What is an Investment Banking?
Investment is a fiscal asset bought with the implication that the asset will generate revenue in the future. Investment Banking is a commercial company that helps entities, companies and administration in raising cash by subsiding or acting as the customer’s agent in issuance of security. Investment banks also help companies comprised in unions and acquisitions by offering auxiliary services. The main aim of investment banks is to select asset distribution in order to ensure adequate return. In addition, these banks do not receive any deposits like the commercial and retail banks do, but they trade securities to generate cash. The process of investing involves not only directing collections of assets, but also to pension finance in struggle with life cover companies.
Investment banks are divided into two sectors, private and public. These two firms are parted with a data hindrance that separates the two from data crossing. The private sector deals with the inside data that is not openly revealed. While the public investment deals with public data such as store investigation, the actions of investment can be carried out by a consultant who is approved as an agent-dealer. Investment banking comprises of bringing altogether the business firms that seek to trade their stock to the public (Morley 2005, p.234). The bank assesses company’s financial data, the business team and the activities to determine how to initiate the firm stock to the market and to offer the best prices.
Arab Emirates Investment Bank
In the United Arab Emirates, there are several banks that assist people in saving their money and investing. One of the investing banks is Arab Emirates Investment Bank which was founded in 1976. This bank is approved by the Principal Bank of the United Arab Emirates with a stock of public that is registered on Dubai financial market. Arab Emirates Investment Bank is centered on private bank with auxiliary banking activities. This bank is owned by Al-Futtain set, the largest group in the UAE. The investment bank offers clients high quality investment information, results and facilities.
Arab Emirates Investment Bank has many branches within the country. The bank has helped in development of the country since it sells the stocks and acquisitions of employees and refunds the cash. As an investment bank, it offers activities that vary from investment in securities on issues that manage the initial offering. The activities offered by the investment banks range from equity subsiding to manage takeovers to their clients especially the corporate clients (Hong 2001, p. 564). Since investment banking specifies activities related to subsidizing, and distribution of new issues of debt and equity in the business then the markets must have many branches that can accommodate the higher numbers of clients.
The Arab Emirates Investment Bank provides some services to the clients such as creating markets for sale of securities including shares, pledges, treasury among others. The process of spawning business involves the secondary market of an asset by a security firm or on any available market. In addition, the investment bankers from Emirates Investment Bank make some preparation for trading the securities among different clients by offering trade mechanisms. The bank also provides the activities of selling the securities where the investors offer the trading amenities for potential purchasers and sellers. The Investment Bank purchases the securities on behalf of the customers and sells them. By doing this, the bank saves the customer money because this trading process involves arbitrage valuing gap that requires some commissions for the trade of stocks.
The Arab Emirates Investment Bank also provides services of cash management. The investment bankers deposit cash management accounts to individual investors. This management offers services as any other commercial banking where the customers write cheques in order to withdraw money when they want. On this department, the investment financiers are accountable to encounter such immediate financial claims presented by their customers. In addition, the Arab Emirate Investment Bank has the obligation of offering the service of union and acquisition. This process involves giving guidance and providing union and acquisition by looking out for partners, subsiding new securities to be delivered, evaluating the value of the firms, advocating the terms and conditions of the union agreement.
The bank also carries out the activity of risk management where the employees working in the front business evaluate the market and credit risk that the clients take. This process is carried out during the balance sheet procedure. Credit risk aims around money markets activities such as credit syndication, pledge issuance reform and leveraged money. When the financiers appraise the risk process on the business, this enables them to offer resolutions to protect-fund to range managers. The process of risk management in investment banks assisted in implementing any trades also provides guidance to the investors (Hong 2001, p. 564). The middle agency employees in the Arab Emirates Investment Bank offer the services of managing the assets, internal panels and internal business plan. They carry out this process by observing the money construction and examining them, a part that generates income to the business.
The bank carries out the process of actions which contains information proving trades that have been carried out. This activity is carried out to ensure that no wrong transaction is done and any transacting required is carried out. In addition, the bank carries out the process of business to the global. That is a split that provides cash management, care services, advancing and securities brokerage services to the institutions.
One section of investment banking is appropriate management of risks. Risks are always present when creating a group and may never be eliminated. The investment fanciers use several policies to accomplish some of the risks. Fanciers also advise investors and the companies they may be representing to reduce their possible losses. Most of the risks that are associated with investment banking are interest amount risk, market risk, inflation or the power of purchasing and the governmental risk.
In the Arab Emirates Investment Bank, the risk of inflation affects the institution at a higher rate since the prices of securities or bond may drop. Inflation is the increase on prices of goods a factor that limits one from acquiring products. That influences their income because they have to pay the clients the amount agreed regardless of whether the prices are high or low. When the price of commodities is high, then the economic growth is affected because there are few investors (Yasaswy 2008, p. 254). The Arab Investment Bank also suffers from the risk of harmful possessions on financial result and money of the bank that are caused by changes in interest rates. When the market value of an investment in variation, in fairness shares upon the performance of the company, the there is a risk of the market. That leads the company to go down because the business may not be performing well. That risk is also initiated by an increase of many investment banks in the region. The number of investment banks has increased leading to high competition in the area.
