:
Depending on the size of the bank and its intentions, Trading Desk and Customer Desk (also known as Treasury Sales Desk or Corporate Desk) can be divided into additional components, based on the part of the financial market in which they operate (for example FX Desk, Money Market Desk, Derivative Desk etc.).
The larger the banks and its effect on the financial market, the larger the Treasury Department and therefore also the more accurate the division into individual “desks”. On relevant parts of the financial markets, the largest banks usually ensure continuous provision of product prices (so-called quotations) for the other, smaller, participants. They are therefore the market makers. Other smaller participants are market users.
The main roles of the Trading Desk in a Standard Commercial Bank are the following:
The main roles of the Customer Desk in a standard commercial bank are the following:
From ancient history, it is known that the first trading with agro-products supposedly occurred, according to some historians, as far back as 4000 years before the Common Era. Written references to trading with commodities are found in the 10th century. The history of the creation of more modern financial markets reaches from the 12th - 13th century – information about trading with state obligations comes from the region that is now Italy and Benelux. Later, in the 18th century, stock exchange transactions began to develop in London and America, the most important exchange NYSE (New York Stock Exchange) also developed in the late 18th century. Trading with commodities and precious metals, shares, money and FX rates and various derivatives developed further and meant several other significant milestones. However, the largest boom of financial markets and derivatives occurred at the turn of the millennium and grew until the financial crisis after the bankruptcy of the investment bank Lehman Brothers in the year 2008.
On current financial markets, a huge amount of transactions and products are traded daily. It is expedient to divide them for better orientation. The following can be considered basic parts of the financial market.
Another method of dividing instruments of the financial market is based on the level of their complexity and method of settlement. Simply, it is possible to say that we know the basic “plain vanilla” instruments and the derived i.e. derivatives. However, a better division of the instruments of the financial market would be the following:
The average daily turnover on the world foreign exchange markets is around 5 trillion USD. According to the statistics of the Bank for International Settlements (BIS), the currency pair EUR/USD has the largest share of the market (approx. 23%). Other significant currencies on the FX market are JPY, GBP, AUD, CAD, CHF, CNY etc.