Capital Markets and Investment Banking Process Essay

Capital Markets and enthronisation Banking Process - Essay ExampleInvestment banks usually perform three tasks first, they assist the companies in innovation the securities which have features that are most appropriate for a certain market second, they buy these securities and third, they resell them to the investors. (Fabozzi, 2008) Investment banks raise capital for their client companies through underwriting in which it purchases a whole block of new securities and resells them to investors. In this way, the income earned is the difference of the amount given to purchase the new block of shares and the amount received by the investors. Apart from Merger & Acquisition (M&A) advisory services, a banks an new(prenominal) integral and core function nowadays is Investment Management in which the bank manages the coronations of clients. Security services are also an important feature for investment funds banks which include prime brokerage, financing and securities lending. Regardl ess of the activity undertaken by the investment bank, it needs to focus on its portfolio realizeion and management which will be done according to the portfolio strategy of the investment bank. This means the bank needs to doctor investments which ensure successful trading that could be done by making risk management a top priority. This would mean that if a company incurs a loss of on one of its investment, it should earn a profit of over 11% on another to make it even. In this way, the company needs to construct a portfolio of investments which ensures a favorable position for the company. (Fabozzi, 2008) Factors to Be Considered Selecting Asset Classes For An Investment Portfolio Asset class means the different kinds of assets (e.g. bonds, equities and cash equivalents etc.), while making an investment portfolio, different classes of assets are added according to investment policies and objectives. For making an investment portfolio, it is generally considered that a well dive rsified portfolio is beneficial as it outweighs the losses through other profitable investments. On deciding upon the asset classes, the companies need to consider asset allocation among different classes of assets. Studies show that 85 to 95% of investments returns are due to asset allocation policy and not selection of specific stocks or bonds. While selecting classes of assets, major considerations should be given to the capital market expectations as to which classes of assets are expected to outperform others in short, medium or long term. For example, if the stock market is expected to be weak, there should be more bonds in the portfolio. Other factors that need to be considered while deciding upon the asset allocation are the objectives of investment which would consider the timings, the need of the investment and the expected return of the investment by the client. Risk tolerance and risk policies need to be given special consideration in deciding upon the allocation of asse ts that should be in unanimity to the bank and clients. Constraints associated with asset classes like liquidity, taxes, regulations etc and capital market assumptions are also few factors that should be considered. (Chandra, 2009) Describe the Capital Market Instruments Used in Investment Portfolio Construction The capital market is vital for a country as it matches the players who have excess funds with the ones who are in need of funds. The instruments are traded in these markets incurring a gain/loss on these securities.