Question

What is the meaning of investment banking and its impact on the economy?

Answer 1

Investment banking -

An investment bank is nothing but a financial intermediary. The main functions is that it acts as a mediator to issuer and investor of securities. It mainly underwrites the securities of equity and sell it to potential investors who were willing to invest. Generally they help in a successful IPO.

Let me give you an example -

Inorder to do business a company need money but they do not know who were the potential investors . Hence what investment banks does is that they underwrite the equity issue and find the investors for the company . This is not the only function what investment banks do they also give advisory services , Business expansion plans, diversification, acquisitions and mergers etc

Some examples -Goldman Sachs , Bank of America , J P morgan, Morgan Stanley, Citi etc

Investment banks help the economy by the following ways-

- Additing liquidy to market

- Promte capital investment

- Promote foreign direct investment

- Helps overcome financial crisis

- Help in risk management

- Allocation of funds in high return securities