Investment Banking and Capital Markets Fundamentals
What Is Investment Banking?
In simple terms, Investment banking is term given to the raising of funds, both in the form of debt and as equity, facilitating mergers and acquisitions and supporting the sale of securities. Governments and companies hire banks to help them issue securities to investors.
Investment banks typically assist in structuring the issue, finding potential investors, and usually by itself or with other banks participates in underwriting or guaranteeing the issue. These (Investment) Banks also help advise companies on other major corporate financial transactions, including mergers with (and acquisitions of) other companies. Investment banks also buy and sell securities on behalf of their clients in various sectors and different market jurisdictions.
Some of the concepts related to Investment Banking and Capital Markets include;
-Bond Markets - (Introduction, Issuing and Trading)
-Equity Trading -Equity Derivatives
-Financial Markets -Credit Derivatives
-Commodities (Introduction) -Life of a trade
-Counterparty Credit Risk, e.tc.
During my learning on these areas of Investment Banking and Capital Markets, I was able to better understand key concepts regarding equity and bond markets, including the dynamics of these markets and who are the key participants and also some of the regulations governing their operations as well as the practical aspects of trading in these financial assets (e.g. auction types, settlement methods, spreads, etc.).
Furthermore, the courses equally gave me valuable insights into areas such as;
-Derivatives and how they are valued (including some of the risks involved), Equity stocks and the different equity transaction types that occur across different market jurisdictions (Europe, US, Canada), commodities trading (the different types of commodities traded in the international market, how these trading occur, settlement types and dates, etc) as well as an Introduction to Counter-Party credit risk.
Another area of knowledge i find very interesting and insightful through the learning was the course on "Business of Investment Banking". this course gave me the necessary fundamental understanding of Investment Banking by enlightening me on the key players/stakeholders, different types of transaction and settlement methods, the basic risks involved in this type of banking amongst other things. Unlike commercial banks and retail banks, investment banks do not take deposits. Their activities are classified as front office, middle office, and back office.
Generally, all investment banking activity is classed as either "sell side" or "buy side". The "sell side" involves trading securities for cash or for other securities (e.g. facilitating transactions, market-making), or the promotion of securities (e.g. underwriting, research, etc.). The "buy side" involves the provision of advice to institutions that buy investment services. Private equity funds, mutual funds, life insurance companies, unit trusts, and hedge funds are the most common types of buy-side entities
With regards to Capital Markets, these are places where savings and investments are channeled between the investors who have capital and those who need the capital (companies, government entities, organizations, etc.). These investors typically includes retail and institutional investors.
Broadly speaking, Capital markets comprises primary and secondary markets. Globally, the most common capital markets are the stock market and the bond markets.
During my learning on these areas of Investment Banking and Capital Markets, I was able to better understand key concepts regarding equity and bond markets, including the dynamics of these markets and who are the key participants and also some of the regulations governing their operations as well as the practical aspects of trading in these financial assets (e.g. auction types, settlement methods, spreads, etc.).
Furthermore, the courses equally gave me valuable insights into areas such as;
-Derivatives and how they are valued (including some of the risks involved), Equity stocks and the different equity transaction types that occur across different market jurisdictions (Europe, US, Canada), commodities trading (the different types of commodities traded in the international market, how these trading occur, settlement types and dates, etc) as well as an Introduction to Counter-Party credit risk.
Another area of knowledge i find very interesting and insightful through the learning was the course on "Business of Investment Banking". this course gave me the necessary fundamental understanding of Investment Banking by enlightening me on the key players/stakeholders, different types of transaction and settlement methods, the basic risks involved in this type of banking amongst other things. Unlike commercial banks and retail banks, investment banks do not take deposits. Their activities are classified as front office, middle office, and back office.
Generally, all investment banking activity is classed as either "sell side" or "buy side". The "sell side" involves trading securities for cash or for other securities (e.g. facilitating transactions, market-making), or the promotion of securities (e.g. underwriting, research, etc.). The "buy side" involves the provision of advice to institutions that buy investment services. Private equity funds, mutual funds, life insurance companies, unit trusts, and hedge funds are the most common types of buy-side entities
With regards to Capital Markets, these are places where savings and investments are channeled between the investors who have capital and those who need the capital (companies, government entities, organizations, etc.). These investors typically includes retail and institutional investors.
Broadly speaking, Capital markets comprises primary and secondary markets. Globally, the most common capital markets are the stock market and the bond markets.
What Are The Financial Instruments In Capital Market?
Some common financial Instruments used in a Capital Markets include;
1. Securities
'Securities' is a general term for a stock exchange investment. Securities are generally classified into ownership securities and creditor-ship securities. Equity shares and preference shares are ownership securities. They are also known as capital stock. Creditor-ship securities are bonds, debentures etc. They are referred to as debt capital.
2. Equity Shares
Equity Shares are the ordinary shares of a limited company. It is an instrument, a contract, which guarantees a residual interest in the assets of an enterprise after deducting all its liabilities- including dividends on preference shares.
3. Debentures
Debentures are instruments under seal evidencing debt. The essence of debenture is admission of indebtedness. It is a debt instrument issued by a company with a promise to pay interest and repay the principal on maturity.
4. Bonds
Bonds are debt instruments that are issued by companies/governments to raise funds for financing their capital requirements. By purchasing a bond, an investor lends money for a fixed period of time at a predetermined interest (coupon) rate. Bonds have a fixed face value, which is the amount to be returned to the investor upon maturity of the bond.
Conclusion
I have been able to gain knowledge and valuable insights into this key aspect of Capital markets vs investment banking and I intend to keep applying the knowledge gained in all my engagements moving forwards.
