If you are planning to venture into the financial industry or you already work in this field but want to have a more comprehensive background, you should know what is investment banking. Investment banking is basically the department of a financial organization or bank that acts as a facilitator, lender, or manager for the issuance of securities in exchange for payment from a borrower. This information will give you an idea how a professional banker works.
Investment banks usually work hand in hand with other financial institutions in the provision of funds for mergers and acquisitions, asset liquidation, home equity refinancing, and many other financial transactions. Underwriting refers to the underwriting process wherein the banker determines whether the borrower is capable of meeting the conditions of the credit or not. Underwriters determine the worthiness of the borrower by conducting a thorough evaluation and assessment of the applicant’s financial records, income statements, business history, etc. They also check for information provided by the applicants’ bankers and attorneys, regulatory authority’s records, stockbrokers’ records, etc.
A lot of investors are enticed by the prospect of investment banking because of the various benefits they get from such a job. For one, they can gain access to different types of capital raising capital depending on their needs. Different types of investors include individual homeowners, institutional investors, corporate borrowers, foreign investors, tax havens, real estate professionals, etc. Because these different types of investors have different needs, each investor needs a different type of banker. These different types of bankers can be divided into two major categories: commercial banks and investment banks. The first category has close ties to the main operations of the financial institution while the second category does not have such close ties with the institution and works out of a different office.
The work of the investment banking is divided into different categories in order to serve all the purposes of the financial institution. The most popular of these divisions is securities underwriting and private equity firms. Securities underwriting includes such functions as purchasing, selling, and offering securities for purchase and sale to interested parties. Private equity firms on the other hand deal exclusively with the purchase of invested securities by large and small financial modeling companies.
Another division, which is quite prominent in what is investment banking is commodity markets. Commodity markets deal with agricultural products like sugar, corn, and various agricultural goods. It is an extremely profitable industry and there are major players in this market. One such player is the Chicago Board of Trade or theCBOT, which is involved in trading the food market.
The third major division of what is investment banking is international markets. There are numerous countries that use the system of investment banks to finance their activities including Tokyo, London, New York, and Frankfurt. The major players in this field include the German lender KBC and the Japanese lender Nippon Finance.
The fourth major area of what is investment banking is corporate finance and derivatives. Derivatives are instruments that trade futures and options on currencies, stocks, and commodities. They are primarily traded in the secondary markets but can also be traded on stock exchanges. Examples of derivative products that are traded on the secondary markets include swaps, foreign currency exchange agreements (CFAs), and forward contracts.
What is investment banking is not a simple industry. It involves a lot of research and analysis as well as a wide range of specialized skills. Investment bankers help to find, plan, manage, and ultimately invest the resources of financial institutions. Those who want to break into the industry must first learn the ropes through internships and hands-on training at investment banks or trade schools. After gaining enough experience, more experienced investment bankers help firms grow and establish themselves as reputable lenders and financial institutions.