Role of investment bank in Money and Capital market

1. Role of investment bank in Money and Capital market

2. Definition Investment banking is a type of financial service that focuses on helping companies acquire funds and grow their portfolios. Much of this comes in the form of stock and bonds transfer Investment capital and wholesale corporate acquisitions are also part of the equation This includes underwriting, acting as an intermediary between an issuer of securities and the investing public Also acting as a broker for institutional clients.

3. Distinction Between Commercial and Investment Banking

4. Functions of investment bank • The role of the investment bank begins with pre-underwriting counseling and continues after the distribution of securities in the form of advice. • In the strictest definition, investment banking is the raising of funds, both in debt and equity, and the division handling this in an investment bank is often called the "Investment Banking Division" (IBD). • Investment banks are social institutions. They are custodians and trustees of the public’s money and promoting national interests.

5. Investment banking in general

6. The buy side is the side that buys stuff. On the other hand, the sell side of the business is selling stuff. • The buy side consists of institutions such as hedge funds, mutual funds, pension funds, and insurance firms that are buying large quantities of securities for money management purposes. Their goal is to make investments that align with investors’ expectations. • Sell side is selling research, advice and securities it created to the companies and investors. Investment banking falls in the category of the sell side.

7. investment bank in money market

8. Mutual funds • An investment vehicle that is made up of a pool of funds collected from many investors for the purpose of investing in securities such as stocks, bonds, money market instruments and similar assets

9. Mutual funds (cont.) • Mutual funds are operated by money managers, who invest the fund's capital and attempt to produce capital gains and income for the fund's investors. • A mutual fund's portfolio is structured and maintained to match the investment objectives stated in its prospectus

10. Hedge funds • An aggressively managed portfolio of investments that uses advanced investment strategies such as leveraged, long, short and derivative positions in both domestic and international markets with the goal of generating high returns.

11. Hedge fund (cont.) • Most hedge fund managers are highly specialized and trade only within their area of expertise and competitive advantage. • Most hedge funds are managed by experienced investment professionals who are generally disciplined and diligent. • Pension funds, insurance companies, private banks and high net worth individuals and families invest in hedge funds to minimize overall portfolio volatility and enhance returns. • In addition, hedge fund managers usually have their own money invested in their fund.

12. Euro dollars • A eurodollar is U.S. currency held in banks outside the U.S. (typically in Europe). • eurodollar market is relatively free of regulation • average eurodollar deposit is very large (in the millions) • maturity of less than 6-months.

13. Example • Let's assume XYZ Company moves $10 million from its Wells Fargo account in New York to a London interest rate bank. • XYZ Company receives a Eurodollar time-deposit certificate from the London bank. • The London account balance is in dollars, and any interest earned on the account accrues in dollars as well. The London bank may use the funds to make loans, perhaps in the United States. Most Eurodollar deposits pay interest and have fixed maturities (since they are time deposits).

14. Repo • A form of short-term borrowing for dealers in government securities. The dealer sells the government securities to investors, usually on an overnight basis, and buys them back the following day. • very short-term, from overnight to 30 days or more. • For the party selling the security (and agreeing to repurchase it in the future) it is a repo; for the party on the other end of the transaction, (buying the security and agreeing to sell in the future) it is a reverse repurchase agreement.

15. Commercial paper • An unsecured, short-term debt instrument issued by a corporation, typically for the financing of accounts receivable, inventories and meeting short-term liabilities. • Maturities on commercial paper rarely range any longer than 270 days.

16. Certificate of deposits(CD’s) • A certificate of deposit is a promissory note issued by a bank. It is a time deposit that restricts holders from withdrawing funds on demand. • Specific maturity date (from three months to five years) • A specified interest rate. • The main advantage of CDs is their relative safety and the ability to know your return ahead of time.

17. Treasury bills • Treasury Bills (T-bills) are the most marketable money market security. • T-bills are short-term securities that mature in one year or less from their issue date. They are issued with three-month, six-month and one-year maturities. • T-bills can be taken up by bidding in auction or through the secondary market.

18. Investment bank in capital market

19. Stocks • A type of security that signifies ownership in a corporation and represents a claim on part of the corporation's assets and earnings. There are two main types of stock: • common stocks • Preferred stocks

20. Common stock usually entitles the owner to vote at shareholders' meetings and to receive dividends. • Preferred stock generally does not have voting rights, but has a higher claim on assets and earnings than the common shares. • For example, owners of preferred stock receive dividends before common shareholders and have preference in the event that a company goes bankrupt and is liquidated.

