Investment banking is the area of a bank or financial institution that provides underwriting (capital raising) and mergers and acquisitions (M&A) advice services to governments, businesses, and institutions. They serve as a bridge between firms and investors that have funds to invest (who require capital to grow and run their businesses).

Investment banks deal with the selling of securities, mergers, and acquisitions, reorganizations, and broker transactions for both institutions and individual investors. They also underwrite new debt and equity securities for all kinds of firms. And, provide issuers advice on stock issuance and placement.

The largest include Goldman Sachs, Morgan Stanley, JPMorgan Chase, Bank of America Merrill Lynch, and Deutsche Bank. Numerous significant investment banking systems are subsidiaries or affiliates of bigger financial organizations.

Service offered:

• Capital raising and underwriting organizations work with businesses looking to raise capital or go public through the IPO process. The primary market, or “new capital,” is served by this function.
• Business advisory jobs in mergers and acquisitions (M&A) that oversee the transaction from beginning to end.
• Matching buyers and sellers of securities in the secondary market is known as sales and trading. Investment banking sales and trading units might trade the company’s own money as well as operate as agents for customers.
• The research, or “coverage,” of securities conducted by the equity research group supports stock trading and assists investors in making investment decisions.
• Managing assets across a wide range of investment types for a diverse group of clients, including institutions and individual investors.

Why Investment Banking?

Typically, the prestige and earnings potential of this line of employment attracts a lot of young millennials, but it shouldn’t be the major driver of their desire. Investment banking often requires a practical attitude and the ability to think creatively and beyond the box. The following are some valid justifications for considering investment banking as a career:

• You’re curious about the abilities you’ll develop as an investment banking analyst, including financial modeling and Excel.
• Secondly, you’re interested in finding out more information about high-profile transactions, financial markets, and business financial choices.
• You work long hours and thrive in a fast-paced atmosphere.

The career path of an Investment Banker

Careers in investment banking assist their clients in raising money on the capital markets by selling shares in their companies or issuing debt. Investment bankers are employed by organizations and oversee the underwriting of new debt and equity securities for all types of businesses. They also assist in the selling of securities, mergers, and acquisitions, reorganizations, and broker transactions for both institutional and individual investors. Working in investment banking involves counseling customers on novel investment opportunities like derivatives and helping them with mergers and acquisitions.

Furthermore, investment bankers provide a range of services to potential clients. In certain organizations, investment bankers have a variety of responsibilities, whereas, in others, staff members are specialized, with individual bankers handling distinct tasks.

Working areas of an Investment Banker

1. Manage relations

One’s job as an investment banker requires them to call and write to past-due clients. Investment bankers are also in charge of managing the department that handles corporate financial collections. To ensure that all funds owing to the company are billed and paid accurately and on time, an investment banker oversees workers. Investment bankers may be employed by other kinds of firms to collect payments, although they are often obliged to work for investing corporations or collection agencies.

2. Supervision

Although the sort of organization an investment banker works for will affect their specific responsibilities, there are a few key tasks that all investment bankers must complete. In addition to managing a team of collection agents and preventing financial losses, an investment banker’s duties also include reporting on the status and statistics of the fund and investment department on a regular basis.

3. Sales work

Sales growth, entry into new international markets, better financing terms, a decrease in bad debt reserves, actionable economic knowledge, protection against non-payment and catastrophic loss, an increase in sales and profits, and improved lender relationships are just a few of the responsibilities of investment managers.

4. Tax planning

Planning for taxes may take many different shapes. Investment bankers frequently assist businesses and individuals in addressing specific tax challenges and identifying workable solutions to optimise potential tax returns and reduce tax liability. Individuals can get assistance from a variety of investment advisors with their tax return preparation.

5. Manage files

The investment file is a customer-owned record that contains information on a creditor’s borrowing and repayment history. The information in the file affects a customer’s investment score. Investment bankers are expected to oversee the investment files in order to monitor the financial reports of their clients.

6. Investment Planning

Investment bankers are in charge of managing the assets of various businesses and assisting them with their investment portfolios by outlining how and in which kinds of investments one should be investing.

