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What Role Do The Investment Banking Companies?

By Author: Avendus Group
Total Articles: 8
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Investment banking is one of the most talked about topics in regular financial world. But what exactly is it? Let’s understand today. An investment bank is an institution that plays the many unique roles in the world o finance and investment. Some of the many functions that an investment bank indulges in is underwriting of new stocks, facilitating the mergers and acquisitions and being a financial advisor to high profile- A rated private firms or HNIs and the firms owned by the government too. It also helps people in accomplishing the goals of wealth management, management of the assets, investing large amount of money in various funds, personal wealth management etc. giving the banks a very sophisticated and high-class image. Some of the top investment banks that we know of are JP Morgan and Chase, Deutsche, Credit Suisse and so on. Let’s look at some of the functions of investment banking firms in India:
1. Underwriting Public offerings
The major foundation of investment banking is the debt and equity securities from public offering. Even though the words “underwriting” may seem to act as a guarantee that the investment bank in question and the members (who are the underwriters) will abide by the laws and will be bound to make a purchase of the securities from the company that’s issuing, the reality might be much more hard hitting. If the initial public offering is to be considered, there the investment bank can take one of the two approaches, which are, the firm commitment and best efforts.
2. Facilitating mergers and acquisitions
Take any daily newspaper and every now and then you will read about mergers of big firms or acquisitions of smaller firms by bigger firms. But it is not always a bed of roses. Sometime there also are financial hostile attacks and defenses. But we aren’t really at war here. Most number of mergers and acquisitions are friendly and done with mutual understanding. The role of the investment banking companies here is to optimize price and the terms so that it all happens at best prices and everyone is at loss here. So that, it is a win-win situation for both. They also help in recapitalization of companies and reorganization in case any of the companies if facing major troubles.
3. Management of risk
Foreign currency exchanges, fluctuating interest rates and positions of commodities through swaps are very important to building block of financial markets. What is a swap? Well, it is a mechanism through which more than two or two parties exchange their respective obligations of debts to control each party’s risk profile more precisely. The working of these swaps is a little different as they have different comparative advantages. If there is difference in credit ratings, then the parties can exchange their obligations (shorter can become long term and vice versa). The groups that are majorly involved in risk management combine their expertise with the findings of the investment and develop a good strategy that helps both the companies.

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