What is merchant bank?

What is merchant bank? 

Ans. When an investment bank commits its own funds either by purchasing equity shares of the company or acting as a creditor in the company, it is called a merchant bank. If an investment bank has fallen into a contract with the company to buy its securities in case of undersubscription and it could not sell it to anyone else, then in order to save its reputation which is extremely relevant for future transactions, it will buy the undersubscribed securities. In that case it wil l become a merchant bank. Therefore, all merchant banks are investment banks but all investment banks are not merchant banks.