Explain investment banks and securities firms, Financial Management

Investment banks and securities firms

Investment banks support corporations or governments in the issue of new debt or equity securities. Investment banking comprises

  • The underwriting, origination and placement of securities in primary financial markets that the primary and secondary markets are discussed later in this section. The method of underwriting a stock or else bond issue needs the investment bank to purchase the entire issue at a predetermined price and then to resell it in the market. The investment bank followed by it bears the risk that they aren't able to resell the entire issue in which case it will hold the unsold stock on its own balance sheet. In pay back for taking on this risk the investment company receives an underwriting fee from the issuing company.
  • Monetary advisory on corporate finance activities such like advising on mergers and acquisitions. In general investment banks gross their income from fees charged to clients.These fees are typically set as a fixed percentage of the size of the deal being worked.

A securities firm helps in the trading of existing securities in the secondary markets. There are two major categories of securities firms that are

  • Brokers are the agents of investors who match buyers with sellers of securities. They make a commission for their service;
  • Dealers are the agents who link buyers and sellers by buying and selling securities. They embrace inventories of securities and sell these securities for a slightly higher price than they paid for them. They consequently make the bid-ask spread the difference between the best asks lowest price charged for immediate purchase of stock as well as the best bid highest price received for an immediate sale of a unit of stock.

The major service obtainable by brokers is securities orders. Orders are trade instructions indicate what traders want to trade whether to buy or sell and how much and when and how to trade and on what terms. Traders issue orders when they can't personally negotiate their trades. There are two major types of orders market orders and limit orders. Market orders are instructions to trade at the best price at present available in the market.

Posted Date: 7/8/2013 2:07:53 AM | Location : United States







Related Discussions:- Explain investment banks and securities firms, Assignment Help, Ask Question on Explain investment banks and securities firms, Get Answer, Expert's Help, Explain investment banks and securities firms Discussions

Write discussion on Explain investment banks and securities firms
Your posts are moderated
Related Questions
Bond valuation would be relatively simple if interest rates exhibit little day-to-day volatility. One could value a bond by discounting each of its cash flows at

CORPORATE GOVERNANCE Corporate governance can be stated in different ways, for example: The Private Sector Corporate Governance Trust (PSCGT) defines that corporate governan

QUESTION (a) (i) Describe briefly two potential E-Banking risks that may have an adverse impact on banks. (ii) Outline some measures to control these two risks. (b) Outli

WORKING CAPITAL MANAGEMENT Working capital relates to the capital required for daily operations of a business enterprise.  The requirement for Working Capital is omnipresent fo

Illustrate the steps of Creative accounting Creative accounting include: 1 Timing of transactions. Delaying or hurrying up the despatch of invoices at the yearend to decr

What are the pros and cons of commercial paper relative to bank loans for a company seeking short-term financing? Commercial paper is generally a cheaper source of short-term fin

Need to Widen and Deepen the Government Securities Market The importance of the Government Securities markets can be evaluated from three angles as follows: From the Gove

Specialized Stock Indexes The most regularly quoted market indices are those that include the stocks of the largest listed companies on a nation's largest stock exchange. Examp

Operating Leverage Operating leverage define the degree to which an organization cost of operation is fixed as opposed to variable. Therefore, it is a measure of how much a fir

Operating Budget It is a collection or set of formal financial documents that details expected expenses and revenues, as like all other expected operating and financial transac