The essence and types of bank operations with securities

Investing is an activity that involves investing in various financial instruments that can bring profit. Investment operations of a bank are operations the essence of which is the placement of attracted resources into various sources.

This is one of the largest sources of income for a credit institution. Their knowledge will help in developing a strategy for successful investment not only for the bank, but also for the private investor.

Bank investment policy

Investment bank operations are actions with different types of values ​​that are invested in different financial instruments to generate income or a certain social effect.

The objects of operations are:

• securities;
• property;
• deposits;
• various goods;
• intellectual values;
• property and non-property rights;
• other property.

Active operations of banks: cash - credit - investment - these are all the steps taken by the institution to make a profit. And investment operations occupy a significant share.

When attracting funds, the bank must not only guarantee their safety, generate and pay profits, but also increase their liquidity. An analysis of the investment sphere and investment operations of the bank shows that investment policy should be aimed at ensuring a certain ratio between the primary and secondary reserves of securities in which the bank has invested.

Investment operations of a bank are the purchase of a large number of securities issued by companies, societies and government agencies that differ in the level of reliability.

Main operations of the investment bank:

• purchase of securities of third-party organizations;
• issue of own financial instruments.

Important! The bank's work in the field of investment is aimed at long-term lending to various industries and raising funds. The main sources here are deposits, issue of own instruments, interbank loans.

How to terminate a contract correctly

If the terms of placement are met in accordance with the agreement signed with the bank, there is nothing difficult in receiving funds along with accrued profit. The bank will make the necessary calculations and pay out the funds, and the contract will be terminated automatically, without the right to prolongation.

If you need to terminate the contract earlier than the agreed period, you must contact the bank with a corresponding application. To terminate cooperation early, you must contact the same banking department where the investment was made and the bank deposit was placed.

The catch is that early termination is unprofitable for the investor, since all profits are recalculated at the minimum “on demand” rate, i.e. almost zero. It is recommended to wait until the end of the contract for cooperation with the bank to bring profit, and for investments to choose an amount within the limits of that which can be freely stored in the account during the entire investment period specified in the documents.

Types of Investment Banks

Let's look at investment banks, their types and operations.

Today there are two types:

1. Credit institutions that conduct transactions only with securities.
2. Institutions providing long-term loans.

In the first case, banks are issuers of securities or agents for the acquisition of part of the issue that was not placed by the company. Credit institutions dictate the size, terms and conditions of the issue, determine the type of securities and provide guarantees for their purchase.

Today these are banks that conduct transactions with securities of corporations. They are intermediaries in obtaining resources by companies.

Main functions of banks:

• organization of secondary placement of securities;
• mediation in case of placement of international securities;
• business consultations regarding investment strategies, reporting and optimization.

The second type of investment bank is a joint stock company. This is an investment bank: the functions of its operations are limited to lending to various sectors of the economy and implementing targeted programs.

This type of bank:

• conducts transactions on the loan capital market;
• develops financial services;
• purchases government debt securities;
• lend to the population.

Their peculiarity is that they carry out lending operations with a high level of risk. As a result, they often use loans from other financial institutions.

Types of investment deposits

It is more difficult to classify investment-type deposits, since there are no clear parameters characteristic of classic products in terms of purpose, timing, and purpose. They can be roughly divided into:

• low-risk with minimal profitability;
• high-risk, with the opportunity to earn more.

According to the degree of risk participation, programs with a risk fee, with less protection against price failure, and without a premium, when the plans have less profit, but a guaranteed return on investment, are distinguished.

According to the degree of distribution of funds, deposits are divided with an increased deposit or investment part. In practice, many banks introduce restrictions on the share of investments - no less than the amount deposited on a classic deposit. Where the share of investment is high, the bank's interest rate is higher, and vice versa.

Where the funds will be placed is determined at the stage of signing the agreement, choosing from the areas proposed by the bank:

• mutual funds;
• ILI (investment insurance);
• NSZh (savings insurance), etc.

For each parameter of the contract, the conditions may differ, which only adds options for the classification of the investment deposit.

Features of investment activities of banks

To understand a bank's investment operations, it is necessary to understand the essence of investing and its types. The main direction of investment today is investing in securities of various companies, playing in the stock and foreign exchange markets, and other investments in financial assets.

