The main roles of investment banking and merchant banking differ from one another. The underwriting and issuing of securities are the main business activities of investment banks, whereas international finance and trade-related activities are the main focus of merchant banks. So let us check out the difference between Merchant Bank and Investment Bank, their function, meaning, Funds, financial resources, examples, and more.
What is a Merchant Bank?
A merchant bank is a type of financial organization that serves high-net-worth individuals as well as international businesses. The general public is not served by merchant banks, in contrast to retail or commercial banks. Rather, they assist businesses, usually specializing in foreign finance for big multinational corporations. These banks frequently offer providing services, fundraising assistance financial counseling, and underwriting.
What is an Investment Bank?
Investment banks were established to help their clients, that is businesses, wealthy people, and the government, in setting up capital. By acting as an intermediary between investors and the company in need of financing, they allow the conversion of savings into investments. In addition, they make money via financial engineering, dealer and brokerage operations, corporate restructuring treasury management, and speculation and arbitrage.
Difference between Merchant Bank and Investment Bank
- Merchant banking helps big companies, and Investment bank helps people and big groups.
- Merchant bank implies a banking institution that fulfills the capital requirements of the companies in the form of share owenership, rather than granting loans. Investment banks are the middleman between the issuer of securities and the investing public and also provide various financial services to the clients.
- Merchant banking gives advice, handles IPOs, gets big loans, and keeps companies safe, on the other hand, Investment banking helps plan money, takes care of money, buys and sells things, and assists companies in getting money.
- Merchant banking focuses on helping businesses, on the other hand, Investment banking focuses on managing money and investments.
- Merchant banks have a higher risk, On the other hand, Investment is a lower risk.
- Merchant banking doesn't usually trade in financial markets, but investment banking buys and sells things like stocks and bonds.
- Merchant banks work closely with companies, but the investment manages money and helps with investments.
- Merchant banks can be more profitable, as they take more risk, In contrast, Investment banks are less profitable, as they take on less risk.
- Merchant banks are more connected to the success of client business, on the other hand, investment banking is affected by market changes and investment performance.
- Merchant banks offer their customers trade finance options. On the other hand, there are only a few investment banks that provide trade financing services to their clients.
- Merchant banks engaged in international financing activities, and investment banks are concerned with the underwriting and issuance of securities.