Investment Banking is not only numbers-crushing; it requires a solid knowledge of financial institutions and their products and a basic understanding of financial markets.
Are you excited to know what drives the financial world apart from the obvious aspect of just making profits?
From stocks to derivatives, bonds to mutual funds, the types of financial products are as diverse as they are confusing. Whether you're aiming to master the investment banking basics or step into the world of an investment banker, understanding financial products is the first step in this dynamic world.
Understanding Financial Products: The Backbone of Investment Banking
Financial services are economic activities offered by banking companies. Most of their services, especially financial management and consumer finance services, fall under the financial services group.
An investment bank helps raise capital for various industries, people, and the government. But what really gives it life is that this business employs several financial products.
Among such products are equities and debt securities, financial derivatives, and structured financial instruments, each of which serves a particular function.
Here’s a quick overview:
| Financial Product | Purpose | Example |
| Stocks | Ownership in a company | Equity shares |
| Bonds | Debt instruments | Corporate/government bonds |
| Derivatives | Risk management or speculative purposes | Futures, options |
| Structured Product | Customised for specific needs | Mortgage backed securities |
What are the different types of financial instruments?
Financial instruments fall into two categories:
Cash Instruments
Cash instruments depend on market activities for their value. For instance, stocks and bonds are primary securities. Other types of cash instruments are deposits and loans, which are mutually agreed upon between the borrowers and the lender. A cheque is a form of cash since it enables the transfer of payments between accounts.
Derivative Instruments
Derivative instruments derive their characteristics and value from underlying components such as commodities, interest rates, share indexes, currencies, etc.
For instance, equity options, such as call options on a particular share, are derivative products. They have the performance value of the specific stock that forms the commodity.
A call option is the ability to control assets only by owning the right, not the duty to acquire. It buys the shares of the stock at a particular price within a specific period. When dealing with options, the value changes relative to the price change in the basic stock, not necessarily with the consistency of proportionality.
Why Understanding Financial Markets Matters?
Markets indicate the economy and its tendencies, possible and existing opportunities, and threats. Whether it's the BSE or forex markets around the world, understanding financial markets makes it easier to plan and prepare for changes.
A practical tip?
Start by following financial news and analysing trends. Over time, you’ll develop a knack for recognising market patterns—a skill highly valued in investment banking.
- The financial market acts as a venue for purchasing and selling financial products, providing the loans and credit corporations and governments need to operate.
- They enable businesses to raise funding for expansion and operations while allowing investors to spend their capital intelligently.
- Financial markets also assure fair treatment of all players and help determine asset valuations, which adds to general economic stability.
Investment Banking Basics: Your Foundation
Investment banking basics involve arranging massive financial deals, including mergers and underwriting shares in budgetary offerings, also called IPOs. Pursuing a career in investment banking involves working with firms to facilitate the origination of business funds by selling and managing new debts and equities.
They evaluate risk and determine the price for these securities. They also offer advisory information on the value an organisation can derive from M&As and how to conduct negotiations and acquisitions.
One of the functions of investment banks is that they become market makers, which means that they create a market in securities by buying and selling them. This helps keep the buyers of stocks and bonds constant. They trade in the financial markets specifically for themselves or for another party to aid in the purchase and selling of securities such as equities, debt securities, options, futures, etc.
Investment banking might seem overwhelming, but breaking it down into manageable steps can make it more approachable:
- Master Core Concepts: Familiarise yourself with key terms like mergers and acquisitions, initial public offerings, and debt restructuring.
- Learn the Types of Financial Products: Study how different instruments get used in various scenarios.
- Enhance Your Analytical Skills: Tools like Excel and financial modelling software are invaluable.
- Take Relevant Courses: Enrol in investment banking courses that provide hands-on experience.
Unlock Your Investment Banking Potential with Industry-Focused Training
Investment banking is a field that rewards curiosity, discipline, and continuous learning. For talent to succeed in investment banking, knowledge about types of financial products and keeping up-to-date with financial markets could be major distinct features. Imarticus Learning’s CIBOP™ course, Certified Investment Banking Operation Professional, is the one-stop solution for finance professionals.
These carefully designed investment banking courses include state-of-the-art study plans that focus on understanding and managing securities, wealth and assets, markets, risk management measures, and anti-money laundering.
Imarticus Learning offers a transforming learning experience that will help you achieve your desired career in Investment Banking Operations. To help you succeed in this field, choose the Certified Investment Banking Operations Professional course today!
