Answered: 1). What is the primary reason an…

Business

Accounting

1). What is the primary reason an investment banking firm often forms an underwriting syndicate to sell new securities?

Cornerstones of Financial Accounting

4th Edition

ISBN:9781337690881

Author:Jay Rich, Jeff Jones

Publisher:Jay Rich, Jeff Jones

ChapterA2: Investments

Section: Chapter Questions

Problem 3MCQ

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Concept explainers

Functions of Financial Institutions

Financial institutions are businesses that are formed to deal with financial and monetary transactions. These organizations primarily accept deposits, advance loans, make investments, and provide foreign exchange services. Financial institutions include, but are not limited to, banks, insurance companies, trust companies, brokerage firms, and investment bankers. Because financial institutions play such an important role in the economy in terms of monetary transactions, regulating their activities has become a requirement for governmental authorities. As a result, the government creates a multitude of laws and regulations to oversee the activities of financial institutions.

Question

100%

(1). What is the primary reason an investment banking firm often forms an underwriting syndicate to sell new securities?

a. To spread the risk associated with the purchase and distribution of a new issue of securities

b. To provide the issuing company with the most competitive underwriting bids

c. To enhance liquidity in high-volume trade of securities by maintaining continuous up-to-date prices for the securities assigned to them

d. To regulate the issuance and trading of stocks and bonds

e. To ensure that the auction trading process is completed in a fair and efficient manner

(2)When issuing new securities, which of the following decisions is made jointly by a corporation and its investment banker?

a. Deciding whether to go for a best-efforts or underwritten issue

b. Deciding which investment banker to use

c. Deciding whether to go for a competitive bid or a negotiated deal with the investment banker

d. Deciding on the investment project for which to raise additional capital

e. Deciding which member of the senior management team deals with the investment banker

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