Education requirement: 

• As with the majority of financial jobs, investment banking is simpler to break into if you establish a foundation of financial knowledge during your formal schooling and early work. 
• Typical resumes for investment bankers will list prior experience in trading, financial management, financial counseling, or general business consulting. 
• Undergraduate and graduate degrees in business administration, finance, commerce, economics, or a quantitative subject like statistics are frequently sought after by investment banks. 
• It is not difficult for people with different backgrounds to move into a profession in investment banking. But it is crucial to be able to demonstrate both strong quantitative reasoning and convincing communication abilities.

Investment Banker: Various Job roles

1. Financial Planner: 

• A financial planner is a professional with training in investments and finance who works with businesses and people to achieve their long-term financial objectives.
• A financial planner determines an appropriate class of assets for clients after discussing with them their goals, risk tolerance, and phases of life or business.
• To assist people in achieving their financial goals, the financial planner collaborates closely with both individuals and businesses.
• They considers a number of things, including tax preparation, insurance coverage, retirement savings, investing, and budgeting.

2. Credit Manager: 

• A professional who manages and oversees credit management and makes judgments about credit limits is known as a credit management specialist. The extent of a credit manager’s responsibilities might vary, though.
• A credit manager is responsible for overseeing every step of the credit-granting process, including the ongoing implementation of credit policies.
• In order to maximize corporate sales while minimizing bad debt losses, a credit manager must routinely analyze the credit of current customers and evaluate the creditworthiness of prospective consumers.

3. Accountant: 

• An individual who chooses to pursue a job as an accountant is in charge of making sure that the business does not overspend and run out of money.
• Accountants are crucial to corporate operations; among their responsibilities include gathering, documenting, analyzing, and presenting financial operations to stakeholders. If the firm is huge, the accountant’s function may alter.

4. Financial Advisor: 

• Assessing one’s financial condition, learning what one wants to accomplish with their money, and assisting in the development of a plan to achieve their financial goals are all essential components of a profession as a financial advisor. They supports businesses and people in cutting back on spending, clearing debt, and setting aside money for the future.

5. Account Manager: 

• A person who wants to work as an account manager and interacts with clients directly. He or she develops ties with clients that are advantageous and keeps track of additional advantageous contacts.
• The main duties of an account manager include gathering all the essential data on their clients, such as identity credentials.

Top Companies

The top companies looking for Investment banker roles are:

• Genpact
• PWC
• DBS Bank
• EY
• Kotak Mahindra Bank
• Hindustan Times

Top Investment Banking Sample Questions

1. The fixed interest rate of the corporate bond will climb if interest rates do.

• Return to the corporation
• Decrease in value
• Remain unchanged
• Increase in value

Answer: B

2. An investor makes investments in items referred as as

• Securities
• Block of Assets
• Portfolio
• None of the above

Answer: C

3. Capital Market Line requires all investments to be

• Finitely divisible
• Infinitely divisible
• Both a & b
• None of the above

Answer: B

4. Only if there is a protection to____, the investments would they receive excellent marks.

• Real estate
• Preferred stock
• Government bonds
• Common stock

Answer: C

Top Investment Banking Interview Questions

1. Which is usually more expensive, the cost of equity or the cost of debt?

Because the cost of borrowing debt is tax deductible, the cost of equity is always higher than the cost of debt. In addition, equity costs are greater since, unlike lenders, equity investors are not assured of receiving predictable payments. Debt costs less because interest payments are regarded as expenses. Additionally, debt is prioritised in a company’s capital structure. Therefore, in a liquidation or bankruptcy situation, the debt holders receive payment before the equity holders.

2. Define WACC.

Weighted Average Cost of Capital is referred to as WACC. It is a computation of the capital that is weighted proportionally for an organisation. It encompasses all available sources of funding and considers things like depreciation, tax rates, debt, and equity.

3. Explain monetary policy.

The central bank of a nation’s government uses monetary policy as a tool to manage the money supply. When trying to achieve a set of goals geared toward the expansion and stability of the economy, it is important to consider the cost of money as well as the rate of interest.

4. Define Money laundering.

The act of making it look as though a sizable sum of money earned through illegal conduct, such as drug trafficking or terrorism, came from a legitimate source is known as money laundering.

5. Define fairness opinion.

An impartial evaluation is a fairness judgement. An investment bank issuing it. In a merger or acquisition, the price given is primarily included. It offers a set charge and is often provided by a non-transactional institution.