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For layman
• Commercial banks and investment banks
performed completely distinct functions. If you
need a loan to buy a car or house, You will visit a
commercial bank and When you need to raise
cash to fund an acquisition or build your factory
you will call on your investment bank.
Definition
• “An investment bank is a financial institution that
– raises capital,
– selling, and trading securities (stocks and bonds); providing financial advisory services,
such as mergers and acquisition advice; and
– managing assets.
An Overview
• “Corporate raise capital by issuing securities in the
market. Investment bankers act as intermediaries
between the issuers of capital and the ultimate
investors who purchase the securities”
Securities
Investment
Issuer Investor
Banker
Cash
Financial Markets Structure
Terminologies
• Money Market
– the money market is the global financial market for
short-term borrowing and lending. It provides short-term
liquidity funding for the global financial system.
• Capital Market
– A capital market is a market for securities (both debt
and equity), where business enterprises (companies)
and governments can raise long-term funds
• The primary market
– is that part of the capital markets that deals with the issuance
of new securities. Companies, governments or public sector
institutions can obtain funding through the sale of a new stock
or bond issue. This is typically done through a syndicate of
securities dealers. The process of selling new issues to
investors is called underwriting. In the case of a new stock
issue, this sale is an initial public offering (IPO). Dealers earn a
commission that is built into the price of the security offering,
though it can be found in the prospectus.
• Investment Banking
– Provides strategic, financial and valuation advisory services
– Raises capital through the issuance of securities
– Advises companies in merger & acquisition and restructuring transactions
– Offers specialized products and services to meet the needs of corporate and
government client
Roles of Investment Bankers
• Management of debt and equity offerings:
– Instrument designing
– Pricing the issue
– Registration of the offer document
– Underwriting support
– Marketing of the issue
– Allotment and refund &
– Listing on stock exchanges
• Loan syndication:
– Investment bankers arrange to tie-ups loans for their clients
• Venture capital:
– Identifying the venture funds whose investment policies matches
with the requirement of the company
• Divestitures
– Involves sale of assets (tangible & Intangible) or business entities.
• Financial Engineering
– It involves designing development and implementation of
innovative financial instruments and process and the
formulation of creative solution to the problems in finance