Question

What’s the difference between a commercial bank and an investment bank? List the major types of financial institutions, and briefly describe the primary function of each. What are some important differences between mutual funds, Exchange Traded Funds, and hedge funds? How are they similar?

Answer 1

Answer:

A commercial bank is one which takes deposits to customers and loans them out to other customers, and makes a profit by charging a higher interest rate then it pays. Whereas in Investment bank is a bank which provides services to other companies for their IPOS, Asset management, helps create SPVs, helps in mergers and acquisitions etc.

Major Financial institutions

Central Banks: Setting Monetary Policy

Commercial Money: Taking Deposits and Lending that money

Investment Banks: Handling mergers and acquisitions

Mutual funds and ETFs are very similar in the nature that various investors are allowed to invest in them and it is very safe and passive type of investing, low risk and low return but the major difference is that ETFs follow a particular index for eg S and P 500 etc

Hedge funds on the other hand only allow high net worth individuals to invest and have limits on how early you can withdraw your money, they use very complex, active and high risk, reward strategies.

Explanation: