Do you want to start learning about investment banking but don’t know where to start? Don’t worry, we have got you covered. The following list covers the top 10 most important concepts in this field. It would help you get familiar with the jargon used by investment bankers and start learning easily.
After all, investment banking is a great area with many possibilities of growing professionally. However, some concepts might be hard to crack. Let’s begin understanding these simple but essential concepts:
Table of Contents
Top 10 Investment Banking Concepts
A stock represents ownership of a share in a company. When you buy a company’s stock, you buy a small fraction of that organization which is called a share.
Equity refers to the value of an asset after deducting all the liabilities on the same. Owning a stock entitles the owner to a proportion of the company’s profits and assets equal to the amount of stock he/she possesses, hence it is also called equity.
· Financial Instrument
A financial instrument is a virtual or real document that represents a legal agreement of some monetary value. It can be debt-based or equity-based. There are many subcategories of each kind of financial instrument as well.
A derivative is financial security whose value relies upon an underlying asset (or a selection of assets). The underlying asset (or assets) is called a benchmark. Popular examples of financial derivatives are interest rate swaps, options, and forward contracts.
An asset is a resource that has an economic value that an individual, organization, or country owns. The owner of an asset controls it with the expectation of receiving a future benefit through appreciation in its value. An asset can benefit the owner in multiple ways depending on its nature.
A liability is something a company or a person owes to another party. Examples of liability are accounts payable, loans, bonds, accrued expenses, deferred revenues, and mortgages.
· Debt Finance
When a company borrows funds from institutional investors or individuals to handle expenditures or working capital and promises to pay interest and principal for a set duration, it is called debt financing. In other words, when a company finances its operations by taking on debt, we call it debt finance.
· Boutique Banks
Boutique banks are investment banks that specialize in a minimum of one aspect of this field. Some prominent boutique banks are Allen & Co. and Charles Schwab.
A bond is a financial instrument that represents a loan taken out by an organization. Bonds allow companies to raise capital by borrowing funds from investors rather than banks.
Security refers to a negotiable and fungible financial instrument that has some value. Security could be a stock, option, or bond.
How to Start an Investment Banking Career?
Starting an Investment banking career is easy if you have the right resources. Recruiters in this industry look for certified professionals who are adept at various economic, business, accounting, and financial concepts. Investment bankers must also know how to evaluate corporations to forecast their future performance and make decisions accordingly.
The best way to start your career in this field is to find the right courses for investment banking and join one of them. You should choose one that lets you learn online and test your skills through projects and assignments while teaching you all the required concepts.
By and large, investment banking is a broad subject with many concepts and skills. We recommend checking out the CIBOP program, which is among the most popular courses for investment banking in India. It will help you learn all the concepts we discussed in this article along with additional subjects and technologies.
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