Question

Discuss how investment banks operate, how they function in our financial system, and how they earn money and the importance of investment bank’s reputation to its survival.

Answer 1

Investment banks are specialized financial institiutiions that proves variet od complex financial and advisiory services for the clients based on the customized requirement of the clients . In vestment banks operate and maintain their liquidity by managing their clients assets and raising capital from the financial markets through the issue of asset backed securities . These are subscribed by the investors based on the features of the instrument as marketed by the issuing investment bank

Part II

No	Function	Description
1	Capital Raising services	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	Acting as lead manager	The appoint lead managers and book runner for sailing through an issue in the open market
4	IPO Valuation Services	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

PART III

Reputation of the investment banks are the key for the survival of the company

· The valuation of the company are trusted by the public solely on the basis of the trust and reputation of the investment bank offering the analysis

· Investors gets confidence in investing in a comapay when the capital raising services of the company are managed by prominent investment banks

· As seen from the global fin crisis of ’08 it was the failure of the investment banks confidence and reputation that ultimately led to the collapse of the global financial system

Thanks .