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An investment bank is a financial intermediary that performs a variety of services.

When a company wants to raise capital by issuing securities, it needs an entity with the skills and knowledge required to bridge the gap between itself and investors. Investment banks fill that underwriting role. They also advise businesses on mergers and acquisitions, buy and sell their own securities, and serve as a broker and adviser for financial institutions, offering guidance on the best ways to raise funds.

The advisory divisions within investment banks are paid for their services, while the trading divisions record profits or losses based on their market performance. If the two sides don’t remain independent from one another, a conflict of interest can occur.

The more connections an investment bank has, the more likely it is to profit from matching buyers and sellers. Clients include corporations, pension funds, hedge funds, governments and other financial institutions. Their services can be complex, but investment banks help companies make financial decisions and raise the capital they need.

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