Markets Tutotial: How Do Investment Banks Work?
Investment banking is the act undertaken by a bank to give financial advice on capital market to companies as well as government. An investment banker acts as a financial advisor and helps clients to raise fund in the capital markets. Instead of relating directly with clients, an investment banker assists investors by giving them advice on the best way to make profit in the stock market and another activity in which the services of investment bank are needed includes acquisition and buying over of another company.
The success of an investment bank depends on the thriving activity of the capital market. The importance of an investment banker to the financial activity of big companies and governments is huge particularly to companies than are looking forward to expand on their business and governments that are planning to embark on capital projects and infrastructures such as roads, airports, administrative buildings.
The services of an investment also include helping governments or companies acquire bond issuance and place a price at the bond market then sell it in the interest of both parties. In this case, it is a win-win business for those involved. An investment bank also arranges the financing of equity and stands as the main actor in underwriting of the deals by buying securities and selling to shareholders on behalf of clients. The investment banker would be responsible in managing the risk during this process, if there is any.
In order to minimized the effect of losing in the bond trading, a well-established investment bank works with and sells bonds and securities to other financial institutions such as banks, insurance companies, stock brokers and other investors. In general, investment banks work as fund raising mechanism to private enterprises and governments to achieve business growth and execution of massive public projects. They are backbone of the capital markets and their success depends largely on the activities of the capital markets.