Final answer:
Investment bankers are firms that specialize in the sale of new securities to the public, typically by underwriting the issue. They are essential in helping companies raise capital via IPOs and provide advisory services for financial market transactions. Commercial, merchant, and retail banks have different roles and are not focused primarily on underwriting securities. Option 1 is correct answer.
Step-by-step explanation:
Firms that specialize in the sale of new securities to the public, typically by underwriting the issue, are known as investment bankers. Investment bankers play a critical role in the financial markets by helping companies raise capital through the issuance of stocks and bonds.
When a company decides to go public, it engages in an Initial Public Offering (IPO), where investment bankers are crucial in pricing the new securities, marketing them to investors, and ensuring that there is enough demand to meet the supply of shares being offered.
Banks provide various services in the financial system, but they differentiate into specific roles like investment banking and commercial banking depending on the services they offer. While commercial banks are more involved in deposit taking and lending, investment banks focus heavily on underwriting new securities, facilitating M&A transactions, and providing other related advisory services.
The other options presented such as commercial, merchant, and retail banking do not typically involve underwriting securities to the same extent as investment banks. These other types of banks have different roles, such as providing consumer banking services, facilitating international trade, or operating at a retail level to directly serve the financial needs of individuals.