There are two types of investments:

• direct. Purpose of investment: contribution to the authorized capital and receiving dividends for this after some time. For banks, this option is unacceptable: constantly changing external and internal factors do not guarantee a profit, and the bank operates with funds raised at interest and for a certain time, so it must be sure of receiving income;
• portfolio : investing in attractive and profitable securities. This is the main type of investment operations of a credit institution.

Investment bank operations have a number of features:

1. use of borrowed resources in work. Those. The bank's income consists of the difference between the profit received as a result of investing and payments to its creditor.
2. The income received from investments coincides in time with the costs that the bank incurred as a result of its actions. For example, a bank took a deposit for one month and invested these funds in bonds. At the end of the month, he must sell these shares, cover the costs of their sale, pay interest on the deposit and make a profit. That is, the bank receives income after covering all costs.

Based on this, in the process of forming a securities portfolio, banks proceed from the following principles:

• optimization of the investment portfolio by type of security, time;
• obtaining maximum profit;
• reducing risks to a minimum;
• synchronization of cash receipts and expenses over time;
• optimization of the tax base.

Important! The main task of the bank is the highest income with a low level of risk. At the same time, there are two main types of risks: market (income depends on the political and economic situation, which affects the entire market as a whole) and specific (actions and events occurring in the credit institution itself).

Investment operations of commercial banks in the securities market: risk management

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CONTENT

• INTRODUCTION
• 1. BASICS OF INVESTMENT OPERATIONS OF COMMERCIAL BANKS IN THE SECURITIES MARKET
• 1.1. The essence and content of investment activities of banks
• 1.2. Risks of investment operations on the securities market
• 3. Fundamentals of securities portfolio management
• 2. ANALYSIS OF INVESTMENT OPERATIONS OF PJSC JSCB BALTIKA WITH SECURITIES
• 2.1. Economic characteristics of the bank
• 2.2. Analysis of the practice of investment operations in the securities market
• 2.3. Assessment of risk management of securities transactions
• 3. DEVELOPMENT OF INVESTMENT ACTIVITIES OF BANKS IN THE SECURITIES MARKET
• 3.1. Problems of risk management in securities transactions
• 3.2. Prospects for the development of investment activities of banks
• CONCLUSION
• LIST OF INFORMATION SOURCES USED

INTRODUCTION

Relevance of the research topic. Currently in Russia the main task is to intensify the investment process. A significant role in stimulating investment activity belongs to commercial banks, which is associated with a number of investment risks. And in order to achieve economic efficiency, there is a need for consistent and competent management of investment risks by the bank.

Each bank must develop its own and effective investment risk management system. In connection with the current market situation, the bank is conducting a study of solution options, that is, it is studying the possibility of investing funds and their direction.

Innovative methods of financial risk management are now being introduced everywhere in all industries. The banking industry needs modern and effective methods of managing financial risks, and banks themselves have recently become the initiators of most of the newest methods for managing risks and markets.

The purpose of the final qualifying work is to analyze the practice of investment operations of commercial banks in the securities market and identify promising approaches to managing the risks of these operations.

The goal set in the work determined the need to solve the following problems:

• characterize the essence and content of investment activities of banks;
• identify the main risks of investment operations on the securities market;
• review the basics of securities portfolio management;
• analyze the practice of investment operations on the securities market of PJSC AKB Baltika;
• reveal the problems of risk management in securities transactions;
• identify promising approaches to risk management.

The object of the study is the activities of PJSC JSCB Baltika in the securities market.

The subject of the study is investment operations of a commercial bank and risk management of these operations.

The theoretical basis of the work was made up of textbooks and teaching aids on banking and the securities market of various authors - O.I. Lavrushina, G.N. Beloglazova, L.P. Krolivetskaya, V.A. Borovkova, Yu.A. Sokolova, M.N. Mikhailenko, V.A. Lyalina, P.V. Vorobyov and many others.

The information base for the study is the regulatory and legal acts of the executive and legislative authorities of the Russian Federation, instructional materials of the Bank of Russia, publications in all-Russian periodicals, materials of bank reporting: balance sheet, cash flow statement, profit and loss statement, capital adequacy report to cover risks, the amount of reserves for doubtful loans and other assets for 2013–2014. PJSC JSCB Baltika.