Another risk that the Arab Investment Bank suffers is the interest amount risk; these rates vary influencing the investment cost and incomes. An interest rate risk affects stable income securities, therefore, lowering the initial investment cost. Interest rate risk refers to a change in the value of the investment. In addition, the bank suffers from high political risk caused by internal and external factors affecting the economy. For example, when the state introduces laws it may affect companies that have invested in the bank (Samuel 2007, p. 654). In addition, the problem of political risk can occur when one state moves and another comes in with the different set of economic and political beliefs. That may affect stability of funds of many industries and firms. Moreover, when there is a danger of war, investment banks may be affected. The institutions may vend in low prices and when the war begins the investment banks are sheered and become uncertain in buying the shares and bonds. Investment banks also suffer from the risk of liquidity. That is the opportunity of the depositors not being able to understand the value when required which happens because the security cannot be sold in the market or it is prematurely terminated because the resulting loss in value may be unrealistically high.
The bank can resort to a number of strategies to control the risk, therefore, reducing on the losses. The banker may recommend that a stock not be sold during a particular time when the interests are high in order to minimize the price that the company share can get. The investors may also use the technique of change and dollar cost averaging as a way to reduce their risk experience.
The impact inflation has on banks depends on securities held. Investing in one stock may not cause concerns about inflation since the increase on earnings should increase at the same pace with inflation. Inflation is activated by the private sectors and when the government expenditures are higher than the revenues. In some cases, inflation can oppose investors by reducing their assurance in investments that take time to mature. Inflation affects activities of the bank when the trades, data and cost are increased which hinders the economic growth leading to market decline (Yasaswy 2008, p. 254). Inflation discourages incorporation of investment banks with the rest of the world’s banks. In addition, inflation has an impact on the United Arab Emirates market since the increase on prices leads to low turnout of employees to purchase the securities. Economy of the country develops as a result of the profits from the investment banks.
The risk of interest rate has an impact on investment banks as a result of changes in the total level off interest rates. Additionally, interest rate has the large impact on the whole economy, and when the rates are influenced, it can lead to bankruptcy of investment banks. When the interest rate increases, the value of capital and bond increase a well due to inflation level. Another factor leading to bankruptcy is high interest rate which means low outcome of employees and inability to purchase shares (Philip 2007, p. 276). When the interest rate is low many people buy shares with the aim of selling them when the interest goes high. The United Arab Emirates market is influenced by the interest rate on the investment banks where banks charge more on selling the securities and on giving out loans.
Market risk in the investment banking process which affects growth of the business, since the prices determine whether there was income or loss of security. When a set bank offers to purchase a set security, it may do so in a low price, hence making the other bank sustain a loss. The price of securities may change radically affecting the demand and supply of securities. In the United Arab Emirates the market of securities is high because the government is assisting it in trading. The government has done this by buying some reserve bonds at a better price, therefore, increasing their income. In addition, investment banking in United Arab Emirates has a medium that assists them in dealing with the securities whereby they cannot sell the securities when the interests are high. In case the securities are at a point of full, then another bank is granted to purchase them even at a lower cost to avoid a complete loss.
Political factors have an impact on investment in banks since the presidents elected could initiate economic development that could lead to increase of interest rate, therefore, affecting the investments. In addition, when there is poor political development in the country, there will be a low turnout of employees to invest because the economic growth of the nation would deteriorate. That will affect the banks because they will have low shares to market reducing their income (Yasaswy 2008, p. 254). When there is a political change in the country, the economic growth lowers affecting the business income. When a country is experiencing political problems, then it reduces the chances of other countries investing in its economy. In the United Arab Emirates, the market would be affected since the number of investors would reduce.
The liquidity risk of investment influences the bank when the securities are sold in a period of low interest, therefore, reducing the income. When the securities get into a time of premature total, the banks are obligated to pay for them since they are in the institution. In addition, a bankruptcy shock can be endured through acquisition of weak banks by those more stable in order to generate higher social values that can enhance the economy (Philip 2007, p. 276). That risk would affect economic growth of the country since the securities sold at low cost influence the income increase of the business. In addition, high bankruptcy of securities can affect the people since investors will not be willing to invest.
In conclusion, investment banking is the most trusted process of money estimation that is free from the risk of theft. This process deals with the selling of bonds and capitals, factors that lead to high income valuation. Investment Banking has two sectors, private and public firm where they are categorized according to the information they offer. Private sector offers inside data that is granted only to the investors while the public sector provides information to the public and anyone who would be interested in investing. Investment banks only deal with the problem of selling and purchasing the securities for money increase while other banks deal with deposits and provision of loans. In the United Arab Emirates, there are many financial institutions which are categorized according to services they offer. Investment Banking may be influenced by some risks that lower the income. These risks alter the operations of the banks, hence, reduce the returns. Investment banks are supposed to handle the risks at an early stage in order to minimize the dangers that can lead to undesired changes.