{"id":250705,"date":"2023-05-22T13:55:05","date_gmt":"2023-05-22T13:55:05","guid":{"rendered":"https:\/\/imarticus.org\/?p=250705"},"modified":"2024-03-19T09:51:56","modified_gmt":"2024-03-19T09:51:56","slug":"the-role-of-investment-banking-in-the-global-economy","status":"publish","type":"post","link":"https:\/\/imarticus.org\/blog\/the-role-of-investment-banking-in-the-global-economy\/","title":{"rendered":"The Role of Investment Banking in the Global Economy"},"content":{"rendered":"

Investment banks are mammoth financial institutions that arrange for capital financing and trading to domestic and global businesses, thereby pumping liquidity into the market. Investment banks also improve the economy by matching sellers and investors and brokering deals for large corporations.\u00a0<\/span><\/p>\n

Investment banks are totally different from commercial banks in terms of their functions. While commercial banks offer loans to individuals, investment banks arrange funds for large corporations. A few commercial banks are clients of investment banks, who guide them regarding proper avenues of investment. Many reputed institutions offer courses for investment banking certification courses<\/a><\/strong><\/span>\u00a0for aspiring professionals.\u00a0<\/span><\/p>\n

Functions of Investment Bank<\/strong><\/h2>\n

Bulge bracket and boutique investment banks are the main two types of investment banks. The former is a large organisation and performs all functions of an investment bank, while the latter is a much smaller entity and performs a limited few.<\/span><\/p>\n

In India, we will mostly find boutique investment banks. They generally function the back-end functions of the bulge bracket Investment banks in limited capacities.\u00a0<\/span><\/p>\n

The functions of an investment bank are as follows \u2013\u00a0<\/strong><\/p>\n

Underwriting functions<\/strong><\/h3>\n

Investment banks help to create Initial Public Offer (IPO) for an organisation, which intends to go public. When an organisation goes public, people buy its shares and thus it attracts investment, driving the economy of the country.\u00a0\u00a0<\/span><\/p>\n

Advisory Functions<\/strong><\/h3>\n

Investment banks help an organisation in the process of its acquisition, merger or sale through the process of financial modelling<\/a> and prediction analysis. Acquisition, merger or sale are processes where business opportunities are renewed, making growth to the country\u2019s economy.\u00a0<\/span><\/p>\n

Investment Management\u00a0<\/strong><\/h3>\n

Investment banks help their clients in buying securities, bonds, mutual funds, etc. and make crucial decisions regarding when to buy, hold and sell these financial products. On the selling side, they support raising capital, making meaningful transactions and closing profitable deals favouring their clients. Both on the buying and selling side, liquidity is maintained in the economy.\u00a0<\/span><\/p>\n

Lending Functions<\/strong><\/h3>\n

Investment banks also lend their own money to their clients. This proves to be a loan to the clients and an investment for the banks. This function strengthens their mutual relationship and business trust.<\/span><\/p>\n

International Transactions<\/strong><\/h3>\n

Investment banks also help their institutional clients in several complex international financial transactions, thereby enhancing international trade and commerce.<\/span><\/p>\n

The prevalent global trading mode is <\/span>foreign exchange<\/span> or forex. Forex reserve is the quantum of the US Dollar a country possesses. The relation between Euro and US Dollar termed a repo rate, is the instrument through which RBI deals with commercial banks to maintain its Forex reserve. For international transactions, Investment banks take charge of the <\/span>foreign exchange<\/span> deal, thereby making the deal optimum and cost-effective for its clients.<\/span><\/p>\n

Money Market Functions<\/strong><\/h3>\n

Investment banks also operate in the field of <\/span>money market<\/span> which is essentially a trade between banks or corporations and banks. Trade occurs in the form of short-term debt investment of financial assets only. Investment Bankers help organisations with the instruments of the money market. All these transactions revive the economy of a country.<\/span>
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