How Do Investment Banks Works? (#73)

What Are Investment Banks?

An Investment Bank is basically such an organisation that tends to work in partnership with various businesses & help'em fulfill their financial needs by being fully responsible for the Risks, involved in the process of collecting the capital.

*This entire definition will make a lot more sense by the end of this Blog!*

Okay! So, now let's straight up talk about what do they really do & how do this entire system works....

So here we go;

What Do Investment Banks Do & How Do They Work?

Let's get an overview of what really happens....

Well, now just think that there is a Company willing to raise funds, faster!

& so the Company can go to an Investment Bank & ask it to find investors for the Company.

& so, the Investment Bank will basically find a good Investor for the Company. & it'll ensure both of them that, the seller will sell & the buyer will buy ---- taking onto the risk & by being a part of the process.

& here you can clearly see that the Investment Bank is serving as a middle person // intermediary body between the buyer (investors) & the seller (the Company).

If any of'em fails then the Investment Bank will be responsible for the losses &'ll have to cover'em up.... As they took the risk!

This is also what we know as Underwriting....:

Underwriting basically means assuring the buyer that the seller will sell & also assuring the seller that the buyer will buy; whatever is being traded & if something goes wrong than an Investment Bank will take over that Risk!

Apart from finding Investors for Companies & making such Business Deals!

Investment Banks also plays a vital role in the "merger & acquisition" of the Businesses!

Merger means that 2 Businesses/Companies teaming up & Acquisition means that one business acquiring/buying another!

& so basically Investment Banks are the middle person!

I hope this makes some sense to you!

Moreover, to estimate the power Investment Banks really hold.... I'll recommend you to look back on to what caused the 2008 Crisis; I mean Investment Banks weren't the only one's that caused the Recession for real but yet they were involved in a pretty big way!

Lehman Brothers! ---- was the 4th largest Investment Bank in the U.S. at the time but it went bankrupt on 15th September 2008. This was the biggest Bankruptcy in history!

Read: What Caused The 2008 Crisis? What Really Happened? The Great Recession Cse Study! Here's Everything You Need To Know! Explained In Simple Terms!

Stay Tuned to read Lehman Brothers Case Study article!

Anyways, so I hope this article was helpful!

Thanks For Reading!

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