Question

Provide an overview of Investment Banking (IB). In your answer, discuss the history of IB, the impact of the Great Recession on the industry, banks versus divisions and the principal businesses of investment banks.

Answer 1

Investment banks are specific financial institutions that provide customers with a variety of complicated financial and advisory services based on customer requirements. Through controlling their clients' funds and raising capital from the financial markets through the issue of asset-backed securities, vestment banks function and retain their liquidity. These are endorsed by investors on the basis of the instrument 's characteristics as marketed by the issuing investment bank.

No	Function	Description
1	Raising of capital	Capital raising from the public by the issue of both debt and equity securities s along with quasi equity securities
2	Advisory based services	Advisory services baesd on the valuation of mergers and acquisition and takeover activities
3	Lead manager	The appoint lead managers and book runner for sailing through an issue in the open market
4	IPO Valuation	Values the company assets and proves an actable price which would be attractive for the investors
5	Underwriting Services	Underwrites complex financial contacts and derivative instruments . Underwriting of complex MBS , CDOs and ABSs

Investment banks assist businesses to sustain the structure of capital, collect funds and maintain liquidity.

In order to perform all such activities these bans resort to a number of investment strategies to perform the financial business and meet their requirements of their clients.

If we look at the financial crisis of '07-08, it is not the sole greed that led to the failure of these banks, but rather a catastrophically dominant occurrence that led to the failure chain.

The housing market was booming a lot during the moment in late 07. People took loans from the banks to live in their dream house on comparatively longer payout terms. As such, by lending all this to the borrowers, the banks ran out of funds. Hence in order to restore the liquidity in the system, the investment banks helped them to isse a specialised category of asset class,

The (MBS) or mortgage-backed security that the investor has traded on the secondary market. In return for cash payments, investors were satisfied with the high-yielding asset-backed securities (ABS) they subscribed to. This guaranteed the liquidity in the scheme

Investment banks not only restricted their activities to this, they began bundling these MBS into a tranche like cluster known as (CDOs) or collateralized debt obligations and synthetic CDOs that were also sold to investors and promoted the commodity as a risk-free product because they were risk-free and physical mortgage-backed.

In collaboration with these investment banks, (CDS) or credit default swaps were also released and major insurance firms such as AIG were also involved in this play.