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AOF Principles of Finance

Lesson 8Investment Banking

In this lesson, students are introduced to the concept of investment banking and explore some of its many services, including methods of raising capital, mergers, and acquisitions. Students explore the transformation that has taken place within the investment banking industry from its beginnings as a form of financing for US industries and railroads to the subprime mortgage crisis of 2008. Lastly, students take a short-answer quiz in which they are assessed on what they have learned about the investment banking industry as a whole.

This lesson is expected to take 3 class periods.

Lesson FrameworkLearning ObjectivesEach student will:

List the characteristics of an investment bank Explain how an investment bank differs from a commercial bank Describe the services provided by investment banks Summarize the history of investment banking

Academic StandardsThe relevant Common Core State Standards are too extensive to list here but are an important basis for this lesson. For details, please refer to the separate document “Correlations to the Common Core Standards” (available in the Course Planning Tools section of the course materials).

Students will know that the Securities and Exchange Commission (SEC), the Federal Reserve, and other government agencies regulate financial markets (National Standards for Financial Literacy 2013, Standard V, Grade 12, Benchmark 13)

Copyright © 2009-2016 NAF. All rights reserved.

AOF Principles of FinanceLesson 8 Investment Banking

AssessmentAssessment Product Means of Assessment

Short-answer quiz on general investment banking topics (Teacher Resource 8.2)

Answer Key: Overview of Investment Banking Quiz (Teacher Resource 8.3)

Prerequisites General knowledge of some common financial institutions such as banks, credit unions, insurance

companies, and savings and loans Ability to define capital and describe its importance to financial institutions

Instructional Materials Teacher Resources

Teacher Resource 8.1, Presentation and Notes: History of Investment Banking (includes separate PowerPoint file)

Teacher Resource 8.2, Quiz: Overview of Investment Banking Teacher Resource 8.3, Answer Key: Overview of Investment Banking Quiz Teacher Resource 8.4, Key Vocabulary: Investment Banking Teacher Resource 8.5, Bibliography: Investment Banking

Student Resources Student Resource 8.1, Reading: Introduction to Investment Banks and Their Services Student Resource 8.2, Graphic Organizer: Cause and Effect Student Resource 8.3, Reading: History of Investment Banking

Equipment and Supplies Blackboard, whiteboard, or chart paper LCD projector and computer for PowerPoint presentation

Copyright © 2009-2016 NAF. All rights reserved. 2


Lesson StepsStep Min. Activity

CLASS PERIOD 1

1 10 Four Corners: Determining ValueIn this activity, students are introduced to the investment banking industry and the services that it provides.

Before class, create four signs that read as follows:

Set a price based on new systems Set a price based on comparable used systems Ask your friends what they would pay Other approaches

Begin the class period by reading the following scenario to the class:

A few years ago your sister gave you her old Play Station 3. You have the Dual Shock 3 controllers, almost 20 video games, and a few Blu-ray movies to go along with it. Lately you’ve wanted to buy Play Station 4, so you’re thinking of selling Play Station 3. You’re hoping to make at least a few hundred dollars from the sale, but you’re not quite sure how much to sell the package for.

Explain that the signs posted around the room offer various ways students could establish a price for their system. Ask them to think about it, and then move to stand by the sign that represents what they think would be the best way to set a price. If their approach is not listed on a sign, they should stand by the “Other approaches” sign.

Allow a few minutes for students to move, and then invite one or more volunteers from each group to share why they chose as they did.

In an attempt to figure out the value, students should realize that there are certain characteristics that can determine a system’s worth. With this in mind, ask students to consider these characteristics. Instruct students to discuss their ideas with the other students standing near them; then call on volunteers to share. Possible answers could include what shape the system’s in, whether games and other accessories are included, how old it is, and how much more progressive other gaming systems have become.

Explain that in this lesson students are going to look at investment banks. Investment banks are different from the types of banks students have already studied, and they are faced with similar challenges of determining values. One of the services that an investment bank provides is determining the worth or value of a company. Investment banks do this in a variety of ways, including analyzing data to review the worth of comparable companies, the current status of the company with regard to products and services offered, as well as long-range plans for the future to ensure its survival. In fact, investment banks require this type of company valuation in order to complete some of their most common services, which will be discussed in the next activity.

2 30 Reading: Introduction to Investment Banks and Their Services



Step Min. Activity

In this reading, students are introduced to the concept of investment banks and are given the opportunity to explore some of the many services that they provide.