21. Bonds • A debt instrument issued for a specific period with the purpose of raising capital by borrowing. • Bonds are used by companies, municipalities, states and U.S. and foreign governments to finance a variety of projects and activities. • Interest on bonds is usually paid every 6-months (semi-annually). • Bonds are commonly referred to as fixed-income securities and are one of the three main asset classes, along with stocks and cash equivalents.

22. Foreign exchange • Foreign exchange, or Forex, is the conversion of one country's currency into that of another. • The whole process gets done by a network of various financial institutions like banks, investors and governments. The exchange rate varies according to the value of each country’s currency which is based on the health of that particular country’s economy.

23. Debentures • A type of debt instrument that is not secured by physical assets or collateral. • Debentures are backed only by the general credit worthiness and reputation of the issuer. • Debenture holders (investors) do not have any rights to vote in the company's general meetings.

24. Organizational Structure of an Investment Bank

26. Front office • A front office is a designation that describes an area of a business where clients and company personnel interact. • Front offices are typically called so because they are at the front or entrance of a business, giving customers easy access to office workers. • sometimes also called Front line which is visible for the clients and in direct contact with them, such as the marketing, user support, or after-sales service teams

27. Functions of front office • In addition to being a contact point for clients, this area may also serve as the main hub of communication for the entire company. Office workers often serve secretarial functions, and may be in charge of taking messages, handling orders, and relaying information to different departments. • Depending on the size and function of the business, the front office can serve as a jack of all trades. Workers in this area may handle daily mail sorting and distribution, provide copy and fax services to other departments, work directly with clients, and perform data entry duties

28. Back Office • Back Office refers to all parts of the information system to which the final user does not have access. • The back office provides administrative and support services. • The term therefore covers all internal processes within the enterprise.

29. Functions of back office They carry out functions like • settlements • clearances • record maintenance • accounting • production • logistics • warehousing • sales • accounting • human resources management etc

31. Middle office • A section of a financial services company that deals with • Accounting • Risk management. • Helps the front office determine what projects to conduct or clients with whom they will work. • Sometimes the middle office handles information technology as well. • The middle office uses resources from both the front office and back office in the accomplishment of its tasks.

32. Middle office

33. Functions of middle office Risk management : • analyze the market and credit risk • setting limits on the amount of capital in order to prevent "bad" trades Corporate treasury: responsible for an investment bank's: • funding • capital structure management Financial control •  tracks and analyzes the capital flows of the firm Corporate strategy: • treasury and controllers, also often falls under the finance division.

34. Distinction among front ,middle and back office • A financial services company is logically broken up into three parts: • The front office includes sales personnel and corporate finance. • The middle office manages risk and IT resources. • The back office provides administrative and support services.

35. Duties and functions of investment banks

36. Duties and functions of investment banks

37. What is Book Building? • The process by which an underwriter attempts to determine at what price to offer an IPO based on demand from institutional investors. • An underwriter "builds a book" by accepting orders from fund managers indicating the number of shares they desire and the price they are willing to pay.

38. Services provided by IB

39. Serviced provided by an IB

40. Raising capital • Investment banks enable issuers to raise capital (i.e., enterprises that sell or “issue” securities for cash) and investors to place capital (i.e., individuals or institutions that buy or invest in those securities) in the most reasonably efficient manner for both: the lowest overall cost of capital for issuers and the highest ratio of return-to-risk for investors.

41. Brokerage services • trading and order executions on behalf of the investors. • provides liquidity to the market. • assist in the purchase and sale of stocks, bonds, and mutual funds. • Investment banks may differ from brokerages in general assist in the purchase and sale of stocks, bonds, and mutual funds.

42. Propriety trading • When a bank, brokerage or other financial institution trades on its own account rather than on behalf of a customer. • Essentially, the firm decides to profit from the market rather than from commissions from processing trades. • have a competitive advantage that will enable them to earn excess returns.

43. Research activities • reviews companies • writes reports about their prospects, often with “buy” or “sell” ratings. • highly regulated

44. Sales & trading • Sales is the term for the investment banks are often the most profitable area. • It is responsible for the majority of revenue of most investment banks.

45. Underwriter • The process by which investment bankers raise investment capital from investors on behalf of corporations and governments that are issuing securities (both equity and debt). • This word came from practice of having each risk-taker write his or her name under the total amount of risk that he or she was willing to accept at a specified premium. • In a way, as new issues are usually brought to market by an underwriting syndicate in which each firm takes the responsibility (and risk) of selling its specific allotment.

46. Concerned Institutions • SECP • Brokerage houses • FDI ( Foreign direct Investment)

47. List of IBs • Atlas Investment Bank Limited • Crescent Investment Bank Limited • Franklin Investment Bank Limited • Jehangir Siddiqui Investment Bank Ltd • Trust Investment Bank Limited • Asset Investment Bank Limited