Why is Investment Banking important?

Investment Banking is important because you will learn about finance and acquire strong technical skills, such as financial modelling and accounting, but you will also learn about how to manage others and how to work in teams. Also, and this is one of the most important skill for an investment banker, you will learn how to remain calm, focuses and efficient under very high pressure. Investment banking helps to boost the economy of the commercial sections of the society in other words they create more opportunity for both the employed and unemployed ones to raise capital and make profit. When you deposit and withdraw money from an ATM, it goes to and from your local bank.  However, you then have to ask where your local bank gets it’s money from, and it turns out that your local bank gets money from the global network.

You will have the opportunity to make a real impact. Many bankers love their jobs because they have a visible impact on society and industries. As an investment banker, you will work on multi-billion dollar IPOs, mergers of some of the largest companies in the world, or merge companies in different countries. Closing a deal is a very rewarding and satisfying experience, especially when it makes the news on TV or the first page on the Financial Times. This sense of power and accomplishment is a big motivation factor for many bankers.

When the government “prints money” it does so by electronically buying US treasuries.  Since the government doesn’t want to keep track of who wants to buy US bonds, it buys and sells through a network of banks who they sell/buy those bonds from their customers. Investment banks are sort of the “money superhighway” and form the key nodes that make the world economic system work. One good thing about the system is that the “money grid” is like the power grid or the internet, you don’t notice it because most of the time, it just works.  However, when it stops working, then you have massive amounts of disruption. So therefore, there is a couple several reasons investment banking is important.

What is an Investment Bank?

Essentially, investment banks provide advice and funding to corporate and other clients, and engage in trading activities for their clients and sometimes their own behalf.

Investment banks were historically distinguished from retail banks, that is, banks which take deposits from consumers and provide them with services such as loans, mortgages and credit cards. Many financial services institutions today, such as Citi, Barclays and UBS, operate in both markets and are known as “universal” banks.

As well as the large universal banks, other types of institution found within the sector include elite pure investment banks, advisory-only investment banks, and banks which focus on mid-market deals.

Investment banking is several things, such as Raising Capital & Security Underwriting, Mergers & Acquisitions, Retail and Commercial Banking. The advisory divisions of investment banks are paid a fee for their services, while the trading divisions experience profit or loss based on their market performance. Professionals who work for investment banks may have careers as financial advisers, traders or salespeople. An investment banker career can be a great deal of profit. Investment banks help corporations issue new shares of stock in an initial public offering or follow-on offering. They also help corporations obtain debt financing by finding investors for corporate bonds. The investment bank will also examine the company’s financial statements for accuracy and publish a prospectus that explains the offering to investors before the securities are made available for purchase.

Unlike commercial banks and retail banks, investment banks do not take deposits. Investment bank is typically a private company that provides various financial related and other services to individuals, corporations, and governments such as raising financial capital  by underwriting or acting as the client’s agent in the issuance of securities. An investment bank may also assist companies involved in mergers and acquisitions (M&A) are the initials that you can use for these and provide ancillary services such as market making, trading of  equity securities, and FICC services (fixed income instruments, currencies, and commodities.

Capital Markets

Capital Markets Capital markets are markets for buying and selling equity and debt instruments

What are the three major points of Capital Markets?

  • Stock Market
  • Bond Market
  • Money Market

Capital Markets are divided in two categories of markets :

The first of which being primary markets.

  • In primary markets, stocks and bonds are issued directly from companies to investors, businesses and other institutions, often through underwriting. Primary markets allow companies to raise capital without or before holding an initial public offering so as to make as much direct profit as possible.

The second is which  where investment banks, other firms, private investors and a variety of other parties resell their equity and debt securities to investors.

  • This takes place on the stock market or the bond market, which take place on exchanges around the world.

How does Capital Market differ from Money Markets?

  • Capital markets are distinct from money markets in that they are exclusively used for medium-term and long-term investments of a year or more. Whereas capital markets use equity and debt securities, money markets use deposits, collateral loans, acceptances and bills of exchange.
  • Money markets, on the other hand, are limited to the trade of financial instruments with maturities not exceeding one year. Money markets also use different financial instruments than capital markets do. Money markets, on the other hand, are often used to general smaller amounts of capital or are simply used by firms as a temporary repository for funds. Through regularly engaging with money markets, companies and governments are able to maintain their desired level of liquidity on a regular basis.