Begin the activity by introducing Student Resource 8.1, Reading: Introduction to Investment Banks and Their Services.

Before students begin the reading, read aloud the title, the subheadings, and key words in bold. Based on this information, ask students to predict what they think one of the main functions of an investment bank will be. Have students record their answers in their notebook, and then call on students to share their thoughts with the class. Write the following two instructions on the board and explain to students that while they are reading they must accomplish these tasks:

Underline the characteristics of an investment bank (e.g., investment banks are financial institutions that cater to the needs of companies, organizations, and even the government).

Highlight specific services provided by investment banks (e.g., investment banks research and analyze a company’s worth).

Allow students some time to complete the assignment. When they are done, have them compare and contrast their work with a partner to review the characteristics of an investment bank and the services that it provides.

Next, instruct students to return to their earlier predictions. Based on what they have learned from the reading, ask them to modify their original responses so that they accurately reflect one of the main functions that investment banking provides. Have students relay their responses to check for understanding.

Emphasize that the function of investment banking involves methods of raising capital for mergers and acquisitions, and that investment banks and their services are essential to maintain a growing and healthy economy.

3 10 Defining Format: Investment BankThis activity helps build students’ understanding of investment banks. By using the Defining Format, students can construct their own meaning of the term, creating greater clarity of comprehension. (For more information on the Defining Format strategy, see The NAF Learning Handbook.)

Once students have shared some of the characteristics of investment banks and their services, tell the class that they will now use the Defining Format to help them with their definitions.

Instruct students that with the Defining Format they will need to develop a category and three characteristics that relate to the term. Tell students that because these characteristics are generally but not necessarily true, they should include the word “usually” or “normally.”

Before students get started, review the example on commercial banks given below.

Term Category Characteristics

A commercial bank is a financial institution that usually

1. offers a range of deposit accounts.



Step Min. Activity

2. makes loans to individuals and businesses.

3. safeguards documents, money, and other items of value.

An investment bank is a financial institution that usually

1.

2.

3.

Have students work with their partner from the last activity and construct a Defining Format chart (like the one above) in their notebook. Give pairs time to create some characteristics for investment banks, encouraging them to refer to the reading if necessary. After a few minutes, have pairs share their category and characteristics with the class. At this point, students may add or delete any part of their responses based on their classmates’ responses. As pairs are sharing, write down some of the characteristics on the board.

Before students are dismissed, emphasize that whereas commercial banks are primarily concerned with an individual’s wealth, investment banks handle the wealth of companies, organizations, extremely wealthy individuals, and even governments. Be sure that students have highlighted this distinction in their definitions.

Remind students that the line between what was an investment bank and a commercial bank is blurred, and that banks in general are taking a broader approach to the services they offer. Investment and commercial banking industries are evolving and changing all the time, creating an industry that is less specialized than it was before. Tell the class that they will explore this concept in greater depth in the next class period.

CLASS PERIOD 2

4 35 Presentation: History of Investment BankingThis activity provides students with a more in-depth understanding of investment banking and an awareness of the transformation that has taken place within the industry. It also develops students’ listening and note-taking skills.

To prepare, make notes to guide class discussion using Teacher Resource 8.1, Presentation Notes: History of Investment Banking. Have Teacher Resource 8.1, Presentation: History of Investment Banking (separate PowerPoint file), ready to show as a full-screen slideshow using an LCD projector.

Before beginning the presentation, refer students to Student Resource 8.2, Graphic



Step Min. Activity

Organizer: Cause and Effect. Read and review the directions with the class, explaining that students must complete the resource based on information gleaned from the presentation.

Tell students that they will take a quiz in the next class period. Their notes will come in handy as they study for the quiz.

Present the slideshow. Use the notes you prepared previously and pause whenever appropriate to encourage class discussion.

This presentation is duplicated as Student Resource 8.3, Reading: History of Investment Banking. Students can read the presentation, answer the discussion questions in their notebook, and discuss their answers as a class. This student resource is also useful for review.

After the presentation, divide the class into pairs or groups of three to review their graphic organizers for completeness and accuracy. Invite students to share any commonalities that they notice between certain causes and effects within the investment banking industry. Finally, ask students to share any remaining thoughts or questions.

