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What Is Investment Banking?

Investment banking is a particular field of banking that is responsible for helping companies in getting funds. Aside from the function of getting funds for clients, another function of investment banking is to give advice to a company regarding various kinds of transactions and agreements the company will get into.

By tradition, banks usually had two main areas of business – commercial banking and investment banking. Commercial banking is the function that most people know about. Here, the bank collects deposits from different clients and also gives out loans to various individuals and businesses. Up until 1999, it was illegal in the United States for a bank to conduct business in both commercial banking and investment banking. This has been repealed with the passing of the Gramm-Leach-Bliley Act.

In investment banking, a bank accumulates funds either by drawing on the public funds through the capital market by selling stocks. They can also accumulate funds by looking out for various venture capital or private equity but in exchange for this, they will ask for a stake in the company.

A bank or institution that deals in investment banking also offers consulting services. The institution’s investment bankers are hired and in order to impart their wisdom on investments and banking and give advice to companies who are in the midst of various business and investment related activities like mergers and acquisitions. They are also constantly tracking the market so that they can give the correct advice on when to make a public offering and how to manage various business assets effectively.

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