Main activities of commercial and investment banks in the capital Essay

Main activities of commercial and investment banks in the capital markets - Essay Example Commercial banks provide capital market related services, depository services, advises on portfolio management or investment counseling, etc. Many banks have now started offering investment services to the retail customer, which is essentially advice and execution of mutual fund investments and redemptions.The Commercial Banks can be referred to as institutions that are involved in credit activities. Credit activities can be classified into deposit acceptance and borrowing funds from other banking institutions. Other activities are credit extension, risk management and risk advice.The classification of the types of services that are offered by a commercial bank is as follows:†¢ Discretionary Services – Decisions are taken on behalf of the clients/customers by a portfolio manager keeping in view the different parameters of asset allocation. †¢ Non-discretionary Services – In this kind of services, portfolio managers do not have the right to take decisions on behalf of clients/customers. The client or the customer is needed to authorize all the transactions happening with respect to their account.Advisory services – Flexible, unbiased investment advice customized to meet the client’s needs.Transaction support – All transactions, both in the primary and secondary markets facilitated through a panel of brokers.Custodial services – Important from the point of view of removal of settlement hassles and efficient follow-up of all corporate actions.Commercial banks approach the brokers for information about the quotes of other commercial banks. The broker serves three important purposes in the foreign exchange markets. First, instead of hunting around in the market for quotes, one can approach a broker and find out these prices. Second, brokers help the prospective buyer or seller keep his identity secret till the deal is struck. This prevents the quote being affected by the inquirer's position, i.e. whether he needs to buy or to sell. Lastly, even when there is no buying or selling requirement, commercial banks can keep their quotes from going too far away from the quotes being given by other banks, by inquiring about the market quotes from the brokers. Investment banks help both the government and corporate in raising money by trading in the securities markets. Large investment banks deal in the market both to execute their clients', (both corporate and individuals) orders and on their own account. They act as market makers in the foreign exchange markets, i.e. they stand ready to buy or sell various currencies at specific prices at all points of time. The commercial banks give, on demand, a quote for a particular currency against another currency, i.e., the rate at which they are ready to buy or sell the former against the latter. At these rates they stand ready to take any side of the transaction (buy or sell) that the customer chooses. The maximum and the minimum amount of the currencies acceptable to the bank at these rates, though not specified at the time of making the quote, are generally understood according to the conventions of the market. These rates may not necessarily be applicable to amounts smaller or larger than th ose acceptable according to the going conventions. In the foreign exchange markets there are numerous market makers, and all of them would be giving different quotes for the same pair of currencies simultaneously, at any point of time. It would be very difficult for a player to keep track of all the quotes available in the market, and hence choose one which is considered the most favorable. As a result, a number of trades may be taking place simultaneously at different exchange rates. The market making activity of the commercial banks, along with speculation, makes markets extremely liquid, especially for the major currencies of the world