Asked by Jared Myers on Jul 25, 2024
Verified
In a typical underwriting arrangement, the investment-banking firm I) sells shares to the public via an underwriting syndicate.
II) purchases the securities from the issuing company.
III) assumes the full risk that the shares may not be sold at the offering price.
IV) agrees to help the firm sell the issue to the public but does not actually purchase the securities.
A) I, II, and III
B) I, III, and IV
C) I and IV
D) II and III
E) I and II
Underwriting Arrangement
The process by which an underwriter brings a new security issue to the public, often assuming the risk of selling the securities.
Investment-Banking Firm
A financial institution that assists individuals, corporations, and governments in raising financial capital by underwriting or acting as the client's agent in the issuance of securities.
Underwriting Syndicate
A group of investment banks that work together to issue new securities to the market, sharing the risk and responsibility of selling the offering.
- Understand the role and mechanisms of underwriting in the issuance of new securities.
Verified Answer
RA
Rayanne AquinoJul 26, 2024
Final Answer :
A
Explanation :
In a typical underwriting arrangement, the investment-banking firm sells shares to the public via an underwriting syndicate (I), purchases the securities from the issuing company (II), and assumes the full risk that the shares may not be sold at the offering price (III). This process does not include agreeing to help the firm sell the issue to the public without actually purchasing the securities (IV), which describes a best-efforts agreement rather than a firm commitment underwriting.
Learning Objectives
- Understand the role and mechanisms of underwriting in the issuance of new securities.