When preparing the WRC, methods of system analysis, economic and statistical groupings, comparison, generalization, graphical presentation of results, etc. were used.

The work consists of an introduction, three chapters, a conclusion and a list of references.

BASICS OF INVESTMENT OPERATIONS OF COMMERCIAL BANKS IN THE SECURITIES MARKET

1.1. The essence and content of investment activities of banks

Commercial banks are one of the components of the country's economy. They have many levers of influence on its development through investment activities. Client relationships with banks are built in different forms. In everyday form, ordinary clients open time deposits. However, there are clients who, in the process of developing their own business, strive to improve the level to meet foreign standards, want to open production, but do not have sufficient funds for this. In such cases, it is necessary to involve a financial intermediary, and an investment bank plays this role.

Investment banks are not very common in Russia. The term “investment bank” itself is rather foreign and does not refer to a credit institution in its traditional Russian perception. The definition of “investment bank” is absent in Russian regulatory documents.

However, in general world practice, an investment bank is understood as a universal large financial organization that carries out various types of activities in the securities market and operations in other segments of the financial market.

Investment banks in their pure form are rare in the modern world; they are often combined with a commercial bank. Some of these mergers took place during the 2008 financial crisis to avoid bankruptcy. For example, the investment bank Merrill Lynch was absorbed by the large commercial bank Bank of America and became Bank of America Merrill Lynch. The investment bank JP Morgan acquired the commercial bank Chase Manhattan Bank in 2000 and became JP Morgan Chase. In 2011, Sberbank bought the investment bank Troika Dialog and renamed it Sberbank CIB, a full-fledged investment banking division.

The following areas of activity of investment banks are distinguished:

• preparation and conduct of an IPO (from the English Initial Public Offering - the first public sale of shares of a joint-stock company);
• conducting mergers and acquisitions;
• organizing and attracting financing;
• organizing and conducting asset securitization transactions;
• underwriting (the activity of a professional participant in the securities market in organizing an issue);
• management of portfolios of individuals (including the development of individual investment projects) and assets of large institutional investors (in particular, the creation of OFBU);
• dealer operations with securities;
• brokerage customer service;
• currency transactions on the Forex market;
• various analytical activities.

There are a number of models for organizing investment activities. The first model is an obstacle to the connection of investment with the functioning of a commercial bank. According to experienced economists, good performance is achieved precisely when actions to attract deposits are separated from securities operations. This method was first used in the USA in the 30s of the last century, after the ratification of the Glass-Steagall Act. This method is also called the Anglo-Saxon model. This gradation existed until 1999, when the Gramm-Leach-Bliley Act was adopted. This gave ordinary banks the opportunity to create structural investment divisions specializing in securities. Subsequently, the expression “financial supermarket” became familiar. It refers to an organization that provides various types of financial services. However, over time, it became clear that this model has not only advantages, such as attracting serious clients and turning banks into investment companies. In addition, it became clear that such a model is not able to withstand a crisis in the financial environment. As a result, the banks merged into corporations and began to “burst” literally one after another. And since their assets were interconnected, the banks pulled each other along with them.

The next model is continental. It is more typical of European banks. It is worth noting that it largely contradicts the first model. Its essence is that universal banks conducting investment activities organize the sale of securities at the request of clients, attract deposits, and engage in lending. An example is banks such as Deutsche Bank in Germany or Paribas Group in France.

Both the first and second models are unsuitable for Russia. It is possible to achieve successful investment activity by merging the two indicated models. Thus, there are Russian universal banks licensed by the Bank of Russia, and there are also brokerage companies that deal directly with investments. They have a license from the Federal Financial Markets Service (FSFM). Russia currently has a financial mega-regulator, which has combined the supervisory functions of the abolished FSFM of Russia and the Central Bank of the Russian Federation. The division of the Bank of Russia that took over the functions of the Federal Financial Markets Service received the name “Service of the Bank of Russia for Financial Markets” [27, p. 273]

Thus, clients are given an impressive choice when applying for investments. And, of course, every bank, as well as brokerage company, strives to offer the most attractive conditions, which contributes to the development of healthy competition. In turn, this already has a beneficial effect on the Russian financial market.