Explain to the class that the investment banking industry has gone through some profound changes over the years. Emphasize that although the investment banking industry is in a state of flux, the services that it provides will most likely always be needed.

5 15 Think, Group, Share: The Influence of Investment Banking on SocietyStudents evaluate some of the positive and negative effects that investment banking has had on the economy.

Instruct students to use their knowledge from the presentation and from prior lessons to respond to the following questions in their notebook:

What type of economic effects (both positive and negative) have investment banks had on the economy? Possible responses could include business and economic growth, job creation, increased consumer spending, matching borrowers with lenders, increased global economic activity, mass unemployment, failed businesses, increased regulations, bank closures, and depressed consumer buying/spending,.

What type of social effects (both positive and negative) has the investment industry had on society? Possible answers could include loss of confidence in the economy, depression, hopelessness, opportunities for retirement and purchasing of expensive items, security, increase of government-sponsored programs and community development, and confidence.

Once students have had a few minutes to respond to the questions, have them form groups of three or four to discuss their answers and then share their thoughts with the class.

Remind students that they will be taking a quiz on investment banking in the next class period. Tell them to study their notes, readings, and other resources to prepare.



Step Min. Activity

CLASS PERIOD 3

6 15 Review: Investment BankingIn this activity, students assess their knowledge of investment banking as a means of review before the quiz. This activity focuses on the following college and career skills:

Developing awareness of one’s own abilities and performance Locating, evaluating, and applying information

Explain to the class that they are going to get the chance to work with their peers and prepare for a short-answer quiz.

Instruct students to take out their notebook, Student Resource 8.1, Reading: Introduction to Investment Banks and Their Services, their graphic organizer from the presentation (Student Resource 8.2), and any other notes that they may have from the lesson. Once students have all of their materials, tell them to form groups of three and wait for your instructions.

Next, explain that you are going to create a list of five key ideas from the lesson that students should be familiar with. Write the following list on the board:

Characteristics of an investment bank Services of an investment bank Capital-raising methods The Securities Act and the FDIC The subprime mortgage crisis and financial holding companies

Explain to the class that they will have the next 15 minutes to create one or two short-answer questions based on the list of key ideas provided. For example, in response to services of an investment bank, students could ask:

What is the difference between a merger and an acquisition? What type of financial advice does an investment bank provide?

Once each group member has created two questions, they should take turns asking and answering each question. Circulate among groups, listening and intervening if students misunderstand a concept or offer incorrect answers. Make sure everyone is clear on the facts. After groups have discussed the investment banking topics on the board, answer any final questions and announce that they will now take the quiz.

7 25 Quiz: Overview of Investment BankingStudents demonstrate their knowledge of investment banking by taking a quiz.

Distribute Teacher Resource 8.2, Quiz: Overview of Investment Banking, to the students. Read the directions with the class. Explain that students will be given the next 20 minutes to complete the quiz.

Once students have completed the quiz, collect them and let students know that you will now review the answers orally as a class.



Step Min. Activity

8 10 Quiz Review: Overview of Investment BankingStudents review the quiz answers.

Go over each of the quiz questions and invite volunteers to share their answers. Use Teacher Resource 8.3, Answer Key: Overview of Investment Banking Quiz, as needed. Take time to clear up any major misunderstandings.

If time permits, ask students to think about the attitudes they have heard expressed about banks, bankers, the stock market, and so on, by people they know. Now that they know more about investment banking, do they have a different understanding of those comments and attitudes? Why or why not?

Conclude the lesson by pointing out that people’s attitudes toward institutions like investment banks are largely based on their personal experiences. If someone lost her house because of a bad mortgage, she may blame the bankers who gave her the mortgage. If someone else made a good investment that is helping pay for his kids to go to college, he may be grateful to investment bankers. Let students know that in the next lesson they will learn more about the financial markets, which may give them additional insights into their family and friends’ attitudes about bankers and investing.

ExtensionsContent Enrichment

Ask students to respond to the prompt below according to their learning from the lesson. Once students have responded, have them form groups of four to share their predictions with one another. Have each group then choose one prediction that they think is the most reasonable to share with the rest of the class. o In the next 10–20 years, the investment banking industry will be characterized by….

