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Investment Banking

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Difference Between Investment Banking and Merchant Banking

Investment vs. Merchant Banking

Bank is an organization that provides a range of financial and some non financial services to its customers. The main source of income, that makes the bank survive is the interest charged from those to whom the bank has given loan. A bank accepts deposits from its customers and pay interest to that deposited money, while it lends money to those who need finance and charge interest from them. The interest rate chargeable from the borrowers is higher than the interest rate payable to depositors. This is how a bank, which is traditionally known to normal people, earns revenue. Banks can be broadly categorized as retail banks and investment banks. The above mentioned revenue generating procedure is more applicable to a retail bank. The revenue models of investment and merchant banks are different, which we will discuss in this article.

Investment Banking

An investment bank is a financial institution that engages in the issuance of securities on behalf of its client. Investment banks are the banks, which facilitate both the investor, who is in search for good investment opportunity and the investee, who is searching for capital to invest in viable projects. Unlike other types of banks, investment banks are not accepting deposits from customers; that is, investment banks do not provide regular banking services to the general public. The main Investment banking activities are issuance of securities, underwriting of securities, providing financial related consultancy services to companies, assisting companies in the acquisition and mergers, and similar services.

JP Morgan, Bank of America, Merrill Lynch, Goldman Sachs, Morgan Stanley, and Credit Suisse are some of the world renown investment banks.

Merchant Banking

Merchant bank is a bank that mainly deals with

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