In the investment backing process, investor might enlist the help of an investment banker which can help the investor with buying, selling, and trading of securities, managing assets and give financial advice. Portfolio construction is another area that should be examined to make sure that diversification, asset allocation and investment performance in being achieved for increase return. A complete understanding of capital markets is vital to the investor which can give a greater understanding on how and where investments are being processed.
One important role of the investment bank is to assist public and private corporations in raising funds in the capital markets. A second service is in providing strategic advisory services for mergers, acquisitions and other types of financial transactions.
They also act as intermediaries in trading for clients. Investment banks differ from commercial banks, which take deposits and make commercial and retail loans.
The focus of this paper will be to describe the investment banking process including the function of portfolio construction. To better understand the investment banks role it is important to distinguish between what is known as the primary and secondary markets.
Secondary markets are defined as "markets for existing assets that are currently traded between investors" Hirt and Block, The secondary markets are important because they create prices and provide liquidity. Without secondary markets investors would have no avenue to sell their assets eliminating liquidity.
Instead of trading between investors as in the secondary markets, participants in the primary market buy their assets directly from the source of the asset. Investment banks comprise the most active participants in the primary market. Investment Banks act as the intermediary between the public and the issuer of the security.
Corporations that need to raise money will issue securities. Investment banks will become the underwriter. The bank will purchase all the shares at a fixed price that is discounted from the public price, eliminating the risk that the corporation would assume if unable to sell all their securities.
At this point the investment bank has assumed the risk and is responsible for all shares of the security. The investment bank must now form a strategy concerning the distribution of the security. If the issue is large, the bank will share the risk and distribution duties by forming a group known as a syndicate.
A syndicate is a group of investment banks. The investment bank makes money by selling the securities to the public at a par value per share above the price per share paid to the corporation.
The investment bank does assume the risk that the price per share on the market could fall below the price paid by the bank before all the shares are sold in the market.
There are three broad types of financial assets, fixed income, equity, and derivatives. Fixed income assets will provide either a fixed stream of income or an amount of income that is determined by a specialized formula. Fixed income securities come in a wide variety of maturities and payment provisions.
On one extreme are money market securities. Money market securities are short-term, highly marketable, low risk, fixed-income securities. Treasury Bills, and Certificates of Deposit. The other end of the fixed income scale is capital markets which include long-term securities such as Treasury Bonds and bonds issued by Federal, State, and local municipalities, and corporations.
Equity assets, better known as common stock, are the second type of financial assets. Shares of common stock represent an ownership in the company issuing the stock. Owners of common stock are not promised payment. Owners may receive dividends from the issuing company.Capital Markets and Investment Banking Process Paper.
See the attached file. Analyze the investment banking process, and address the following: Describe the investment banking process . Solution Preview. Capital Markets and Investment Banking Process: An investment banking process is considered to be a vital element within the industry of development and commerce for a long period of time while many people still consider it the process to be a mystery especially the individuals who are found outside the investment banking houses and the largest corporations and are involved.
Equity Capital Markets vs. Investment Banking We receive many questions about how ECM is “different” from investment banking. The truth is, it is a part of investment banking, and almost all mid-sized and large banks have equity capital markets teams.
Banking & Capital Markets In the new Open Banking world, as customer expectations get defined by standards driven by FinTechs, neobanks and more agile digital firms, traditional banking rules and value propositions no longer apply. Among the global as well as local markets it is an important forecast of the part of ssessing "underwriting, providing fiscal advisory services, selling and trading investments and handling assets (Investment Banking, )".
Investment banking is a specific division of banking related to the creation of capital for other companies, governments and other entities.