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INTERNATIONAL INVESTMENT BANKING (Introduction (Emerged in the early 16th…
INTERNATIONAL INVESTMENT BANKING
Introduction
Emerged in the early 16th century
18th century - emerged in Usa during american civil war
19th and 20th - Prominent banking partnerships and dramatic expansion on investment banking
Investment banking operational systems
Middle office
Related to risk management issues
Focuses on identifying and managing the level of risk that the company assumes in order to do business
Working together with front office to identify the risk of doing business with certain clients
They relies heavily on data collected by the back office in terms of risks, profits and losses
Other functions : risk management, corporate treasury, compliance and financial control
Back office
Consists of Operational department and Information technology
Underwrite new issues
The activity of providing long term equity and debt finance for corporations and governments
Company raise fund by selling common stock to the public for the first time
Includes both basic securities like equity and bond issues and hybrids
Trading securities and risk arbitrage
Investment bank serves as a securities broker and dealer in the secondary market
Act as a broker who make arrangements to help buyer and sellers complete a business transactions
Service is include recommendation of security and helping the client to obtain margin credit on the collateral of securities
They also manages mutual funds
New product development
Many hybrid products have been introduced in order to meet the needs and wants of the muslim and non muslim
Creativity and innovation activities create to stabilize the financial market imperfections
Trend in investment banking which is more on creativity and innovation of new products
Provide advice
Offered a cooperate restructuring exercises rearrange a company gearing
Offers independent evaluation on corporation transactions
Front office
The most prestigious and highest paid department in that particular bank
They helps customers to raise funds in the capital market, identify potential partners
Two main areas which include investment banks and markets
Functions
Support services
Also act as intermediaries in trading for clients
Primarily serve as intermediaries between corporations that want to attract investment capital and investors wanting to invest capital
Involves clearing, internal finance and information services
Revenue generating activities
Financial engineering
Advisory services
Corporate restructuring
Investment management
Trading
Venture capital
Secondary market making
Consulting
Primary market making
Features
Manage the buying and selling of stocks, bonds and other financial instruments for their own portfolio and on behalf of clients
Bundling of assets to sell in the secondary market
Bringing initial public offering (IPO) to the market
Differences
Investments bank
Have a few hundred core customers
Provider of a very custom-made tailored service
Not loan provider
Not a transactional day-to-day service provider
No deposits
Commercial bank
May have millions of customers
Provider of a very standardized service
Loan provider
A transactional day-to-day service provider
Need deposits