This article aims to offer you a more comprehensive insight into the world of Investment Banking domain. The focus will be on illustrating what and how to test in an Investment Banking Application.
Before we get into the finer details of how to test investment banking programs, it’s crucial that we first understand the domain. This can be achieved by deciphering the terminologies often associated with the Investment Banking domain, making it simpler for you to fully comprehend the test cases.
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We’ve also included a link to examples of test scenarios for various tests types such as database, security, and performance testing within an investment banking application.
Recommended reading: => Testing of Banking Applications
Let’s kick things off with ‘Investment Basics’:
The term ‘Investment’ refers to reserving money in a manner that produces returns in the future, whether short-term or long-term. Simply accumulating money in accounts bears no benefits. Instead, it would be best if you resort to options like Mutual Funds, Bonds, etc., that promise future returns.
Get more information on the IB domain provided here.
Why is it crucial to invest?
The aim of investing is to facilitate returns and generate profits to achieve your future financial goals. In other words, one must invest to overcome the impacts of inflation (which symbolizes the future cost of living).
When should you start making investments?
The golden rule for investors is to begin investing earlier, consistently, and for an extended period instead of the short term.
What investment options are out there?
There are multiple alternatives available for investment, including:
- Tangible Assets: Includes real estate, gold/jewelry, and commodities (seeds, crude oil, natural gas, metals, etc.).
- Financial Assets: Consists of fixed bank deposits, provident/pension funds, and market securities such as stocks, bonds, debentures, etc.
Suggested reading => Analysis of Top Demat Accounts in India
Financial Investment Options:
Some short-term options for investments are:
- Savings Bank Account: This involves storing funds in a typical bank account. However, the interest rate is typically low, approximately ranging between 4% to 5% annually.
- Money Market or Liquid Funds: These represent short-term options for investments that promise better returns in comparison to regular saving accounts. Nonetheless, the rate of interest for Money Market Funds is potentially lower than fixed deposits.
- Fixed Deposits with Banks: This option is a superior investment option with marginally increased interest rates compared to the previously mentioned alternatives. Fixed deposits, also referred to as term deposits, demand a minimum investment period of 30 days.
Apart from these short-term options for investments, several long-term investment alternatives are also available:
- Post Office Savings: This means depositing money into the Post Office via multiple schemes. This option carries a low risk, and the interest rate is 8% per annum. The interest amount is paid out monthly, and the term of maturity is six years.
- Public Provident Fund: This represents another commonly favored long-term savings and investment option. The interest rate for this option is approximately 8% per annum, and the period of maturity is 15 years.
- Company Fixed Deposits: This is a diverse investment option where you can invest for a short-term (6 months) to a medium-term (3 – 5 years) with a company. The interest rate varies from 6% to 9% per annum, and the interest amount is paid monthly, quarterly, or yearly.
What You Will Learn:
- Investment Banking Domain: An Introduction
- Key Investment Banking Domain Terms
- Structure of an Investment Banking Organization
- Trade Life Cycle
- Testing an Investment Banking Application
- Test Scenarios
- How to Test an Investment Banking Application Database
- Testing Investment Banking Application Security
- How to Test an Investment Banking Application Performance
- Advice for Testing an Investment Banking Application
- Wrapping Up
Investment Banking Domain: An Introduction:
An Investment Bank is a financial organization that offers advice to individuals, companies, governmental entities, and others on how to capitalize by involving market activities.
Investment Banks act as intermediaries between companies (with a desire to sell their securities/shares) and individuals or parties willing to buy them.
Investment banks perform in two ways: they act through the ‘buy side’ and the ‘sell side’.
‘Buy side’ involves processes such as procuring shares for investors, whereas ‘sell side’ encompasses procedures like underwriting stocks and selling shares on behalf of companies to investors.
Case of ‘buy side’ operation within an Investment Bank:
Suppose an investor has a desire to acquire 50 shares from ABCD Company. They would approach an Investment bank, where a stockbroker organizes the order and delivers the shares to the investor.
Case of ‘sell side’ operation within an Investment Bank:
Imagine Company PQR aspires to issue brand-new shares of stock through an IPO. The Investment Bank authenticates the shares and sells them to clients. In this manner, PQR Company manages to raise funds by issuing their stock.
Key Investment Banking Domain Terms:
1) Stock Exchange: An entity that enables securities buying and selling. Stock Exchanges can be regional or national.
Example: NASDAQ – USA, NSE – India, etc.
2) Stock/Share/Equity: Company’s total capital is dissected into equal components called shares. This represents ownership of a company.
3) Face Value of a Share: The value ascribed to a share by the company for the purpose of buying or selling.
4) Issue Price: The price at which a company’s shares are available in the market. The shares market price could be higher or lower than the issue price.
5) Initial Public Offering (IPO): Represents the debut sale of securities or shares by a company to the public.
6) Market Capitalization: The monetary value of a company calculated by multiplying the price of the share by the quantity of shares, often termed as the Market Capitalization.
Example: If Company X has 100 shares, and the present market price of each share is $50, then Company X has a market capitalization standing at $5000.
7) Security Market: Place where security transactions occur involving buyers and sellers (for bonds, debentures, stocks, etc.).
8) SEBI (Security and Exchange Board of India): An authority responsible for ensuring the ethical behavior of buyers and sellers in the market to safeguard their interests and gains. Every country has its own security and exchange boards or committees.
9) Dividend: A fraction of a company’s annual profits awarded to shareholders as a return on their investment.
10) Bid Price: The price at which a buyer is willing to purchase a share.
11) Ask Price: The price at which a seller seeks to offload their share.
12) Futures: A futures contract represents an agreement between a buyer and a seller to perform the transfer of the share in the future at a predetermined price.
For example: If you wish to purchase a March futures contract for XYZ Company, you must pay the current price available on the market. Let’s assume the futures of March are traded at $100 per share. However, by the time the contract expires (on the last day of the contract in March), the stock price may vary, for instance, be $95 or $110. Investors make profits in the market based on these price differences.
13) Options: A fiscal contract between a buyer and seller that allows the buyer to purchase or offload a share at a specific price within a set timeframe.
Options come in two forms: Calls and Puts.
A Call option gives the purchaser the right to procure an asset at a definite price within a specific period.
A Put option gives the buyer the right to offload an asset at a certain price within a specific tenure.
14) Portfolio: A mixture of various investment assets tailored according to the investor’s goals, such as debentures, shares, mutual funds, and so on.
15) Depository: An entity that keeps the depositor’s securities and funds within an account. In India, the two depositories are National Securities Depository Limited (NSDL) and Central Depository Services Limited (CDSL).
16) Mutual Funds: Entities that collect investments from shareholders and put them towards numerous fiscal instruments, such as bonds, shares, debentures, etc.
17) Net Asset Value (NAV): The cumulative fiscal value of a fund’s assets. NAV per unit is ascertained by