 Hey guys, it's MJ and welcome to my videos that I'm doing around the fellowship of finance Like always these are raw unedited Unscripted so and very much opinionated. So don't take them as factual information. It's just meant for discussion It's me studying out loud. So feel free to also challenge the material in the comment section below What we've been doing is we've been talking about the various players in the economic environment and This video is going to be a round businesses and I'm going to also talk a little bit about investment banks near the end So, yeah, remember it is opinionated consult your own notes went while studying But please feel free to join the discussion in the comment section below Okay, so businesses businesses are good. I like businesses businesses make stuff they do productivity and they make the economy work so Businesses are great as they bring in productivity You know, they take raw materials and they turn it into something useful and they increase utility for everyone The thing though with businesses is that in order to do this productivity, they need something known as capital So before they can make delicious cereal they need to Rent a factory and buy a whole bunch of machines that can turn corn or whatever it is that makes cereal in You know add sugar and all that type of stuff into the delightful treat that we eat for breakfast same with toys is they have to convert plastic and all that into nice little shapes for us to play with and this all takes up capital Now traditionally or back in the day What you would do is if you have a business you'd go to your rich uncle and say hey Can I have some money to start my little lemonade stand or to find my little app? And your rich uncle will give you the money to do that however, if you are a real businessman and you're doing big business you need to find capital in another way and one of the ways of getting big boy capital is through the issuing of shares So you can also if you can out issue shares or you can issue bonds We're gonna be talking about the shares. I guess I guess we can also talk about bonds. Why not? Bonds being the debt so you can lend money to a business They pay your fixed interest rate or you can buy shares and get a controlling stake as well as a proportion of their profits Now what they're gonna do is they're gonna issue these shares and these bonds to the public Okay, to the public or to the households. So they say look we want money basically its crowdfunding at a massive scale and What they want to do is they want to get the best possible price for their securities and they want to issue their shares at the lowest possible cost But this is the problem. Okay, is that it is Terribly complicated Okay, it's complicated and It is expensive To issue shares. I mean, if you want to get your business onto the Johannesburg stock exchange Oh, there's quite a lot of paperwork and it's quite a daunting task. In fact, this is why Websites like Kickstarter have, you know, been so successful is because it's allowed an alternative way for people to raise capital But the capital that you're raising on Kickstarter is very very small Compared to some of the big businesses So what they will do is they want to harness all the residual income of households And of the financial intermediaries that the households have entrusted their money towards and in order to do so They need to have the regulation. They need to have all their documents in place and issue either shares or bonds and What this does is I mean, they basically are creating the economic environment by issuing shares and issuing bonds They creating the assets that people can now invest in But now in order to do this in order to issue shares and issue bonds They need to go through another Party or another organization known as the investment bank It's weird how the word bank is included in this because they don't really do the traditional banking things Although some investment banks then evolve into Taking on those traditional banking roles, but they start off doing various other things and what the investment banking firm specializes in is the well Not only do they help you know go through the whole regulation and and help them with issuing the shares But they they advise on various things. So they will advise the price so if you want to Make a let's say a whole bunch of dog food and you want to export the dog food into You know various other countries and you want to make dog food share in South Africa and play on our whole currency It's the fact that our currency is so weak Increases exports and you need a lot of money in order to buy a factory and dog food making machines and all the raw materials and all that type of stuff You approach an investment bank and they'll say why don't we issue a hundred million shares at a hundred grand each So that you can raise, you know a billion rand or something crazy like that So they will advise you on the price of your share They will assist in say the valuation and because they're doing that they're going to need Actories and accountants. So they're going to advise on the price But what they also do is they handle the marketing of the security Issue to the public. So they also are going to handle the the issuing Which means that they're going to have to have a whole legal team making sure that they comply with the regulations And all the rules and all that type of stuff So they will go Investment banks normally have a really good brand. They I mean they sponsor a lot of things in order to get that brand brand recognition I know in South Africa, we have investing their investment bank They actually sponsor tottingham hot spurs the soccer team To get that brand recognition to build up their reputation So when they help issue a share and it's coming with investing people know that hey, this is a good share This is a good Security that we can buy in because investing are risking their reputation So another thing investment banks is is they leverage their their reputation Because a lot of finance and all this type of stuff does come down to trust You know, so many scams are still happening today that you rather will be more confident putting your money With a name that you've seen before and that you know have invested a lot of money into their reputation So, yeah, they will seek to protect their reputation for honesty by checking and certifying the quality of the information offered You know, they make sure that the dog food company that that they're issuing is legit They're not, you know, the food tastes good for the dogs. There's not going to be poisonous to the dogs It doesn't have any scandals, you know, they kind of do do that background check Which means that when they come to market and issue the share people have faith that hey, this is a legit company We can invest our money with them And then the final thing That I want to talk about that investment banks do is it's something quite interesting is they create innovative security design Okay, what do I mean by innovative security design? So let's go back to investing one of the things investing do is they'll say to to their their clients they'll say invest money with us And this is weird because okay invest take are maybe becoming more of a financial intermediary Um, but what they'll say is invest your money with us. We will buy a whole bunch of stocks for you But we will give you a guarantee That you will get your money back. So they say Come to the stock market. Welcome to the stock market. Okay prices go up and down up and down all this type of stuff they say The amount you put in at day one, we will give that to you no matter what happens. So let's say the Investment tanks and the whole stock market crashes and becomes zero They will give you that money. They will take on that risk and for doing so You are more likely to invest with them Which gives them more influence in the the economy and they can actually buy More shares or have access to to big assets So it's one way of getting more money in under their control for them to buy various stocks and do stuff like that Also, you're then happy with investing and it again strengthens their relation your relationship with them So investment banks are I mean just doing just one little video on them is is not enough, but I just wanted to talk about how When businesses want to enter into the economy and raise capital Through shares and bonds, they're not going to do it by themselves because it is too complicated Think about it. If you if your business is making dog food, you know dog food. You understand dogs Now comes to the rules and regulations of issuing shares and jsc and all this type of stuff It really goes above your head. And so you will go to an investment bank They can do a whole bunch of other things like Share underwriting and and all these other interesting things But I think let's maybe leave the investment banks for there And maybe talk just a little bit more on business um Or I mean I don't know what what more can we say about business around how they influence the economy in the sense that they are the economy So the better the conditions are for business say tax tax is always an important one We'll make it more Lightly for them to do business And depending on the rules and regulations We'll you know determine what investments or securities that they issue or make available to people Um, I think because we've got time. Let's maybe talk about one other thing How much time how long have I been talking for? I've been talking for 10 minutes. Yeah, let's maybe talk about foreign investors just just quickly So we don't have to do an entire whole video on them um We'll show you Yeah, no 10 minutes is enough. Let me rather do another video on foreign investors and their role In the economy because yeah, maybe let me let me rather do that So this has been quite a short of video Just around business investment banks But yeah, like I said tomorrow the foreign investor video will be up So hit subscribe so so you can see it coming up in your youtube channel feed But otherwise, thanks so much for watching And check out the rest of the videos that I've been making around finance as I prepare for the fellowship exam So, yeah, thanks for watching. Cheers