BANKING SERVICES

A banking system is the most important and integral part of the economy for any country.
 AGENDA

• Unit 22: Investment Banking

• Unit 23: Central Banking
 UNIT 22: INVESTMENT BANKING

This Photo by Unknown Author is licensed under CC BY-SA

UNIT 22: INVESTMENT BANKING

• Key vocab
• RAISING CAPITAL
• intermediaries, issuing securities, underwrite, initial public offerings (IPOs), raise funds, acquire,
institutional investors, investment funds, pension funds, stockbroking, dealing, executes orders

• MERGERS AND ACQUISITIONS

• mergers, acquisitions, divestitures, subsidiary, fee

• CONSULTING AND RESEARCH

• Consulting firm, strategic planning, financial restructuring, research, analysts, forecasters, valuation
UNIT 22: INVESTMENT BANKING
CONVERSATION 10 – RAISING CAPITAL
• A: “Hi there, I'm interested in learning more about banking services. Can you tell me about the role
of intermediaries in the process?”
• B: "Sure, intermediaries play a crucial role in the banking industry. They act as a bridge between
investors and companies, helping to raise funds through various means. For instance, they can help
companies issue securities and underwrite initial public offerings (IPOs).”
• A: "That's interesting. How do intermediaries help companies raise funds?"
• B: "Intermediaries help companies raise funds by acquiring investments from institutional investors,
such as investment funds and pension funds. They also facilitate stockbroking and dealing, which
involves executing orders on behalf of their clients."
• A: "I see. So, what exactly is the role of investment funds and pension funds in the process?”
UNIT 22: INVESTMENT BANKING
CONVERSATION 10 – RAISING CAPITAL (CONT.)
• B: "Investment funds and pension funds are institutional investors that pool money from
individual investors to purchase securities on their behalf. They provide a significant amount of
capital to the market, which helps companies to raise funds for their operations. Additionally,
investment funds and pension funds also help to diversify risk for individual investors by
investing in a wide range of securities.”
• A: "That's helpful. Can you explain more about how intermediaries underwrite IPOs?”
• B: "Sure, when a company decides to go public and issue an IPO, intermediaries play a key role
in underwriting the offering. They assess the market demand for the securities and set the
price for the shares. In some cases, intermediaries may also purchase a portion of the shares
themselves to ensure the offering is successful.”
UNIT 22: INVESTMENT BANKING
CONVERSATION 10 – RAISING CAPITAL (CONT.)
• A: " Thanks for explaining that. It seems like intermediaries are critical to the banking
industry.“
• B: " Yes, intermediaries are essential for companies to raise funds, and for investors to acquire
securities. They help facilitate transactions and ensure that the process is efficient and fair for
all parties involved.”
UNIT 22: INVESTMENT BANKING
CONVERSATION 11 – MERGERS AND ACQUISITIONS
• A: “Hi there, I'm interested in learning more about banking services related to mergers, acquisitions, and
divestitures. How much do these services cost, and what are the fees associated with them??”

• B: “The cost of banking services related to mergers, acquisitions, and divestitures can vary depending on the
complexity of the transaction and the services required. Typically, investment banks charge fees for these
services based on a percentage of the transaction value. These fees are known as advisory fees, and they can
range from 1% to 5% of the total transaction value.”

• A: “That's good to know. Can you tell me more about the different types of fees associated with these
services?”

• B: “Sure. In addition to advisory fees, there may be other fees associated with these services, such as financing
fees, due diligence fees, and legal fees. Financing fees are charged for providing financing for the transaction,
while due diligence fees are charged for conducting a thorough analysis of the companies involved. Legal fees
are charged for legal services related to the transaction, such as drafting and reviewing contracts.”
UNIT 22: INVESTMENT BANKING
CONVERSATION 11 – MERGERS AND ACQUISITIONS
(CONT.)
• A: “I see. That's a lot of fees. Is there any way to reduce the costs associated with these
services?”
• B: “Yes, there are several ways to reduce the costs associated with these services. One way is
to negotiate the fees with the investment bank before the transaction. Another way is to use a
different type of bank or financial institution that may charge lower fees. It's important to
note that while reducing fees may be a priority for some companies, it's essential to ensure
that the services provided are of high quality and that the transaction is successful.”
• A: “That makes sense. Can you explain more about the role of a subsidiary in these types of
transactions?”
UNIT 22: INVESTMENT BANKING
CONVERSATION 11 – MERGERS AND ACQUISITIONS
(CONT.)
• B: “Sure. A subsidiary is a company that is controlled by another company, known as the
parent company. In mergers, acquisitions, and divestitures, a subsidiary may be bought, sold, or
spun off as part of the transaction. The role of the subsidiary in these transactions can be
significant, as it can impact the overall value and structure of the transaction.”
• A: “Thank you for explaining that. It sounds like there are many different factors to consider
when it comes to the cost and fees associated with these types of banking services.”
• B: “Yes, there are many factors to consider when it comes to the cost of these services.
However, with the right strategy and negotiation skills, companies can reduce the costs
associated with these services while still receiving high-quality advice and support from
investment banks.”
UNIT 22: INVESTMENT BANKING
CONVERSATION 12 – CONSULTING AND RESEARCH

