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
Accounting Framework - Convention of Materiality Materiality means relative significance. In other words whether a matter should be disclosed or not in the financial statement

QUESTION i) Discuss the Modigliani-Miller irrelevancy theorem for corporate capital structure. What assumptions underline the theorem? ii) What are the implications when the

what is the cost of capital and advantages of it?

Setting Budget Goals and Objectives: Having collected and analysed all relevant information, and made general forecasts as to the key areas of concern / opportunity and special

Using a spreadsheet program or a calculator, solve Tracy’s problem of how often to go to the ATM when the nominal interest rate on her bank account is 10 percent, she spends $30 ea

Q. Explain about Modern Approach of financial management? The modern approach considers the term financial management in a broad sense. According to this approach the finance f

Q. Cost of Holding Inventories? The holding of inventories engages blocking of a firm's funds. The various risks as well as costs in holding inventories are as below: (1) Ca

A credit spread refers to the difference in interest rate between a corporate bond and a comparable maturity government bond. Suppose interest rate on a five-year

The net income of Novis Corporation is $45,000.  The company has 20,000 outstanding shares and a 100 percent payout policy.  The expected value of the firm one year from now is $1,

A factoring company has offered a one-year agreement with Glub Ltd to both manage its debtors and advanced 80 per cent of the value of all its invoices immediately a sale is invoi