Moyses Levy - Investment Banking Types

 When you talk about investment and investment banking, the first thing that would come to your mind is business management and finance. An investment is something that you place in a bank or venture in the hopes of either saving the money or letting it grow. It is usually for the latter reason that individuals and organizations transact investments. To understand investment banking, first, we have to understand its roots. The term "invest" comes from the term "vestis," which is Latin for "garment" and was used to denote the act of putting resources into another one's pockets. Like the Latin term, the investor puts the assets into another entity's pocket; the latter is where the investment banks come in.

Basically, investment banking involves the client purchasing assets from the investment bank. The client expects that the purchased asset capital will gain dividends and grow. In effect, the investor did not work on anything other than making the initial purchase.

 

Generally, a bank is a financial institution. It is usually concerned with being the middle entity from which the client can transact business. The client places the money in the different forms of banking services and gains some interest out of this input. The bank, in turn, invests the client's money into business ventures or allows the clients to borrow money for interest in order to grow the initial cash investment. On the other hand, investment banking is a specific type of banking, which is transactions related and limited to the financial market. This type of banking is concerned with investments as a whole.

 

Investment banks come in two types. The basic investment bank issues stocks and bonds to the clients for a pre-specified amount. The bank then invests the money that the client used to purchase the stocks and bonds. These investments differ among banks. In countries where it is allowed to do so, investment banks have their networks of financial and lending institutions from which they profit. Others also invest in property development and construction. The client with the stocks and bonds would then receive payments from the profits made on his money on a specified period of time. It can be justified that both the client and the investment bank profited from the client's initial investment. Because these banks know the ins and outs of their trade, it is not unusual that small or large business ventures and corporations seek their help on matters regarding mergers, acquisitions, and other corporate activities.

 

The second type of investment banks is the merchant bank. These banks are involved in trade financing and providing capital to business ventures not in terms of loans but of shares. Because these investment banks are based on security of the shares, they finance only those ventures that have made their mark in the business world. New merchant companies are usually not financed.

 

However, versatility is necessary in business. Therefore, a lot of banks have evolved to encompass all aspects of banking to cater to the needs of a wide range of customers. These banks offer savings deposits and loans services to regular customers and, at the same time, offer investments to the financially advanced ones.