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In this letter, effect of size and alloying on the core and valence band shifts of Pd, Cu, and Pd-Cu alloy nanoparticles has been studied. It has been shown that the sign and magnitude of the binding energy shifts is determined by the contributions of different effects; with quantum confinement and lattice distortion effects overlapping for size induced shifts in case of core levels and lattice distortion and charge transfer effects overlapping for alloying induced shifts at smaller sizes. These results are important for understanding gas molecule-solid surface interaction in metal and alloy nanoparticles in terms of valance band positions. [ABSTRACT FROM AUTHOR]