Topic on Underwriting | Lecture notes Finance

Topic on Underwriting

I. Essay

1. Investment banking includes a wide range of tasks, including assisting

businesses and other entities with capital raising, providing advice on mergers and

acquisitions, assisting with transactions, and more. Investment banks may operate

independently of other banks and financial service providers or they may be integrated

into larger financial organizations. (IIFL Securities, 2020). Investment banks' tasks

include the following:

➢ Market making: Creating liquidity in the financial markets by assuming the risk of

holding shares of specific securities (e.g. shares or bonds) to help facilitate the

trading of that security.

➢ Mergers & Acquisitions (M&A). Advise clients on large scale mergers and

acquisitions, or how to restructure to make their company more profitable.

➢ Corporate events / new issues (e.g., IPO or Initial Public Offering): They help

clients raise new capital by creating new securities (e.g., shares or bonds) and

helping to creating demand for these. They also underwrite these in the event of

smaller than expected sales.

➢ Structuring products: Advise clients such as high street banks, pension funds or

life insurance companies on creating financial products based on multiple types of

investment.

➢ Proprietary trading: They trade the markets using the bank's own money, looking

to make a profit for the bank.

2. Extremely liquid financial products, such as short-term financial instruments, are

exchanged in the money market. The capital market, on the other hand, is for long-term

securities. It serves as a market for securities with direct or indirect capital claims. The

capital market offers avenues for the mobilization of funds, which is essential for the

growth of the economy. The money market, however, has a variety of functional

characteristics. (Surbhi, 2018).

3. In an OTC market, dealers act as market-makers by quoting prices at which they

will buy and sell a security, currency, or other economic products. Bonds, stocks, as well

as non-standard derivatives can be traded by investors on the over-the-counter (OTC)

market. Its advantages include that it is a cost-effective method for corporate as there

is a lower cost of new issues and lower expenses of servicing the investors. On the other

hand, its disadvantage also includes lack of transparency (Frankel, 2022).

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Topic on Underwriting I. Essay

Investment banking includes a wide range of tasks, including assisting businesses and other entities with capital raising, providing advice on mergers and acquisitions, assisting with transactions, and more. Investment banks may operate independently of other banks and financial service providers or they may be integrated into larger financial organizations. (IIFL Securities, 2020). Investment banks' tasks include the following: ➢ Market making : Creating liquidity in the financial markets by assuming the risk of holding shares of specific securities (e.g. shares or bonds) to help facilitate the trading of that security. ➢ Mergers & Acquisitions (M&A). Advise clients on large scale mergers and acquisitions, or how to restructure to make their company more profitable. ➢ Corporate events / new issues (e.g., IPO or Initial Public Offering): They help clients raise new capital by creating new securities (e.g., shares or bonds) and helping to creating demand for these. They also underwrite these in the event of smaller than expected sales. ➢ Structuring products : Advise clients such as high street banks, pension funds or life insurance companies on creating financial products based on multiple types of investment. ➢ Proprietary trading : They trade the markets using the bank's own money, looking to make a profit for the bank.
Extremely liquid financial products, such as short-term financial instruments, are exchanged in the money market. The capital market, on the other hand, is for long-term securities. It serves as a market for securities with direct or indirect capital claims. The capital market offers avenues for the mobilization of funds, which is essential for the growth of the economy. The money market, however, has a variety of functional characteristics. (Surbhi, 2018).
In an OTC market , dealers act as market-makers by quoting prices at which they will buy and sell a security, currency, or other economic products. Bonds, stocks, as well as non-standard derivatives can be traded by investors on the over-the-counter (OTC) market. Its advantages include that it is a cost-effective method for corporate as there is a lower cost of new issues and lower expenses of servicing the investors. On the other hand, its disadvantage also includes lack of transparency (Frankel, 2022).

Due to the lack of parameter and transparency, manipulation of the electricity market is an intrinsic risk of OTC trading. The price OTC market participants pay for the capability to create modified transactions is illiquidity and a lack of transparency, two factors that have become more extremely problematic than ever since the economic disaster. They have the following advantages over publicly traded companies: access to capital for expansion, improved visibility, liquidity, a rise in staff morale, transparency, and efficiency. Listing refers to a company's securities being formally admitted to the Exchange's trading platform. It is a major turning point in a company's growth and development. It helps a business to raise money while enhancing its foundation and standing. It guarantees effective monitoring of the issuer's compliance, liquidity for investors, and trading of the securities in the best interests of investors. (Metropolitan Stock Exchange, n.d.).

A market in which the securities are sold for the first time is known as a Primary Market. It means that under the primary market, new securities are issued from the company. Another name for the primary market is New Issue Market. This market contributes directly to the capital formation of a company, as the company directly goes to investors and uses the funds for investment in machines, land, building, equipment, etc. On the other hand, a market in which the sale and purchase of newly issued securities and second-hand securities are made is known as a Secondary Market. In this market, a company does not directly issue its securities to the investors. Instead, the existing investors of the company sell the securities to other investors. The investor who wants to sell the securities and the one who wants to purchase meet each other in the secondary market and exchange the securities for cash with the help of an intermediary, a broker, is done.

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