2.

INVESTMENT BANKS
 Introduction to Investment
intermediaries: investment banks
➢ Unlike a commercial bank, which makes loans to individuals and businesses and holds their money in
deposit accounts, an investment bank acts as an intermediary, underwriter, lender and consultant.

➢ Investment banks focus mainly on the needs and interests of businesses and governments: an investment
bank normally handles large, complex transactions such as mergers and acquisitions, initial public offerings or
financing of major infrastructure projects. They frequently play an advisory role, helping companies and
government entities determine the financial risk of large projects before they undertake them.
 Introduction to Investment
intermediaries: investment banks
Main activities:
➢ Underwriting Stocks and Bonds. The process of underwriting a stock or bond issue requires that the
securities firm purchase the entire issue at a predetermined price and then resell it in the market.
▪ Giving Advice Firms
▪ Filing Documents
▪ Underwriting

➢ Equity Sales. Another service offered by investment banks is to help with the sale of companies or
corporate divisions.
➢ Merger and Acquisition (M&A): Investment banks are active in the mergers and acquisitions market
by serving both acquirers and target firms.
 2. INTRODUCTION TO
FINANCIAL INTERMEDIARIES:
INVESTMENT INTERMEDIARIES
 Introduction to Investment
intermediaries: mutual funds
Mutual funds pool the resources of many small investors by selling them shares in the fund and using the
proceeds to buy securities.
Introduction to Investment intermediaries:
mutual funds In short:
Mutual funds allow small investors to obtain the benefits of lower
transaction costs in purchasing securities and to take advantage of a
reduction
BENEFIT OF MUTUAL FUNDS in risk by diversifying their portfolios.

There are five principal benefits that attract investors to mutual funds:
1. Liquidity intermediation: Mutual fund investors can easily redeem their shares at any time, for the
current net asset value (NAV) plus any redemption fees.
2. Denomination intermediation: allows small investors access to securities they would be unable to
purchase without the mutual fund.
3. Diversification: or “Don’t put all your eggs in one basket.” Mutual funds typically invest in a range of
companies and industries. This helps to lower your risk if one company fails.
4. Cost advantages: Most mutual funds set a relatively low dollar amount for initial investment and
subsequent purchases (affordability).
5. Managerial expertise: The fund managers do the research for you. They select the securities and monitor
the performance.