What is an investment banking? - An engaging and original blog post
If you’ve ever wondered what investment banking is, and how it works, this article will give you the answers. Investment banking is about raising capital, conducting M&A, and providing advice to companies in need of funding through a wide array of services such as asset management, mergers and acquisitions (M&A), and equity underwriting services. Investment banking also involves risk management practices such as hedging, derivatives products, trading and securities underwriting activities. We’ll take an in-depth look at what investment banking means, the industry’s history, the various services provided by investment banks and more.
Why do we need them?
Investment banks can be defined as financial institutions that provide various services to companies, governments, and individuals. They often help these entities with raising capital by issuing stocks or bonds, advising on mergers and acquisitions, providing credit for the company, etc. In order to understand why we need investment banks in the first place, one should understand the meaning of a 'liquid market'. Liquid markets are markets where it is easy for buyers and sellers to find each other when trading a security. For example, there are many buyers who want to buy shares of Microsoft stock but not many people who want to sell their shares of Microsoft stock. However, there are a lot of individuals who own shares of Microsoft stock but might not want to sell. For example, one of them might have borrowed money from a bank using his Microsoft stocks as collateral. In such a case, they may not want to sell their shares because they would be unable to pay back their loan. It becomes even harder if it's a pension fund or mutual fund that needs to liquidate thousands of different securities in order to pay out its investors. In order for these entities to meet their cash obligations, investment banks buy these companies' stock on their behalf and then re-sell it when an investor comes along willing to buy those same securities.
How do they work?
An investment bank works with a variety of clients to provide tailored financial services. It could be a company that needs funding or it could be someone who wants to sell shares in their company. The investment bank will assess the situation, advise the client on what they need, and then execute the plan. For example, when a company needs to raise money it will often have to issue some new shares in order to do so. The investment bank will work out what percentage of shares must be sold, prepare all of the necessary documentation, set up meetings with potential investors, and then handle all aspects related to actually selling the shares on behalf of the client.
What are the responsibilities of an analyst in this field?
An investment bank analyst will usually be assigned to one specific industry or sector. They are responsible for researching the industry, finding opportunities, and providing analysis to support their idea. This includes finding a company that is most likely to have a successful IPO, or merger with another company. One of the key duties of analysts in this industry is understanding how markets work. This often includes understanding who the competitors are, what they're doing right (and wrong), where they're growing, etc. Analysts also need to understand how markets react as a whole. For example, if interest rates go up then stocks will generally go down because people will buy bonds instead of stocks because they're more stable.
Job Description
Investment Banking has evolved from a largely transactional business to one with more integrated advisory services. Investment bankers advise on M&A transactions, capital raisings, restructurings and other financing activities as well as mergers, acquisitions, disposals and corporate strategy. In addition to these traditional services investment bankers also advise on risk management (insurance against market fluctuations), hedging (protecting against currency fluctuations) and portfolio management for institutions or high net worth individuals. Investment banks can be divided into two main types: international investment banks that work with a range of issuers in different countries; and regional investment banks that specialize in advising companies or governments in specific regions of the world or in particular industries.
Career Path
There are many different career paths in the investment banking industry. For example, there are jobs for investment bankers, salespeople, traders, analysts, and accountants. Investment bankers help people buy companies or sell them to other companies by analyzing the company's financial situation. Salespeople work on bringing new investors into the company. Traders buy stocks from one person and sell them to another person at a higher price for a profit. Analysts research financial information about companies to determine their value.
Earning Potential
Investment banking firms are in a position to make a lot of money for their clients, themselves, and their employees. The investment bankers will be compensated based on the assets they manage, the higher the assets managed by an individual banker, the greater his or her compensation. In addition to this compensation, investment bankers may also receive bonuses that are typically paid quarterly or annually. Bonuses can add up to significant amounts of money depending on how much revenue was generated during a particular year. Investment bankers also have the potential to earn substantial incomes by charging fees for services rendered such as arranging mergers and acquisitions (M&A) deals between two companies.
Education Requirements
The first thing to consider when you're looking at a potential career in investment banking is the education you'll need. You'll need to have a bachelor's degree, but what major you choose depends on your goals for the future. For example, if you want to go into investment management, then it's best to get a business or finance degree. If you want to work as a trader or analyst then getting a business degree will give you the skills necessary for that position. And if you just want to be successful in general, then getting an economics degree can teach you just about everything there is to know about finances.
Why become one?
An investment banker plays a key role in the capital markets by intermediating between the providers of funds (usually large, institutional investors) and those who need funds (businesses, governments). They are involved in transactions such as public offerings of stocks, mergers and acquisitions, buyouts, and initial public offerings. Investment bankers also advise their clients on what types of securities to buy or sell. Investment banking ranges from helping corporations go public to advising them on which deals to pursue. There are many different areas that investment bankers can specialize in such as equity capital markets, asset management or trading bonds. The job requires not just technical knowledge but also strong interpersonal skills.
