Question

Outline the main roles played by investment banks. Explain how their activities may complement traditional commercial banking

Answer 1

Investment banks help companies obtain debt financing by finding investors for corporate bonds as their core function. The role of the investment bank begins with advice on pre-underwriting and continues in the form of advice after the distribution of securities. The investment bank will also check the accuracy of the company's financial statements and issue a prospectus describing the bid to investors before the shares are made available for purchase.Clients of investment banks include companies, pension funds, other financial institutions, governments, and hedge funds. Usually the biggest investment banks are the best. The more the bank has on the market, the greater the likelihood of profit. The world's largest investment banks have customers.

One of an investment bank's primary roles is to serve as a kind of intermediary between companies and investors through initial public offerings (IPOs). Investment banks provide underwriting services for new stock issues when a firm decides to go public and seeks funding for equity. Underwriting basically involves buying an accepted number of new sto shares from the investment bank.

Investment bankers are acting for their clients in several different advisory capacities. In addition to handling IPOs, investment banks offer advice to corporations to take over the public company or raise capital by alternative means. Investment banks periodically advise their customers on all funding aspects.

Mergers and acquisitions are a major role for investment bankers. As with IPOs, the ability of an investment bank to determine the cost of a potential transaction and arrive at a fair price is one of the key areas of expertise. In fact, an investment bank will help arrange and promote the transaction to ensure that the sale goes as smoothly as possible.

Different services are provided by investment banks and commercial banks.
Investment banks are supporting new debt and equity securities, helping with securities sales, and driving mergers and acquisitions, reorganizations, and broker trading.
Commercial banks lend to individuals and small businesses and provide deposit accounts and certificates for checking and saving.
Most financial services companies act either as an investment bank or as a commercial bank, although some roles are mixed. However, there are some advantages for banks that combine investment and business services functions. For example, a hybrid bank can use investment resources to assist a company in selling an IPO and then use its banking division to give the new business a generous line of credit. This allows the company to fund rapid growth and thus raise its stock price. In addition, a combined bank gains the benefits of increased trading, resulting in commission revenue.