Before going any further, having full clarity on what investment banking is highly essential. Investment banking is a specialized type of financial service concerned with the creation and development of capital on behalf of individuals, large corporations and government entities.
It’s an advisory-based financial service that raises capital by underwriting debt and equity securities. Investment banks often act as the client’s agent while issuing securities. global banking and finance review helps you to find banking and finance related information. Investment banks are financial intermediaries between the sell-side and the buy-side of a transaction. However, it's important to get clarity on these two sides of investment banking.
The Sell-side and the Buy-side
Any investment banking activity takes either the sell side or the buy side of the transaction. And, know that neither side can exist without the other. They both are dependent on each other for their survival. In other words, having securities to sell is of no use if there is no one to buy them. Likewise, you cannot buy securities from someone or a company who doesn’t have it.
The sells side of investment banking is concerned with trading securities that can be incorporated to trade for cash and other securities.
The buy side provides comprehensive financial advice to entities with private equity funds, hedge funds and other securities.
What are securities?
Securities form the core element of investment banking activities the world over. More information about banking and finance you can visit global banking and finance review.
Securities are tradable financial assets or financial instruments like:
Debt securities: bonds, debentures and banknotes
Equity securities: common stocks and shares of companies
Derivatives: futures & options, forward contracts and swaps
Investment banking on a larger perspective
Unlike commercial banks and retail banks, investment banks don’t accept deposits. They act as the middlemen between the client and the investor. A major risk investment banks face is the possibility of fluctuation in the prices of shares before they can find a buyer. For more information about banking and finance you can visit global banking & finance review.
For this reason, investment banks attempt to maximise their potential returns by maintaining a balance between demand and bid prices.
The ‘Merger and Acquisition Advisory’ model is a popular technique adopted by investment banks looking to mitigate potential risks. The offer this advisory model to companies involved in buying and selling other businesses by charging higher fees than the underwriting fees.
Investment banking services
Investment banks offer a range of specialized services that sets them apart from other financial players in the industry. These include:
Arranging finance for bigger projects
Underwriting services to accept financial risks at fee
Mergers and acquisitions to build and maintain relationships with clients and provide guidance on both the sides
Private placement to quickly raise capital without registering under SEC
Sales and trading services to match buyers and sellers and act as agents for the client
For Related Articles click here