Each bank, when carrying out investment activities, sets itself a whole set of primary and secondary goals, which are regulated by its investment strategy [29, p. 179].

The main goals of investment activities of banks:

• ensuring the safety of your own investments;
• ensuring an acceptable or planned level of return on your own investments;
• maintaining the growth of own investments;
• maintaining a sufficient level of liquidity of one’s own investments [29, P. 179].

It must be emphasized that the security of investments is a higher priority than their profitability, as well as volume growth. To achieve an optimal balance of profitability and security, you need to ensure clear and properly structured diversification of your investment portfolio.

The main goals are achieved through the implementation of secondary goals and objectives of investment banking activities

Secondary objectives are aimed at:

• support the sustainability of banking resources, preserve them, and ideally expand and increase them;
• diversify the investment banking portfolio;
• gain efficiency from major investments. A positive result should manifest itself in the form of an expansion of the sales market, a growth in the customer base, an increase in the number of transactions performed, as well as a reduction in the bank’s costs;
• ensure monitoring and control over the number of assets that generate minimal or no income. It is noteworthy that if there are liquid assets that do not generate income, then this is acceptable in the short term. This phenomenon helps maintain an optimal level of liquidity in the banking investment portfolio.

The bank's investment activities are very diverse and are constantly evolving, offering the market new tools and opportunities. Financial innovations of the last century include the securitization of assets, the issuance of so-called “junk bonds,” the creation and organization of circulation of derivative financial instruments, among which credit default swaps can be distinguished.

The forms of investment activity of commercial banks also differ. They are differentiated and classified according to certain criteria:

• according to investment goals. Thus, the goal of investment banking may be the need to manage the investment object or the need to obtain the maximum possible income;
• differentiation of forms by objects occurs. These are the so-called investment objects of the real and financial sector. The first includes real estate, precious metals, expensive jewelry, works of art, the second includes intellectual property, investment deposits and loans;
• It is possible to distinguish between forms of activity and the purpose of investment. Thus, investments are directed either to the development of the enterprise, its expansion, or are not at all related to the economic activities of the organization.

Basically, almost every set of investment assets has a certain level of income and risk. From this position, regulation of investment banking activities occurs in accordance with the goal of maximizing income given the existing risks, or minimizing possible risks given the current level of profitability.

In order to fully and successfully invest, banks begin to develop several areas. Conventionally, these areas are divided into external and internal.

External views are directly related to the implementation of such main tasks as attracting capital investments from outside and supporting mergers and acquisitions. If we talk about attracting capital investments, then this means the placement and management of deposits, often securities of client securities. But there are also options for third-party investment through the use of special methods of investment lending to individuals and legal entities.

External activities are a general category. It is divided into the following areas:

• carrying out syndicate management, or underwriting syndication;
• advising clients whose plans include the placement of securities;
• direct work with client papers;
• servicing on the primary and secondary markets of own and client securities.

If the financial system in the state market in a particular period of time can be called prosperous, then commercial banks, whose goal is investment activities, often use the method of mergers and acquisitions as a sure and reliable profitable scheme. When a bank is engaged in the provision of mergers and acquisitions services, the following areas of activity take place:

• consulting clients on the process of business reorganization - possible options and methods;
• development of effective mechanisms to counter the merger and their direct implementation;
• actual reorganization of the company with its subsequent sale;
• creation of blocks of shares and their subsequent sale;
• raising capital for mergers and acquisitions.

The bank's internal investment activities are associated with the main task of ensuring the effective operation of external processes and departments involved in investments and generating maximum income. The most significant types of internal activities:

• brokerage services;
• management of clients' investment portfolios;
• personal investment portfolio management;
• attracting capital investments.

In today's market conditions of the country, the result of carrying out this type of activity can be either 100% unprofitable or bring in tangible income amounting to hundreds of percent per annum.

To summarize, it can be noted that commercial banks invest by attracting capital investments. This is done in order to ensure the safety of investments and, of course, their profitability. The following forms are used: real, portfolio and intellectual investments. According to the chosen method of investment, the credit institution forms an investment policy, then determines the further strategy of activity in the investment market, which meets the established boundaries of the level of risks and profitability.