• A: “Hello, I'm interested in learning more about banking services related to strategic planning,
financial restructuring, and valuation. Can you tell me more about these services?”
• B: “Sure, there are several banking services that can assist companies with strategic planning,
financial restructuring, and valuation. Consulting firms and investment banks can provide these
services, which may involve research, analysis, and forecasting to help companies make
informed decisions about their financial situation.”
• A: “That's interesting. Can you tell me more about the role of research, analysts, and
forecasters in these types of services?”
UNIT 22: INVESTMENT BANKING
CONVERSATION 12 – CONSULTING AND RESEARCH
(CONT.)
• B: “Sure. Research, analysts, and forecasters play a crucial role in these types of services. They
provide insights into market trends and help companies to identify opportunities and
potential risks. They also provide valuations of companies and their assets, which can help
companies to make strategic decisions about mergers, acquisitions, and divestitures.”
• A “That sounds helpful. Can you explain more about financial restructuring and how banking
services can assist with this?”
• B: “Sure. Financial restructuring involves changing a company's financial structure to improve
its financial performance or to address financial problems. Banking services can assist with
financial restructuring by providing advice on debt restructuring, capital raising, and cost-
cutting measures. They can also provide advice on divestitures and spin-offs to help companies
focus on their core businesses.”
UNIT 22: INVESTMENT BANKING
CONVERSATION 12 – CONSULTING AND RESEARCH
(CONT.)
• A: “That's useful. How do banking services help with strategic planning?”
• B “Banking services can help with strategic planning by providing advice on growth strategies,
market entry strategies, and new business development. They can also assist with scenario
planning and risk management, helping companies to prepare for potential risks and
opportunities.”
• A: “I see. Can you tell me more about valuation and how banking services can assist with this?”
• B:“Sure. Valuation involves determining the worth of a company or an asset. Banking services
can assist with valuation by providing financial analysis and modeling, which involves assessing a
company's financial statements and forecasting its future earnings potential. This can be helpful
for companies that are considering mergers, acquisitions, or divestitures.”
UNIT 22: INVESTMENT BANKING
CONVERSATION 12 – CONSULTING AND RESEARCH
(CONT.)
• A: “Thank you for explaining all of that. It sounds like banking services can provide valuable
insights and advice for companies looking to improve their financial performance or make
strategic decisions.”
• B “Yes, that's correct. Banking services can play a crucial role in helping companies to achieve
their financial goals and to navigate complex financial situations.”
 UNIT 23: CENTRAL BANKING

This Photo by Unknown Author is licensed under CC BY-NC-ND

UNIT 23: CENTRAL BANKING

• Key vocabulary
• THE FUNCTIONS OF CENTRAL BANKS
• monetary policy, financial stability, supervises, regulates, issues currency

• THE CENTRAL BANK AND THE COMMERCIAL BANKS

• reserve-asset ratio, financial system, bank run, run on the bank, lender of last resort, bail out

• CENTRAL BANKS AND EXCHANGE RATES

• gold, exchange rate, intervening, currency markets, supply, demand
UNIT 23: CENTRAL BANKING
CONVERSATION 13 – THE FUNCTIONS OF CENTRAL
BANKS
• A: "Hi there, I'm interested in learning more about banking services related to monetary policy,
financial stability, and regulation. Can you explain how banks play a role in these areas?"
• B: "Sure. Banks play a critical role in monetary policy, financial stability, and regulation. They act as
intermediaries between borrowers and lenders and provide a range of financial services to
businesses and individuals. Banks also play a significant role in the economy by implementing
monetary policy and promoting financial stability."

• A: "That's interesting. Can you explain how banks implement monetary policy?"
• B: "Sure. Banks implement monetary policy by influencing the supply and demand of money in the
economy. They can do this by adjusting interest rates, the reserve requirement, and open market
operations, which involves buying or selling government securities. By controlling the supply and
demand of money, banks can influence inflation, economic growth, and employment."
UNIT 23: CENTRAL BANKING
CONVERSATION 13 – THE FUNCTIONS OF CENTRAL
BANKS (CONT.)
• A: "That's fascinating. Can you explain how banks promote financial stability?"
• B: "Sure. Banks promote financial stability by supervising and regulating financial institutions and
markets. They ensure that financial institutions have adequate capital and liquidity to withstand
economic shocks and that they comply with regulations to prevent financial crises. Banks also
provide support to financial institutions and markets during times of stress to prevent disruptions
to the economy."
• A: "That's helpful to know. Can you explain the role of banks in regulating the economy?"
• B: "Sure. Banks regulate the economy by supervising and regulating financial institutions and
markets. They ensure that financial institutions comply with regulations to prevent financial crises
and promote financial stability. Banks also issue currency and manage the money supply to control
inflation and promote economic growth."
UNIT 23: CENTRAL BANKING
CONVERSATION 13 – THE FUNCTIONS OF CENTRAL
BANKS (CONT.)
• A: " Thank you for explaining that. It sounds like banks play a crucial role in the economy and in
promoting financial stability."
• B: " Yes, that's correct. Banks play a critical role in the economy, and their services are essential for
individuals, businesses, and governments. By implementing monetary policy, promoting financial
stability, and regulating financial institutions, banks help to ensure that the economy is functioning
effectively and that individuals and businesses have access to the financial services they need to
succeed."
 UNIT 23: CENTRAL BANKING
CONVERSATION 14 – THE CENTRAL BANK AND THE
COMMERCIAL BANKS
• A: “Hello, I'm interested in learning more about banking services related to the financial system and how
banks deal with a crisis like a run on the bank. Can you explain the role of reserve-asset ratios in this?”
• B: “Sure. Reserve-asset ratios are a measure of a bank's ability to meet its obligations to its customers. The
reserve-asset ratio is the percentage of a bank's deposits that it holds as reserves. This reserve
requirement helps to ensure that banks have enough liquidity to meet the demands of their customers and
to prevent bank runs.”

