What is the role of investment banking in investment intermediaries?
Investment banks:
- These banks assist corporations or governments into the issue of new debt or equity securities. Investment banking comprises:
The underwriting, origination and placement of securities in main financial markets. The procedure of underwriting a stock or bond issue needs the investment bank to purchase whole issue at a predetermined price and then to resell this in the market. Then the investment bank bears the risk which they are not capable to resell the entire issue within which case this will hold the unsold stock onto its own balance sheet. In return for taking on such risk the investment company receives an underwriting fee by the issuing company.
- Financial advisory onto corporate finance activities (as like advising on acquisitions and mergers).
Classically, investment banks earn their income by fees charged to clients. Usually these fees are set as a fixed percentage of the size of the deal being worked.