A hands-on options curriculum covering real trading concepts. Read the lessons, work through examples, and test your knowledge.
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Lesson 5: 2.4: Investment Banks & Underwriters
Study how investment banking institutions facilitate capital raising, advisory services, mergers, and syndications.
1. Capital Underwriting & Advisory
Investment banks act as the primary bridge between large corporations needing capital and institutional investors looking to deploy it. Their corporate finance teams focus on capital underwriting.
When a company needs to issue new equity (IPO) or debt (corporate bonds), the investment bank underwrites the deal, taking on the risk of purchasing the securities and distributing them to the market.
★ Key Function: Investment banks also act as primary advisors on Mergers & Acquisitions (M&A).
2. Market Intermediation & Prime Brokerage
In addition to corporate finance, investment banks operate trading desks that make markets, provide trade execution services, and offer Prime Brokerage.
Prime Brokerage is a highly profitable division that provides specialized clearing, leverage financing, and asset custody services exclusively to hedge funds and large institutions.
Click to enlargeKNOWLEDGE RECONNAISSANCE
What is the primary role of an underwriter in an IPO?
Which service is typically offered by an investment bank's Prime Brokerage division?
More lessons in this module
- 2.0: Overview of Market Participants
- 2.1: Retail Investors & Traders
- 2.2: Institutional Investors (Mutual/Pension Funds)
- 2.3: Hedge Funds & Proprietary Trading Firms
- 2.5: Market Makers & Liquidity Providers
- 2.6: Central Banks & Monetary Policy
- 2.7: Brokers & Financial Intermediaries
- 2.8: Regulators & Market Oversight (SEC, CFTC)
- 2.9: Sovereign Wealth Funds
- 2.10: High-Frequency Trading (HFT) & Algorithmic Firms
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