But what really is investment banking? We are talking about a service business geared towards making deals. Investment banking does not produce goods or sell goods but despite that influences all the enterprises that are manufacturing and selling.
There are those who see investment banking as the axle that allows the wheels of trade to turn, an axle that cannot be replaced and the life source for companies and industries. Others think that investment banking is why use euphemisms a parasitical profession fed by the productivity of its clients.
The aim here is to set out the fundamental nature of investment banking and thus to determine what is its substantial value. We are looking for the significant value of investment banking and its weighty contribution. The term "investment banking" is used too freely, even within the financial community.
Investment banking by tradition was the equity underwriting of regular shares and bonds of investment ranked companies. However, the financial world has changed to a great extent and investment banking has expanded its area of activities accordingly. So here is a broader and more suitable definition, in my opinion.
All the functions of raising capital and corporate finance are included here, for example mergers and acquisitions, merchant banking, professional opinions regarding fairness, managing funds, managing venture capital, investments research, risk management and the like.
What is the fundamental base of investment banking? Investment banking ensures that the market will be ready and effective for the purchasing parties and for the selling parties; they operate as brokers, agents for the sellers and the buyers and receive a fee as dealers that set the bid and ask prices for every deal that they offer for trading as market makers.
Investment banking provides a service that both buyers and sellers very much want in that they assist each one of them in obtaining economic aims that it would be impossible to achieve with the same effectiveness through any other means. When the sellers and buyers of companies have a ready and liquid mergers and acquisitions market, there is more incentive to build companies, and more opportunities to plan effective strategies (for example growth through acquisitions is more practical).
By expanding financial markets throughout the world, investment bankers achieve greater efficiency in optimizing risks and solutions for both deals and for investors. The internationalization of financial markets also supports the globalization of deals, development of emerging nations, and the rise of new markets.
In order to evaluate the philosophy of investment banking, it is vital to understand the basis of this knowhow and appreciate it.
First rate investment bankers understand several business principles and certain specific fundamentals of industry. They analyze smart companies for example, analyzing the changing competitive structure in specific industries and they shrewdly grasp what enterprises require in order to succeed with their products and in their markets. They are experts in setting out the routine business requirements of the company, with the assistance of technical features of various financial tools, to define what should be the optimal structure of the financing offered, and to build that structure.
Investment banking is as much an art as it is a science and the insights arising from this outlook are as important to the same extent as the importance of technical analysis. The best investment bankers "know." They can spot a hot asset and the next big winner in the market. They also have a sensitive nose for negative things; they can swiftly sense a problem whether it is related to the product, the markets, the systems or the management. Commodities, dealers and market makers they have their own special sense about the world and markets; they have an instinctive feel and they rely on their intuition to the same extent as they rely on their analyses.
It is impossible to exaggerate the importance of working with people. For example, to evaluate the psychological subtleties of the deal making process has for the most part higher value than knowing the technical aspects of these deals.