With the current turmoil surrounding the financial services industry, have students synthesize their knowledge of investment banks and create classic “wanted-style” posters based on the types of ethical standards that they would like investment banks to adopt. Instruct students to use a standard 8.5″ x 11″ paper and write WANTED: INVESTMENT BANK at the top. Underneath the heading, have students create three ethical standards and/or regulations that they would like investment banks to abide by. If students have Internet access, consider asking them to make their poster using an online graphic design tool like Canva (www.canva.com) or CollageIt (www.collageitfree.com), or if students have access to Microsoft PowerPoint and a color printer, consider asking students to create their poster using printed-out slides that they design in PowerPoint.

Assign students the task of researching the various jobs that are available at an investment bank, such as financial analyst and investment banking associate. Once students have adequately researched the job and its requirements, have them write a diary entry titled “A day in the life of [insert job choice]….” and present it to the class.

Research various investment banks and other financial institutions that offer investment banking services. Have students choose an institution to write about and prepare a short essay that describes the history, the services provided, the main products offered, and the current financial situation.


http://www.collageitfree.com/

http://www.canva.com/


STEM Integration Science: Explain to students that investment banks play an important role in developing new drugs

and medical devices. In the United States, new drugs and medical devices need to go through an extensive process to be approved by the Federal Drug Administration. These drug approvals are very costly, and those costs are incurred before the company can sell the drug and make money from it. Investment banks provide funds in the early stages. Place students in pairs and have them learn about the drug approval process using the resources found on this page: http://www.fda.gov/drugs/resourcesforyou/consumers/ucm143534.htm This infographic may be particularly helpful: http://www.fda.gov/downloads/Drugs/ResourcesForYou/Consumers/UCM284393.pdf). Pairs should make lists of what they think are the most costly aspects of the approval process. When students are finished, hold a class discussion and make a list of all the costs the class has come up with. If they were investment bankers, what would they want the drug or device company to tell them to make them feel that the drug device is worth the investment?

Technology: Have students watch the short video clip found at http://www.labnol.org/internet/credit-crisis-explained-in-simple-english/7431/, which explains the credit crisis of 2008–2009 in very simple terms. Students should then research how investment banks have contributed to the financial crisis of today and share their findings with the class.

Technology: Ask students to create timelines based on the events in the PowerPoint presentation. Have them use an online tool to create their timeline. Free options (some of which do require signup) include: Timetoast (www.timetoast.com/), Teachnology Timeline Maker (www.teach-nology.com/web_tools/materials/timelines/), and TimelineJS (timeline.knightlab.com/). Then instruct students to choose one of the events to highlight. Have students research the event in greater depth and share their findings with the class.

Technology: Consider showing and discussing one or both of the following videos during the lesson. If your school does not allow access to YouTube, you may wish to download the video to your computer in advance using KeepVid (see www.keepvid.com) or a similar program.o “Investment Bank vs. Commercial Bank. What Is the Difference,” GirlBanker YouTube video,

3:15, https://www.youtube.com/watch?v=Z0HPIhZPXXMo “The Fast Draw's Easy Explanation of Stocks and Bonds,” CBS YouTube video, 1:33,

https://www.youtube.com/watch?v=TnLeJ62qqCs

Additional Cross-Curricular Ideas Information Technology: Every year global leaders attend the World Economic Forum in

Switzerland. During the 2009 meeting, the Davos Debates were launched and included responses from individuals around the world. In light of some of the major events that have shaped the investment banking industry, have students create their own podcasts or videos that respond to the 2009 Davos Debate question: “Should company executives have a code of ethics similar to doctors and lawyers?” Students may view a few examples at:o http://www.youtube.com/watch?v=P7KCndMa4EQ&feature=channel_page o http://www.youtube.com/watch?v=_HqvE6uye1Y


http://www.youtube.com/watch?v=_HqvE6uye1Y

http://www.youtube.com/watch?v=P7KCndMa4EQ&feature=channel_page

https://www.youtube.com/watch?v=TnLeJ62qqCs

https://www.youtube.com/watch?v=Z0HPIhZPXXM

http://www.keepvid.com/

http://timeline.knightlab.com/

http://www.teach-nology.com/web_tools/materials/timelines/

http://www.teach-nology.com/web_tools/materials/timelines/

http://www.timetoast.com/

http://www.labnol.org/internet/credit-crisis-explained-in-simple-english/7431/

http://www.fda.gov/downloads/Drugs/ResourcesForYou/Consumers/UCM284393.pdf

http://www.fda.gov/drugs/resourcesforyou/consumers/ucm143534.htm

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