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
Margin Trading: Suppose an investor wants to buy 100 Reliance Energy shares, whose market price is Rs.500. This transaction requires Rs.50,000 but the investor has only Rs.30,0

Long- T er m Debt Long-term debt is a debt obligation that has a maturity from the date the obligation was incurred of more than one year. The debt obligation com

Saven Travel Corporation is considering several investment opportunities in order to diversify its operations. Mr. Saven, president, is trying to determine the firm''''s cost of ca

The first step in valuation process is to estimate the cash flows that are expected to be received in the future. In debt securities, there are two types of possi


How does accounts receivable factoring work?  What are the benefits to the two parties involved?  What are the risks? Factoring is when one firm trade accounts receivable (AR)

Explain and compare the costs of hedging via the forward contract and the options contract. Answer: There is no up-front cost of hedging through forward contracts. Though, in t

nd held it until it matured, what annual rate of return would she have earned? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16

Consumer Advisory Panel (CAP) of ASIC It was established in 1998. Its role is to advise ASIC on current consumer protection issues and give feedback on ASIC policies and activi

T = 520O per week. L=60000. Standard deviation = 7500 R =0.0004.F =50.Find the optimal average cash balance base don the miller orr model