Role of Investment banker

Essay by nadia786 May 2011

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The Role of Investment Bankers

Investment bankers play a significant role in the economic life of a country. These institutions promote investment opportunities and cause high level funds float in the market. There are more chances of economic growth to large extent. Investment bankers provide chances of earning to investors as well as general public. The dynamic competition among broker-dealers is most apparent in investment banking. Market areas of enormous profitability are developed by the large full-line and investment-banking firms. In the areas of mergers and acquisitions, mortgage- and asset-backed securities, and junk or high-yield bonds, these dominant firms quickly captured and fortified large market share positions. As far as the role of investment banker is concerned, it encompasses three major activities: origination, risk bearing, and distribution.

Origination requires decisions about the type (e.g., debt, equity), quantity, price, timing, and other features of the new securities issue and the determination of the method of distribution.

Risk bearing comes into play when the issue is a firm-commitment offering, in which the underwriter buys the securities from the issuer at a fixed price and resells them to the public. It is by far the most common form of underwriting. If the price of the securities falls before they can be resold, the underwriter will suffer a loss, thus the risk associated with this activity.

Occasionally, underwriters suffer substantial losses due to abrupt declines in some underwritten offerings. The investment bankers have been the subject of more industry analysis than has the overall broker-dealer industry. Pugel and White ( 210-14) studied the investment-banking industry using the structure-conduct-performance paradigm in a consideration of allowing commercial bank affiliates to underwrite corporate securities. Rogowski and Sorensen

(P.515) considered the impact of shelf registration on the structure and performance of the investment-banking industry.

Investment banking...