Functions That a Typical Investment Banking Company Performs

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Functions That a Typical Investment Banking
Company Performs
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The Concept of Investment Banking
We have all come across the term investment
banking through some or the other mediums. But
have we really pondered on what exactly are these
institutions and what functions do they perform
on a day to day basis? Well, investment banks are
the mediators of we can say the middlemen in the
process of gaining financial security. They buy
securities from companies and governments and hen
resell then to the public. Therefore, bringing
together the suppliers and users of long-term
funds in capital market.
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The Function of Underwriting
Underwriting is a process through which a lender
of any other lending institute assesses the
credit worthiness of a customer. It can also be
said to be the process in which the investment
banker packages and sells the security on behalf
of its client. He or she will buy the security
from the customer at a lower price and then sells
it later at a higher price. This way hence,
underwriting is like an insurance where the
banker may bear the risk of adverse price
fluctuation during the period of distribution.
Even if they do not manage to sell the security
at a specific price, it would be the underwriter
whod suffer losses.
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Distribution
This is the second function of the investment
banking companies where they market the new issue
of the securities. Once they own the new
securities, its no their part to get them into
the investors hands. Since they specialize with
the staff and organization to distribute
securities, they perform physical distribution
functions a lot more efficiently. It is also
economical than an individual company.
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Being an Advisor
Once they become, they gain enough experience,
they become an expert in issuing the new
securities and even marketing them. Bigger
business firms could take valuable advice and
counsel from the investment banking companies.
So, investment bankers in this way perform the
advisory function by analyzing firms financial
needs and then recommending appropriate action.
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Building A Market for The Client
If there is a company that plans to go public for
the first time, it will be the obligation of the
investment banker to maintain this market for his
client for shares after they are issued. They
make a market and keep it liquid. The investment
banker will maintain some inventory in the
stocks, quote bid and be ready to buy or sell at
the prices locked.
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Thank You
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