Next, we will consider the risks of investment operations in the securities market.

1.2. Risks of investment operations on the securities market

The constant increase in the volume of investment operations, investments in securities of corporate issuers, for which the risks are significantly higher than for government securities, contribute to the increased attention of commercial banks to managing the risks of investment operations. As a result of imperfections in the risk management system, banks may suffer large losses from securities transactions.

Investment operations in the securities market are very profitable operations, therefore commercial banks, in order to strengthen their financial position, are constantly increasing the volume of such operations.

For commercial banks, securities are an asset with a constantly changing value, so such banking transactions are considered high-risk.

The investment activity of commercial banks consists of investing bank resources in securities in order to make a profit [25, p. 177]. An investment operation should be understood as the purchase and resale of securities on one’s own initiative, on one’s own behalf and at one’s own expense.

Investment operations include:

• investing your own funds in securities of other issuers;
• pricing;
• formation and management of securities portfolios of the bank itself;
• investment risk assessment;
• investment design.

Investment operations of commercial banks are associated with certain risks. These risks can be divided into two types:

• systematic risk;
• unsystematic risk.

Systematic risk is the risk associated with the volatility of stock prices due to general market price fluctuations [31, p. 377]. It includes inflation risk, currency risk, political risk and interest rate risk.

Unsystematic risk is an investment risk that does not depend on market conditions and is determined by the specifics of a particular type of security or issuer [31, p. 377]. This type of risk is also called diversifiable risk, since it can be reduced through diversification. Unsystematic risk includes industry and financial risks.

This classification affects only the largest risk groups; let’s look at each type in more detail:

Inflation risk—the risk caused by rising inflation—has a negative impact because it reduces real returns. The real value of assets may decrease, despite the preservation or growth of its nominal value; the predicted return on investments may not be achieved due to an uncontrolled increase in inflation rates that outpace the return on investments. This risk is closely related to interest rate risk.

Interest rate risk is the risk of a fall in the market value of a security due to an increase in interest rates. Possible losses may arise as a result of a reduction in net profit due to changes in government and bank interest rates. To a greater extent, this risk can be attributed to bonds.

Political risk is the likelihood of losses or reduction in profits due to political decisions.

Currency risk is the risk that appears when there is an unfavorable change in the exchange rate if investments in securities are made in foreign currency.

These risks are primarily market risks and are beyond the control of the investor. It is important to evaluate the entire market risk in its entirety, rather than the risk of each security. Systematic risk cannot be reduced through diversification, since the different risks included in it affect all stocks at the same time. Unsystematic risks include:

Industry risk is a risk that depends on changes in political, social and economic life; all these changes have different effects on the development of individual industries. An economic downturn as a whole can lead to an increase in production in a particular industry. While the economy is growing, on the contrary, a particular industry may experience a decline. Based on this, we can conclude that investments in securities of various industries are subject to industry risk. The price of shares, as well as the price of debt securities, depends on the financial position of the issuer - it will either rise or fall.

Operational risk is the risk of losses that arises due to disruptions in the operation of systems, personnel actions, and external factors.

Operational risks include:

• man-made risks associated with the failure of technical means, programs and systems due to external and internal factors;
• risks of incorrect software settings, when the program works without failures, but the report results are incorrect;
• risks of failures as a result of the human factor (input errors, insufficient training of personnel);
• risks of disruption of interaction between bank divisions;
• risks associated with new operations;
• risks of illegal actions by bank employees and third-party organizations;
• force majeure (fires, floods, war, political coup, terrorist attacks, etc.)

This risk is extremely difficult to manage because it is unpredictable and the severity of its consequences can vary widely. Therefore, this risk must be prevented in the bank’s activities by recruiting highly qualified specialists, installing high-quality equipment and high-quality computer programs, and implementing enhanced security of the bank’s premises. However, operational risk cannot be completely eliminated; you can only reduce the likelihood of its occurrence.

The risk of legislative changes is the risk of losses from the bank’s investments that may arise as a result of changes in legislative requirements and the entry of new legislative norms.

