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What is an Investment Bank?

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  • Written By: Mary McMahon
  • Edited By: Bronwyn Harris
  • Last Modified Date: 23 August 2016
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An investment bank is a financial firm which specializes in the sale and management of securities such as stocks and bonds, rather than just handling cash funds like a traditional bank. Investment banks and traditional banks are separated financially because they handle different type of economic transactions, and in the United States are legally separated by the Banking Act of 1933, which was designed to increase economic stability during the Great Depression. Most investment banks handle securities from multiple nations, and are used by governments, individuals, and institutions.

Many companies make use of the services of investment banks to handle their securities. For example, if a privately held company decides to sell public stocks, it will sell all of its stock to an investment bank, which will in turn offer the stocks for sale to the public. Usually, multiple investment banks will cooperate on the issue of new stocks, to make the venture less risky for all involved. Many investment banks also combine brokerage services, so that individuals interested in investing can consult with staff at the investment bank to make sound investments which will make solid returns.

Many institutions take advantage of the brokerage service provided by an investment bank as well. Educational institutions and nonprofits will allow the knowledgeable staff at an investment bank to manage their assets, so that they can concentrate on delivering services. When well managed, these assets will support the services of the institution and allow improvement.

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Corporations will often turn to an investment bank to help raise capital, as is the case with stock sales. In addition, investment banks can assist with mergers and acquisitions, making the process much smoother for all involved and ensuring that all legal requirements are followed. Most also maintain extensive records on the credit and financial viability of their corporate clients, so that they can make calculated decisions which reduce the amount of risk involved.

By spreading investments and securities management globally, an investment bank ensures a wide coverage of multiple financial markets. Staff analysts specialize in particular economic regions and provide investment advice based on their education and experience which is intended to enhance profits for the parent company and its clients. By managing investments sensibly and taking calculated risks, an investment bank can flourish in the global market.

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