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Week 13 Lecture - Week 13 Investment Banking and Venture...

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Week 13. Investment Banking and Venture Capital 1203AFE Money, Banking and Finance Chapter 17 Monday 27 October 2008
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Objectives It is the purpose of this lecture to help you to: Explain the relationship between commercial and investment banks Describe the history of investment banking Describe the investment banking industry in Australia Explain how investment banks are regulated Explain the core business activities of investment banks Describe what venture capitalists do
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Investment Banks In the primary market: Involved in the sale of new security issues in the primary market. In the secondary market: Act as brokers and dealers to make secondary markets securities. Investment banks don’t take deposits or make loans Also known as money-market corporations Universal bank – investment bank who is an ADI
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History of Investment Banks Origins in the European banking houses. Grew rapidly during the industrialisation of America In Australia, investment banking developed after the deregulation of the financial sector. Large offshore investment banks established operations in Australia Australian market was attractive due to: Low barriers to entry Stable financial system Efficient infrastructure Skilled workers
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Commercial vs. Investment Banking As commercial banking declined in profitability, commercial banks increasingly pursued investment banking activities. Factors influencing this shift: Technology Regulation However, investment banks also pursued traditional commercial banking activities such as short-term financing.
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The Future Commercial banks who successfully enter into investment banking might be able to build strong businesses. However, the large investment banking firms (Merrill Lynch, Macquarie Bank and Goldman Sachs) seem likely to maintain their dominance. A core group of financial institutions will dominate Australia’s financial system.
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Investment Banking in Australia Australia has 61 money-market corporations and 280 financial companies offering investment banking services. List
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