Question

describe the finance function of an investment banking in a global context. Discuss how it affects the choice of capital structure as well as problems/challenges facing investment banks when accessing capital internationally.

Answer 1

1.Investment banks serve a number of purposes in the financial and investment world, including underwriting of new stock issues, handling mergers and acquisitions, and acting as a financial advisor. Other roles of investment banks include asset management for large investment funds and personal wealth management for high-net-worth individuals. Some of the major investment banks include Goldman Sachs, JPMorgan Chase, and Credit Suisse.

As their core function, Investment banks help corporations obtain debt financing by finding investors for corporate bonds. The investment bank's role begins with pre-underwriting counseling and continues after securities distribution in the form of advice. The investment bank will also examine the company’s financial statements for accuracy and publish a prospectus that explains the offering to investors before the securities are made available for purchase.

Investment banks’ clients include corporations, pension funds, other financial institutions, governments, and hedge funds. The best investment banks are usually the largest. The more connections the bank has within the market, the more likely it is to profit. The largest investment banks have clients around the globe.

KEY TAKEAWAYS

a) Roles of investment banks include the underwriting of new stock issues, handling mergers and acquisitions, and acting as a financial advisor.

b) Investment banks help corporations obtain debt financing by finding investors for corporate bonds.

2. IMPORTANT POINTS AFFECTING CHOICE OF CAPITAL STRUCTURE

Under the capital structure, decision the proportion of long-term sources of capital is determined. Most favourable proportion determines the optimum capital structure. That happens to be the need of the company because EPS happens to be the maximum on it. Some of the chief factors affecting the choice of the capital structure are the following:

a) Cash Flow Position

b) Interest coverage ratio

c)Debt service coverage ratio

d) Return on investmet

e) cost of debt

f) Tax rate

g) Cost of Equity Capital

h) Floatation Costs

i) Risk Consideration in which there are operating risk and financial risk

j) Flexibility

k)control

l) Regulatory framework

j) stock market conditions

k) capital structure of other companies

3 . Investment banks face a unique set of challenges.
...

A) Post-crisis uncertainty and ambiguity. The financial crisis of 2008 inaugurated an era of uncertainty for investment banking

B) Innovating more with less.

C) Renovating technology.

D) Internal barriers to change

E) Market threats.