Financial Glossary – Do you know what a commercial bank is?
Commercial banks operate in the highly specialized field of finance. If a traditional commercial bank collects deposits and loans, investment banks offer a range of services focused primarily on capital markets (underwriting of bonds, stocks and IPOs) and secondarily on securities trading (trading and brokerage).
Its functions are to assist institutional investors in managing risk coverage for their portfolio companies and to assist financial instrument clients in managing their assets.
Activities can be classified into five different areas:
1. Investment banking services in the narrow sense.
2. Corporate Finance
3. Structured finance
4. Commercial banking services in the narrow sense
5. Risk Management
1. Investment banking services in the strictest sense: these services are historically associated with commercial banking. These services range from supporting business clients in deciding how to finance their activities by issuing equity and debt securities to structuring these services typically in three phases: pre-stage, advisory/settlement, distribution or sale of issued securities.
a) Preliminary stage – release and promotion
This is the phase during which equity or debt is issued. It is operated by a financial intermediary with strong promotional activities in businesses, governments or financial institutions.
b) Consulting / organizing (consulting / organizing)
These are the organization of economic activity (determining pricing) and legal taxes.
c) Distribution and sale (sale)
This phase includes activities where the securities are portfolio classes.
2. Corporate Finance: This is the stage for optimizing the financial choice for client companies with a strong advisory value, which is an essential tool for corporate finance.
The processes underlying corporate finance are:
1. Preliminary;
2. Advice;
3. Raising actual or research funds necessary to complete the operation. These are usually syndicated loans where the investment bank acts as the arranger. This is a characteristic that distinguishes investment banks from commercial banks;
4. Mergers and acquisitions (M&A) of other companies;
5. Corporate restructuring, solving business difficulties.
3. Services in the field of structured finance: are services for organizing operations based on cash flows from activities or investment projects defined in the management of client companies and often “cocoons” in specially registered companies (special companies). This family of services also includes those for finding resources to implement the programs:
a. Project financing
b. securitization
° C. leveraged finance operations and leveraged buyouts are among the best known).
4. Commercial banking services: these services relate to the acquisition of participations in the capital of non-financial companies. For example, investing funds of the same financial intermediary (business model of the bank) or funds administered and managed by the financial intermediary.
5. Risk Management: This business area has two distinct but related branches.
a. The first relates to risk management products and services (interest rate, currency, credit).
b. The second is related to the study of models for measuring and managing market and credit risk.
In the world of words, choose the right one!
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