Call risk is the risk that an investor could lose money if the issuer calls a callable bond. The issuer may call the bonds if the fixed level of interest payments exceeds the current market interest rate. To minimize this risk, investors try to purchase securities that cannot be withdrawn within a certain period, or do not buy such securities at all.

Country risk is the risk of investing in securities of a particular country with a volatile stock market.

Credit risk is the risk of the likelihood of a counterparty's complete or partial failure to fulfill its obligations.

Liquidity risk is the risk of impossibility of prompt mobilization of the Bank's resources to fulfill its own obligations, including transactions on the securities market. Liquidity risk occurs when the Bank is unable to fully or partially fulfill its own obligations or customer payments due to the lack (including temporary) of necessary resources.

Each bank must develop its own investment risk management system. Depending on the current market situation, the bank carries out research into solution options, that is, it studies the possibility of investing funds and their direction. The options provided are subject to subsequent examination to identify those that are especially profitable for the bank. Then the acceptable level of risks is determined for each investment operation based on their totality.

Minimization of investment risks must be implemented through a detailed study and analysis of factors that influence the results of investment operations. It is necessary to select qualified personnel.

The effectiveness of investment risk management largely depends on the degree to which the bank is equipped with all kinds of information and reference and legal databases for timely monitoring of all changes in regulations and current legislation. The technical equipment of the bank when organizing the management of computer systems must guarantee the implementation of an uninterrupted banking process.

At the end of the consideration of the risks of investment operations in the securities market, we can conclude that in this area there is practically no risk-free operation. Therefore, each bank must develop its own investment risk management system that meets the objectives of the investment policy, as well as ensuring resistance to all permissible changes in the external environment.

1.3. Fundamentals of Portfolio Management

Securities portfolio management should be understood as actions aimed at maintaining the basic investment quality of the portfolio, consistent with the interests of its owner. It is necessary to take into account that the properties of securities may change over time under the influence of changes in factors in the external investment environment. Thus, a significant increase in the market value of a particular stock today may give way to a slowdown in growth tomorrow, and in the future there may be a decline in value. This change in stock prices is normal for the market. Rather, the exception is a stable increase or decrease in the exchange rate over a long period of time. Therefore, portfolio management implies regular adjustments to its structure, i.e. replacing some securities with others to preserve its investment quality, namely preserving the initially invested funds, achieving the planned level of income at a given level of risk, ensuring the investment orientation of the portfolio.

Thus, the process of managing a securities portfolio always requires regular adjustment of the portfolio composition based on monitoring of the securities market.

Monitoring is one of the most time-consuming and costly management methods. Monitoring is a process of continuous analysis of the stock market to determine trends in its development and assess changes in the investment qualities of securities. The main purpose of monitoring is to justify the selection of securities that have investment properties that correspond to a certain type of portfolio. Monitoring is used as the basis for both active and passive methods of managing a securities portfolio.

Depending on the return plan and the degree of acceptable risk, investors can impose certain restrictions on the composition of the portfolio. According to these constraints, investors choose a portfolio management strategy. Portfolio management strategies can be active, that is, aimed at maximizing the use of favorable market opportunities, and passive, i.e. wait-and-see.

An active portfolio management strategy assumes that, as a result of monitoring, the portfolio will be freed from securities that no longer meet its investment objectives, and securities that meet such objectives will be immediately acquired. Monitoring allows you to predict the amount of potential income of securities on the market. Therefore, a manager engaged in active management must predict and analyze possible unfavorable changes in the stock market, respond to these changes as quickly as possible and take all measures aimed at preventing a decrease in portfolio profitability, i.e. carry out constant portfolio rotation.

Applying an active strategy to portfolios consisting of different types of securities requires different approaches. So, if the portfolio consists of stocks, then the management strategy can be based on the choice:

• shares whose market price is growing at a faster rate. As a rule, such stocks are characterized by high risk;
• undervalued shares. Formation of a portfolio with shares of currently unpopular industries and regions;
• shares of small companies. Shares of such companies have great growth potential, although they are riskier;
• timing of buying and selling shares. This option is based on the use of technical analysis.

