Investment Banking: How to Become an Investment Banker

Question One 

Investment bankers often have the skills of distributing and selling securities and thus they are employed by corporations so that they can design the right security, get a fair price for it, and also gain a wide distribution. 

Question Two 

The primary function of an investment banker in the market is identifying growing businesses that can profit from security offerings and then markets his or her own firm as one of the best that can assist it in raising capital ( Liaw, 2012). 

Question Three 

The investment bankers often assume risk when they are in the process of marketing the securities of corporations through outright purchases that presents one of the greatest risks. The best way of minimizing the risk is by distributing large issues through syndicates that help in spreading the risk across many investment banking houses through market stabilization. The second way involves the rapid sale of the securities after the approval of the SEC. 

Question Four 

Competitive bidding involves entering bids for a particular type of security with the aim of getting the rights to underwrite the specified offering. The bank that offers the highest price gets the business. The advantage of competitive bidding is that the issuer can get higher prices for the securities. However, in such bidding, there is no due diligence and advice. 

Question Five 

Market stabilization is the process of calming the market by repurchasing the shares that were offered to them at the offer price. 

Question Six 

The costs that are related to going public include direct costs such as accountant fees, the spread, and underpricing. 

Question Seven 

Investment banking is regulated by the Securities Act of the year 1933 whose aim is to provide a full, accurate, and fair disclosure of the kind of issued securities that have been newly offered for sale and to avoid fraud during the sale of the securities. 

Question Eight 

Previously commercial banks were only allowed to underwrite the general obligation of the local and states governments and the federal government's obligations. However, from 1987, they have been allowed to underwrite new issues of securities that have been backed by mortgages. In 1989, banks were allowed to underwrite corporate bonds. 

Question Nine 

Fines for ethical abuse should be a deterrent for the ethical lapse because they can result in negative deal flow and loss of shareholders. 

Question Ten 

The Facebook's stock price decreased after the IPO because of a decrease in demand resulting from increased IPO range before the market debut and overvaluing the shares. 

Reference 

Liaw, K. T. (2012).  The business of investment banking: A comprehensive overview . Hoboken, N.J: Wiley.