There are different types of financial institutions around the globe that helps people in various ways. One such type of bank is the investment bank. In this article, we will try to understand the importance of an investment bank and its functions and roles.
We will try to understand the services offered by the IB (investment bank). Let us first understand what is an investment bank?
What is an investment bank?
It is a type of financial institution which acts as a bridge between the securities issuer and the public investors. In layman terms, you can say that an IB works as a broker for clients. IB also specializes in pension funding. They help institutions to issue new sets of stock through an initial public offering (IPO) or follow-on offering. Besides helping financially, IB also gives advice and predictions in order to make the institution or any particular company rise more and more. Let us study the roles and functions of modern investment banks in detail.
Roles and functions of the Investment Bank
An IB has various roles ranging from advisory to mergers and acquisitions. Let us cover each of the roles thoroughly.
New stock issues
Whenever a company goes public, i.e. it seeks funding from the public and is ready to sell its shares. Then the IB helps those institutions by buying some of the agreed shares keeping in mind the IPO (initial public offering). This whole process of stock issuing is also called underwriting. So, in short, the funds/stocks from a private institution are transferred to the public through underwriting.
Besides the money talk, investment banks help their clients by giving them advises advice which that brings more capital and investment. They help in taking the firm/institution to new heights. Investment banks boast a huge client base and are always helpful in financial queries.
Mergers and Acquisitions
Whatever the acquisitions are, an IB tries to find out its worth or current market value. It acts as a bridge for the deal to close in. They are helpful for the successful completion of a deal.
Risk analysis and management
A financial institution is always prone to difficulties. An IB helps in finding out the target area which is incurring losses. It helps in preparing a particular firm from various risks such as inflation, credit risks, liquidity, loans, etc. it always makes the firm less vulnerable to losses.
Investment banks have come a long way, nowadays, they do research too. Through this research, one can find out the trustworthiness and loyalty of any particular firm. IB gives people the rating points of any particular firm which helps in deciding whether to buy, sell or hold any acquisition belonging to that particular firm/company.
Derivative product structuring
We are talking about modern investment banks here; they have now various services and functions to be offered. A derivative product mostly gives a high return rate and margin. To identify such worthy derivative and then structuring in such a way that it gives profit is often a tedious job, but it is done by the investment banks. They identify future derivatives and find the right time to invest. This helps the clients to increase their business.
As we read, modern-day investment banks have evolved a lot. Their services now range from consultancy to derivative product structuring. They also help various firms in getting a yes from the government for any particular project. They focus on various dealings and investments which helps the owner of any particular firm to focus on something else and take the company to new heights. This article was all about the roles and functions of modern-day investment banks.