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Basic concepts of investment banking

Updated on December 3, 2012

Investment banking

Investment banking is the process where an institution or organisation, known as the investment bank, which helps a person or organisation to raise capital. The procedure may involve the institution to underwrite or act as the client’s agent for the purpose. There may be a few other purposes of investment banking such as:
Market making.
Buy or sell derivatives.
Foreign exchange etc.
Investments banking and commercial banking differs in a few ways. The investment banking does not involve any deposits. There are a few other minor differences but this is the major difference between these two types of banking.

Types of Investment Banking:

Investment banking has two main branches. One of them involves the exchange of securities with cash. Securities may also be exchanged with securities. This branch may also involve promoting some securities. The other branch mainly works with different kinds of funds, pension, hedge, mutual etc. these two are the sell and buy sides of the investment banking. Some investment banks specialises in the buying side while others specialise in the selling side. Some firms specialises in both the components of investment banking.

Parts of Investment Banking:

Investment banks are divided into a few parts. The various activities of an investment bank are divided into three offices, front, back and middle. The jobs of these three parts are further divided into some sub parts.
The front office mainly consists of three activities that include the main work of investment. It also includes research work like writing reviews and reports. And then there is the actual trading.
The middle office mainly works with the strategising and management part of the institution. They strategise new plans, and manage risk, treasury etc.
The back office is mainly a checking facility. It takes on the work of data checking and whether or not the rules and regulations issued are followed.

Why Investment Banking:

This is a common question that may arise in any bodies mind before going for investment banking. Well first of all if you practise investment banking, there is a financial security that comes with it. There are many financial aids also offered by the firms. Moreover you can get expert advice in your investment. And most importantly, investment banking can work for both sides, the one issuing securities as well as the one buying them. These are some of the reasons why one should be interested in investment banking when it comes to buying and selling of securities.

Concepts of Investment Banking:

Thus to conclude, we can say that investment banking is a financial market that deals with capitals and securities. They are an institution that, although has been criticised in the recent past for overpaying the people in the industry and also conflict of interest of both the parties involved, that try to help both the issuer and buyer of an financial asset. There means of working has already been discussed and it proves that investment banking is very efficient in solving the aforesaid problems.

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