Meaning Of Long Term Debt: The fund which is extended by the
lender with the maturity of more then 10 years.
Meaning Of Financial Market: Financial market provides forum/link
where buyer and seller of money transact the business. Financial market acts as
financial intermediary between the supplier of fund and where transaction of
various types of fund takes place.
Kinds Of Financial Market: Following are the main important
types of financial market listed below;
1)
Debt Market/Bond Market
2)
Equity Market
3)
Primary Market
4)
Secondary Market
5)
Money Market
6)
Capital Market
Now I can
discuss all the above types one by one given as under;
1) Debt Market/Bond Market: The financial market in which debts instruments are traded
known as debt market. E.g. corporate bonds
2) Equity Market:
The financial market in which equity instruments are traded. It will give right
to equity holder to use the assets of firm and receivable variable stream of
earning each year. E.g. certificate of ownership. Common stock, preferred stock
3) Primary Market:
A market in which new securities are traded to raise the fund is called primary
market. E.g. issuing new shares or debentures in a market.
4) Secondary Market: The financial market where pre-issue or out-standard securities are
traded. E.g. stock market where only registered companies can do the business.
5) Money Market: Financial
market where money instruments are traded having maturity of one year or less
then one year. E.g. commercial paper, certificate of deposits and treasury bill
etc.
6) Capital Market:
A market where long term money instruments are traded. The financial market of
money instruments whose maturity is more then 1 year is called capital market. E.g.
treasury bond, corporate bond and mortgage bond etc.
Investment Banker: Investment banker acts as a
financial intermediary between financial market and user of fund. In simple
words we can say that the investment banker is a link between demander and
supplier of the fund is called investment banker.
Functions Of Investment Banker: Following are the main functions of
investment banker.
1)
Underwriting Function
2)
Distribution Function
3)
Advisory Counseling Function
4)
Marketing Function
Now I can
discuss all of them in detail one by one given as under;
1) Underwriting Function: Underwriting means the insurance function of bearing the
risks of adverse price fluctuations during the period in which a new issue of securities
is being distribution. the issuing firm, however does not need to be concluded
about the risk of market price fluctuation. While investment banker is selling
the securities. Since it has received its money.
2) Distribution Function: The second function of the investment banker is to marketing
distribution the new issues of securities. As investment banker in specialist
with a staff and organization to distribute securities, therefore it perform
the physical distribution function more efficiently and more economically as
compared to an individual company.
3) Advisory Counseling Function: Investment banker also provide information to issuing firm
about the financial market. Investment banker provides some information’s. What
kind of securities (bonds and shares) to be issued. Investment banker helps you
to determine the price of securities. Also provide the information about time
factors.
4) Marketing Function: Investment banker also provide marketing function, because investment
bank provide help in price promote and distribution of goods and services to satisfied.
The wants and needs of customer on profit.
Investment Banking Operation/Process: The investment banking operation
involves following steps which are listed below;
1)
Selection Of Investment Banker
2)
Pre-Underwriting Meeting
3)
Registration Statement
4)
Pricing The Securities
5)
Underwriting Syndicate
6)
Selling Group
7)
Offering And Sale
Now we can
discuss all the above mention steps one by one given as under;
v Selection Of Investment Banker: The firm that is selling new securities through the services
of an investment banker. First select an investment banker on;
1)
Negotiated Basis
2)
Competitive Basis
1) Negotiated Basis: Through this a firm select a suitable investment banker and discuss the typists
of issue, amount involved submitted and features of issue etc. its shows the
investment banker competition.
2) Competitive Basis: Through this, the firm specifies the amount and then the investment
banker who wish to underwrite the new issue. Submit bids indicating the amount
of net proceed they will guarantee the firm.
v Pre-Underwriting Meeting: After the selection of investment banker, then issuing firm
and investment banker holds pre-underwriting meeting at which they discuss the
amounts of capital to be raised. The type of security to be issued and terms of
agreement. When issuer and investment banker agrees that a floatation will take
place. Then investment banker begins to conduct an underwriting investigation.
v Registration Statement: A registration statement containing all relevant financial
and business information of the firm is with the securities exchange commission.
The statutes set in a 20 days waiting period during which the securities
exchange commission staff analyzes the registration statement to determine
whether there are any commission or misrepresentations of fact. At this time
the investment banker can issue red having i.e. initial prospectus all customer
information except the offering price.
v Price The Securities: After registration the actual price that underwriting pays to the issuer
will be determined until the end of the period of registration. There is no
universally followed practice, but on common arrangement for a new issue of
stock calls for the investment banker to buy the securities at a prescribed
number of points below the closing price on the last day of registration.
v Underwriting Syndicate: A syndicate is a temporary association for the purpose of
carrying out a specific objective. The nature of the arrangements for a
syndicate in the underwriting and sale of a security through an investment
banker. The investment banker forms a syndicate in an effort to minimize. The amount
of personal risk. Each investment banker has business relationships with other
investment bankers and dealers and thus has a selling group composed of there
people.
v Selling Group:
A selling group member will sell the securities directly to the investors. Their
successful efforts generate commission for them. They selling group may have as
many as 300 to 400 dealers. The operations of selling group is controlled by
selling group agreement, which usually covers the major points.
1)
Description Of Issue
2)
Concession
3)
Handling Purchase Securities
4)
Duration Of Selling Group
v Offering And Sale: After the selling group has been formed, the selling group now
distribute or after the final prospectus and begins to solicit and take orders
for new securities are well priced then they will quickly sold and procedure
comes to an end.