Question

4. What are the key activity areas for securities firms? How does each activity

area assist in the generation of profits and what are the major risks for each

area?

Answer 1

There are many key areas of securities firm which are as follows:

1. Investment Banking: Investment banks perform underwriting and distributing of debt and equity securites, they also do road show for selling these financial instruments for the IPO.

They generate profit by charging fees for placing these securities to the other investors.

They are facing risk of placing the issue.

2. Market making: being the counterparty for seller and buyer.

They generate profit by selling and buying to the investors as a transaction fee.

They carry dowside risk of these securities if price fall or rise very rapidly in volatile market.

3. Merger & Aquisition: Close deal related to merger and aquisition for the clients.

they make huge money trasaction get successful.

they are risk since it involve huge money, and deal can't be close after due diligence.

4. Investing: perform investing for individual investors.

Take fee for investing services.

5. Trading: It is performed for the customer or firm.

Securities firm charge fee from customer.

the potential risk involves the movements of the asset prices