Investment Bank

Posted in Finance, Accounting and Economics Terms, Total Reads: 1174
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Definition: Investment Bank

An investment bank is a financial intermediary that helps companies and individuals in many ways such as:

  • Raising stock through public offering of shares
  • Assisting individuals, corporations and government in raising capital
  • Decisions related to merger and acquisitions
  • Pre-underwriting counseling
  • Valuation - Finding out the fair market value of a corporation
  • Market making – company or individual that offer both buy and sell price
  • Derivatives and equity shares trading
  • FICC (Fixed income instruments, currencies and commodities) services
  • Issuance of security by acting as underwriter or/and by acting as the client’s agent
  • Acting as broker for the clients

 

Two lines of business in investment banking:

  • Sell side – securities trading or promotion, for example research, underwriting, etc
  • Buy side – advising institutions in matters related to buying investment services, for example life insurance, mutual funds, etc


Role of investment in IPO (Initial Public Offering) - The investment bank finds out the value of the client corporation, helps the client in developing its red herring prospectus, offers shares to a select group of investors and comes to a fair market price per share which should be offered. The investment bank helps the client at each stage so as to maximize the client’s gain out of IPO.


The top global investment banks are Goldman Sachs, JP Morgan and Morgan Stanley.



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