Investment Banking is a specific division of banking which aids in arrangement of capital for other companies. Investment banking is a field of banking that relates to the acquisition of funds for a company. Investment banking also offers aids in the form of "advice" which a company might require in its dealings and transactions that is the issue and placement of the company stocks. In addition to it, it also acts as agents or underwriters (underwriting the securities by buying all the available shares at a set price and then reselling them to the public. Or the banks may act as agents for the issuer and take a commission on the securities they sell.) for companies.
They also help to facilitate mergers and acquisitions, reorganizations and broker trades for both institutions and private investors and provide services such as market making, trading ofderivatives, fixed income instruments, foreign exchange,and commodities.Thus they act as an intermediary between an issuer of securities and investors. Unlike commercial banks and retail banks, investment banks do not take deposits.
There are two main lines of business in investment banking.One line of trading facilitates transactions, market-making, thus providing the Trading securities for cash and acting as underwriters and doing research and thus helping in the promotion of securities. This line is often referred to as the "sell side". The other line deals with pension funds, mutual funds, hedge funds, and the investing public (who consume the products and services of the sell-side in order to maximize their return on investment) .This side is referred to as the "buy side". Many firms have buy and sell side components.Through investment banking, an institution generates funds in two different ways. They may draw on public funds through the capital market by selling stock in their company, and they may also seek out venture capital or private equity in exchange for a stake in their company.
The processes that investment banks take to help companies raise money are :
1)Lending their expertise to a company and help it by giving a valuable advise about the best place to raise either debt or the stocks and capital.
2)Preparing all the necessary documents to accurately present the value proposition for funding and to protect both the company and the investor from any misunderstandings.
3) Ensuring that all government rules and regulations have been followed in the raising of any capital.
No comments:
Post a Comment