Understanding the Role of an Investment Banker

Understanding the Role of an Investment Banker
There are two terms: First is an investment banker and the other one is investment banking. An investment banker is a professional who helps companies to raise capital by issuing stocks and offering bonds. They assist companies, corporations, governments, and other entities and provide financial advice to them. On the other hand, Investment banking is a segment of bank operations that help in organizing large financial transactions such as mergers or IPOs.
Now that we know about the difference between the two terms, let’s talk about the role of an investment banker:
An investment banker advises entities on financial matters and assists with financial transactions such as mergers or acquisitions.
They help raise capital by issuing stocks and offering bonds.
They also create Securities and Exchange Commission (SEC), which is a regulatory body that protects investors and is necessary for companies to go public.
An investment banker is a risk management expert for the company. They identify risks before every single step a company wishes to take.
Non-profit organizations seek help from investment bankers for planning their company’s future growth and development.
When a company holds its IPO, at that time the investment bank purchases almost all the shares of the company and acts as a bridge between the company and the public. The investment bank sells the company’s shares to the public at a price higher than the purchase price to generate profit.
Let’s understand this by taking an example:
Suppose there is a company named Cash Trading Company which wants to go public. So the owner of the company, Mr. Mahesh Prasad Agarwalla, will get in touch with Sairaj Agarwalla, an investment banker. They both will have a deal, and Sairaj (on behalf of his firm) will agree to purchase shares (let's say 1000) at Rs. 20 per share.
Now Sairaj’s company will pay Rs. 20,000 to Cash Trading Company. On the day of the IPO, the company will sell the shares at Rs. 22 per share to generate a profit. If the market supports the price, then Sairaj’s company will make a profit. But if the market is weak, then the company will have to sell the shares at a reduced price, incurring a loss.
This will not affect the cash trading company in any way because it has already received its Rs. 20,000.

Skills required by an investment banker:
Investment bankers should be highly proficient with numbers as much of their work involves numbers only.
They must have excellent communication skills so that the language they use to communicate and present their ideas to the client is understandable and professional.
They should also possess strong presentation skills for better client understanding.
Having a finance background in education is necessary to have knowledge about financial analysis, annual reports, etc.
Having specialized knowledge in a particular industry can provide better advice and insights to clients on financial matters.
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