You may have heard of large companies going for mergers and acquisitions by buying most of a company’s shares. How do these companies know where and when to invest money? Corporate investment banking can help you with valuable advice before arriving at a decision of making any investment.
There are experts who can help you make an educated guess about a company’s potential, and guide you through the possible risks and benefits of a particular investment. Such services are called investment banking services, and they are generally offered by banks or financial companies. They play a crucial role in helping companies and organizations with their investment planning.
What is investment banking?
One of the most important areas of banking operation, investment banking is a kind of financial service that most banks offer to help companies or individuals raise capital. For this purpose, an investment bank plays an intermediary role in the deal between the prospective investors and security issuers.
Such banks may provide corporate investment banking services by selling securities on behalf of the issuing company or buying all the equity at a specific price and reselling them to companies, organizations, or individuals. Investment banks are renowned for providing services such as raising capital, advisory, and sales and trading services. Through these services, they help companies devise an investment plan, which includes the pricing of equity.
An investment bank offers various investment options based on its customers’ requirements and risk sophistication levels. Some of them to mention are:
Equities are also called stocks, which are one of the most sought-after investment products. When you buy stocks or shares, you acquire a share of ownership in a company. The price of a share depends on the performance of the company. You get returns on the stock you hold, and it depends on a company’s successful performance during the past years. Equities do not guarantee fixed returns and they are riskier if not traded at the right time.
- Exchange-traded funds (ETFs)
They are a collection of bonds and stocks traded through a stock exchange. They lack a fund manager, and hence, are passively managed.
- Credit derivatives
They are financial contracts that transfer the credit risk from one party to another without losing ownership in return for a payment. Credit derivatives are negotiable bilateral contracts, which are held privately. Traded over-the-counter (OTC), credit derivatives permit the creditor to transfer all or some of the defaulting debtor’s risk to the third party for a premium.
Some primary credit derivatives include credit default swaps, credit-linked notes or total return swaps, and repurchase agreements.
- Currency-linked investments
With a currency-linked investment, you get a dual currency combination of a time deposit with a currency option. Being a structured investment product, you have a chance to earn high returns depending on how you view the exchange rate movements and the risk involved. Currency-linked investments are customized to suit your preference of currency pairs, tenor, and strike rate. Despite the fact that FX is subjected to fluctuations, currency-linked investments have the potential to help you earn higher returns.
Corporate investment banking has gained a lot of significance these days. With different investment options, advisory services, and ongoing support, an investment bank can help you make the right financial decisions to earn maximum return on investments.