The bank in question is the Bank, Dresdner (D), a large sized European bank. The bank has been able to acquire AA credit rating and looking forward to the current trading session to meet both primary and secondary objectives.
The bank’s primary objective has been to be a price maker with exposure in the trading period square of funds out of the short term money market with an aim of making profits for the bank’s shareholders. The secondary objective is derived from the policy of the board that can direct the bank of speculation in the market and observing and understanding the market with the purpose of investment in the market with funds in the yield curve for the next half a year.
The objectives of the bank also provide the setting for two limitations that has been set with respect to the termination of the period in which the bank would be dealing with financial market: (a) the bank being long on funds ensures that interest is blocked for the period; and (b) the bank being short compels the fund borrowing with the immediate effect from the RMIT Bank at 10 percent.
The primary objective has been aiming to achieve by setting out in the financial market as a price maker. The strategy is to BUY LOW SELL HIGH: borrowing at a lower rate and lending at a higher rate. The bank can be earning the bid spread and ask rates.
The bank should be trying to attract customers. One of the most effective ways of doing it is to be competitive that can be achieved by adjusting the bank rates depending upon the situation. However, to a large extent it depends on the future in terms of the stability that can be expected by the financial market. If the bank can assume that future market has got certainty, more lucrative bids/ask rates can be quoted. However, the current trend sets out the trends of uncertainty, making the bank to spread out the price in mitigating the risk. This will result in the bank going for small profits or being neutral.