It is common knowledge that an understanding of finance can be immensely helpful if you’re looking to work in investment banking. What’s lesser known is that learning economics is what can truly set you apart and help you excel further in IB.
What’s the difference between finance and economics
Finance focuses on the tools and systems to manage money such as banking, investments, loans and so on. Economics, on the other hand, is a social science that is concerned with global or local markets, consumer behaviour, demand and supply, etc.
Here’s an insightful breakdown of this difference by WallStreetMojo: “Economics and finance are just two sides of one coin. To succeed in finance, you need to know economics well. Economics is more about finding the equilibrium point of demand and supply, average cost and marginal cost, understanding the differences between fixed and variable costs, and many such theoretical concepts. and many such theoretical concepts. On the other hand, finance is the right extension of these concepts. Thus, it has often been seen that people who have made their mark in finance have had an economics background.”
While it may be less directly connected to investment banking, economics can help bridge the gap between you and a premier investment bank. Here’s how:
1. Economics aids in understanding the theory behind finance
As this Investopedia article rightly puts it, “Economics takes a more theoretical look, while finance is more applied, however, both are connected disciplines, with some overlap.”
Through economics, you will be able to comprehend financial concepts in context to the bigger picture, thus, building a stronger foundational understanding. For example, economics will help you figure out why markets act a certain way in a recession or a peak, and how it might impact a company’s short-term finances.
2. Investment banks help an economy thrive
Thinking conversely, investment banks match investors and sellers, which is a key function of any economy. Hence, if you have a background in economics as an investment banker, you would also understand your role better. As an investment banking professional, the more you can differentiate yourself, the better — in terms of position, pay, learning curve — your career prospects would be. This understanding would also place you as an all-round finance professional.
3. Diversify your career options
By learning economics for investment banking, you can expand your job portfolio as you will be highly suited for a career in either the corporate finance division or the global markets division of an investment bank. It is also incredibly valuable for people looking at a career in asset management. By understanding the practical approach to macroeconomics, in addition to economic theory, you can apply for various positions in these career pathways.
How to learn economics for investment banking
If you are fairly certain that you want to work in investment banking but also want to sharpen your understanding of economics, you don’t necessarily need to study economics through a degree. Specialised online courses can help you concentrate on the specific concepts that you need to learn.
For example, this unique course titled Economics for Investment Banking is a practical one covering important economic principles that impact financial markets. You can learn:
- how different sectors of an economy interact and contribute to critical macro indicators such as GDP, inflation, and employment
- how to calculate GDP for financial markets
- how the economic cycle impacts the financial markets, and the influence of central banks on economy at a macro level
- how differences in actual and potential output drive inflation or unemployment
- how different assets are impacted through the economic cycle
Conclusion
Economics is a great value addition to your profile as an investment banker. So, if you want to differentiate yourself and work in diverse divisions within an IB, you can direct your efforts towards learning basic economics concepts. This can help strengthen your theoretical understanding, deepen your expertise within your IB role, and widen your career opportunities.
60+ hours
9 courses
