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. www.avendus.com/india
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 who’d suffer losses. www.avendus.com/india
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 investor’s 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 firm’s 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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