What is an Investment Bank?
Q: What is an Investment Bank?
A: An Investment Bank is a business that helps other businesses (and also governments) borrow money from other people and businesses and/or allow businesses to partially or fully sell themselves to other people and businesses.
Q: How do Investment Banks differ from regular banks?
A: Unlike a regular bank, Investment Banks typically do not lend their own money or use their own money to purchase part or all of a business, but instead they help to match the business financing need to those other business and personal investors who are seeking to earn money by either lending to the business or owning part of the business.
Q: What activities does an investment bank typically offer?
A: An investment bank most often helps businesses to borrow money using a form of a contract known as a bond, and to sell ownership in the company using a contract known as stock. In addition, some investment banks may also offer Mergers and Acquisitions services which involve helping their clients decide what other business they should buy, in exchange for a fee based on the sale price of the business.
Q: Why might a company choose to borrow money from investors instead of banks?
A: Some reasons that a company might choose to borrow money from investors instead of banks include potential for lower interest rates, potential for an interest rate that is fixed (cannot changed) for longer time frame than what most banks would normally allow, and investors might be more willing to lend more at risk companies than what banks would be willing to do.
Q: Why might someone agree with an investment bank selling part or all of their business?
A: Some reasons why someone might agree with an investment bank selling part or all of their business include earning profit on initial investments made into the company, raising funds for further growth opportunities, and raising funds pay back borrowed money which may otherwise not be able pay back.
Q: Who are customers served by Investment Banks?
A: Investment Banks serve two kinds of customers; one being businesses/governments which desire borrowing funds or selling ownership, and individuals/other businesses who want earn profit by lending/owning other businesses.
