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Main activities of commercial and investment banks in the capital markets Essay

Category: Finance & Accounting Pages: 5 Type: Essay Level: Other
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 those 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.
The market in which the