What is Investment Banking?
What is Investment Banking? What it offers?
What makes investment banking different from retail banking? What it offers? Investment banking is mainly involved in selling and buying of securities, derivatives, fixed income products, commodities, foreign exchange. It can act as a intermediary broker for investment clients. It can also help companies in merger and acquisitions. The roles of investment banking are varied and different from commercial and retail banks. Depending on individual country, the investment banking can be completely seperated from retail banks or they can be offered together. Like in United States, there is seperation between investment banks and retail banks. They offer various investment opportunities to individual high net worth clients looking for higher returns on their money by different products. They also help organizations and government in raising money by underwriting or selling.
Main activities of investment banking are summarized as below:
Buying and selling of Financial Products. Selling of products to high net worth individuals looking for high returns on their investments is one of the key function of investment banking. They take orders from such individuals and execute them. Buying and selling of financial products provides bank money from each side. Such financial advisers needs to be licensed under the governing financial authority of the country to provide sound investment advice and services.
Corporate Finance or Corporate Financier. The traditional function of investment banking is to analyze individual company's financial needs and help them to raise the optimum capital that meet their financial needs. It assists in the money making decisions of the corporations. It can be involved in mergers and acquisition of the companies based on the financial analysis and individual need of an organization.
Security and Product Research. This part of investment banking is focusing on research of companies and provides technical financial reports. They review and provide suggestions on buy or sell of companies. They help to serve internal and external clients. Internal clients are groups in same bank that are involved with trading and investment. They provide analysis and suggestion to this internal group. External client are the high net worth clients that seeks these reports to understand the companies finances. Hence, research department helps to provide and build strong financial foundation for an investment banking and provides good information on upcoming trends and analysis to various groups.
Proprietary trading. This type of trading is done by few skilled traders using money from their own investment banks to maximize profit making. They do not work with clients but are focused on trading for their own profit. Investment banks for proprietary trading recruit traders who specialize in numerical skills and are skilled in index arbitrage and other strategies to make profits at their own risk.
In Summary, Investment banking helps in buying and selling of investment products, act as Corporate Financier and assists high net worth clients in investment choices.
Investment banking tends to be one of the high earning career. Many mid term professionals switch to investment banking because of its enormous money making potential. However, the stress can be high and working hours long. Hence, investment banking as a career can be a mixed blessing.