The following management strategies can be used in relation to a bond portfolio:

• it is formed from the type of bonds (state, regional, corporate) that, in the investor’s opinion, are in more favorable conditions. When the market situation changes, bonds should be replaced with more promising ones;
• Only those bonds are selected for which it is possible to increase the credit rating.

The implementation of an active strategy for managing a securities portfolio requires high current costs associated with the need to use a significant base of expert assessments and the need to analyze the state of the economy as a whole, evaluate, and predict the state of the securities market over time in order to regularly review the portfolio in search of securities that are undervalued by the market. Such expenses can only be afforded by large financial companies, banks, investment funds, etc., which form large portfolios of securities, have a sufficient staff of highly qualified specialists and plan to receive maximum income on the stock market from this type of activity. When determining whether a portfolio review is advisable, it is necessary to take into account the costs associated with this process, since they will reduce the profitability of the portfolio.

The passive portfolio management model involves the formation of a portfolio of securities for the long term. To do this, it must consist of securities with a predetermined low risk level.

When passively managing a portfolio of shares, the portfolio should be formed according to the principle of an index fund, i.e. consist of the same shares for which this index is calculated.

When managing a bond portfolio, the portfolio should include bonds with different maturities. After some of the bonds are redeemed, they are replaced with similar securities.

The lifespan of the portfolio may be affected by processes at the macroeconomic level, which may be characterized, for example, by a stable and low value of the Bank of Russia refinancing rate. An inflation rate of 5-6% per year or higher, as well as unstable stock market conditions, make the passive management model ineffective.

To realize the benefits of passive management, it is necessary that the portfolio consists not only of low-risk securities, but also of long-term securities. Only in this case will the main advantage of passive control be realized - a low level of overhead costs will be achieved.

The question of the quantitative composition of the portfolio has no answer in theory. From a practical point of view, it has been established that an unlimited increase in the number of different securities in a portfolio does not significantly reduce portfolio risk, but significantly increases the current costs of portfolio management [25, p. 158].

Risk reduction can be achieved if the question of the quantitative composition of the portfolio is given to a professional manager. Only he, based on personal experience in the market, can establish a fixed number of securities that is optimal for certain investment purposes. A subsequent increase in the portfolio range can create the effect of excessive diversification, which, as already mentioned, leads to an increase in costs associated with assessing the investment characteristics of securities (costs of collecting and analyzing information, costs of buying and selling securities, etc.). If the rate of growth in costs exceeds the growth in portfolio returns, then the investor may get the opposite result to the desired one. Thus, diversification of a securities portfolio, aimed at reducing investment risk, but exceeding reasonable limits, may lead to a decrease in investment returns.

Concluding the writing of the first chapter of the final qualifying work, we will conclude that the investment activities of commercial banks are extremely diverse and regularly develop, offering the market the latest tools and opportunities.

In the modern financial services market, the differences between the services provided by commercial banks and the services of investment banks have largely disappeared.

Having studied and considered the basics of investment activities of commercial banks in the securities market, we will then analyze the investment operations of PJSC JSCB Baltika.

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What's the result?

A credit institution invests available resources in financial instruments. To determine how successful an investment was, the income from it is compared with other types of investments, for example, loans.

The operations of an investment bank are associated with the solution of a large number of tasks that are taken based on market and political conditions. In order to quickly respond to any changes in the market, the bank becomes a trading participant and conducts over-the-counter transactions. The most important element of operations is the formation of strategy and tactics in investment portfolio management.

How profitable are investment deposits?

At the client’s first request to increase the profitability of a deposit, a bank employee will probably offer one of the investment products where the projected income exceeds the usual bank interest rate by several points. However, you need to remember that there is risk, because part of the money is placed in financial products that do not have fixed rates.

How profitable cooperation with a particular bank is depends on the strategies and investment methods used. Judging by the average rate for investment products in different financial institutions, choosing such a deposit entails a higher final percentage. Where the possibilities of a bank deposit end, the investor's profit is just beginning. The difference in average bank rates ranges from 7.3% to 8.2%.

For banks, cooperation in the investment area is always more profitable, since it receives income in the form of bonuses from investment funds and participation in profits from the placement of funds. For cooperation to be successful, it is necessary to clearly understand the work scheme for the investment deposit and follow the proposed “rules of the game”.