CH 5 Investment Banks Flashcards
What advice do investment banks give to its customers?
- How to raise capital
- Underwriting process
- Mergers and Acquisitions
- Financial Engineering and innovation
- Research
- Proprietary trading
How do investment banks raise capital?
- Equity: The firm sells part of itself
- Debt: Promise to pat back investor’s money plus interest
What are some characteristics of Equity in investment banks?
- It reduces the level of corporate control
- Many types of stock
What are some characteristics of Debt in investment banks?
- Many types of debt
Underwriting is the process of…
Bringing new securities to the primary market
What are the two ways to underwrite a company?
- IPO
- Second Equity Offering
What is an IPO?
- It’s the first time a firm offers their shares to the public
What is a Second Equity Offering?
- Firm already trading in the public stock market offers new stock share prices
What’s the name when vast majority of stock is traded between investors?
- Secondary market
What is a Merger?
- It is a mutual agreement of two or more firms of similar size to form a new firm (one)
What is an Acquisition?
- It’s when a larger firm acquires a smaller firm, target firm
What is capital structure?
- Mix of equity and debt to fund the running of a firm and its growth
What were the government sponsored enterprises?
- 1938 Fannie Mae
- 1970 Freddie Mac
What does CDO stand for? and what year?
- Collateralized debt obligation
- 1987
What is research in investment banking?
- Analysts collect publicly available info on firms