• A: “ What is a bank run, and how do banks deal with it?”

• B: “ A bank run is a situation where a large number of customers try to withdraw their deposits from a
bank at the same time. This can lead to a shortage of funds, and if the bank is unable to meet its obligations
to its customers, it can result in the bank's failure. To deal with a bank run, banks can rely on their reserve-
asset ratios, and if necessary, they can also borrow from the lender of last resort, such as the central bank.”
UNIT 23: CENTRAL BANKING
CONVERSATION 14 – THE CENTRAL BANK AND THE
COMMERCIAL BANKS (CONT.)
• A: " What is the role of the lender of last resort?"
• B: "The lender of last resort is typically the central bank, which provides emergency liquidity to
banks during times of financial stress. The central bank can lend money to banks to help them
meet their obligations to their customers and prevent a bank run. The lender of last resort is
considered the last line of defense for the financial system, and its role is to prevent a systemic
failure of the banking system."
• A: "That's interesting. What happens if a bank fails despite these measures?"
• B: "If a bank fails despite these measures, it can have serious consequences for the financial system
and the economy. In some cases, governments may step in to bail out the bank to prevent a
systemic failure. This can involve injecting funds into the bank or taking over the bank's assets and
liabilities to protect its customers."
UNIT 23: CENTRAL BANKING
CONVERSATION 14 – THE CENTRAL BANK AND THE
COMMERCIAL BANKS (CONT.)
• A: " Thank you for explaining that. It sounds like the reserve-asset ratio, the lender of last
resort, and government bailouts play critical roles in maintaining the stability of the financial
system."
• B: " Yes, that's correct. These measures are essential for ensuring that the financial system
remains stable and that individuals and businesses have access to the financial services they
need to succeed. By ensuring that banks have enough liquidity to meet the demands of their
customers and providing emergency support when needed, the financial system can continue to
function effectively even in times of stress."
UNIT 23: CENTRAL BANKING
CONVERSATION 15 – CENTRAL BANKS AND
EXCHANGE RATES
• A: “Hello, I'm interested in learning more about how gold affects exchange rates and how banks
intervene in currency markets.”
• B: “Sure. Gold can affect exchange rates because it is considered a safe-haven asset that
investors often turn to during times of uncertainty. When investors buy gold, it can lead to an
increase in demand for the currency of the country that produces the most gold. This can
cause the exchange rate of that currency to appreciate.”
• A:“That's interesting. How do banks intervene in currency markets?”
• B:“Banks can intervene in currency markets to influence the exchange rate of a currency. This
can involve buying or selling currencies in the foreign exchange market to increase or decrease
the supply or demand for a particular currency. Banks can also use other tools, such as interest
rate adjustments or changes to monetary policy, to influence exchange rates.”
UNIT 23: CENTRAL BANKING
CONVERSATION 15 – CENTRAL BANKS AND
EXCHANGE RATES (CONT.)
• A: “Can you explain how supply and demand affects exchange rates?”
• B: “Sure. Exchange rates are determined by the supply and demand for different currencies in
the foreign exchange market. When there is more demand for a currency, its exchange rate
typically increases, and when there is less demand, its exchange rate typically decreases.
Similarly, when there is more supply of a currency, its exchange rate typically decreases, and
when there is less supply, its exchange rate typically increases.”
• A:“I see. How does this relate to banks and their role in currency markets?”
• B:“Banks play a significant role in currency markets because they are often the primary
participants in foreign exchange transactions. Banks can buy and sell currencies in the foreign
exchange market to meet the needs of their clients, and they can also use their influence to
intervene in the market and affect exchange rates.”
UNIT 23: CENTRAL BANKING
CONVERSATION 15 – CENTRAL BANKS AND
EXCHANGE RATES (CONT.)
• A: “That's really helpful. Thanks for explaining it to me.”
• B: “You're welcome. If you have any other questions, feel free to ask.”