Final answer:
An investment bank is a financial intermediary that assists firms in raising capital by issuing securities in primary markets, serving as a crucial link between investors and companies, and facilitating the flow of funds in the economy.
Step-by-step explanation:
A financial intermediary that specializes in helping firms raise financial capital by issuing securities in primary markets is known as an investment bank. These institutions play a crucial role in the financial system as they provide the mechanism for companies to access funding through the capital markets. Investment banks serve as the middlemen between investors and companies, arranging the issue and sale of stocks, bonds, and other securities.
Banks, in a broader sense, are financial intermediaries, connecting savers, who deposit funds, and borrowers, who receive loans. This relationship is crucial because it allows the flow of funds through the economy, enabling business expansion, new projects, and consumer lending. However, with investment banking, the connection is even more direct, as these institutions actively create new securities for companies seeking to raise capital, promoting economic growth and innovation.