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How Investment Banking Is The Business Of Raising Capital, Increasing Profit, And Advising Essay

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Investment Banking is the business of raising capital, increasing profit, and advising on any financial transactions. Investment Banking is done on both the microscopic level with individuals looking to gain advisement as well as on the macroscopic level with large companies. The practice of Investment Banking in the United States developed around the 1800’s in New York. The first banks focused on the sale of government bonds and it wasn 't until the 1860’s that bankers like J.P. Morgan began to expand the practice into investing in other securities. In the late 1900’s, companies began to lobby for greater flexibility to invest. Investment banks developed into new kinds of business, most representing new varieties of long standing products involving securitization. Investment Banks function as a “mediator for the flow of assets between investors and issuers” (Sirri). In addition, Banks also provide advice in mergers and acquisitions and aid in designing customized securities to suit issuers’ needs. While these are the two main functions that banks provide, they perform five specialized functions: (1) pooling resources and subdividing shares, (2) transferring resources across space and time, (3) providing mechanisms to manage risk, (4) providing information, and especially prices, needed to coordinate decentralized decision making in the economy, and (5) providing mechanisms to solve problems of asymmetric information, agency problems, and incentives. (Macmillan) The
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