The reason due to which investment banks need to make careful investigation.

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Chapter 18, Problem 5Q

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To determine: The reason due to which investment banks need to make careful investigation.

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Before entering a formal agreement, investment banks carefully investigatethe companies whose securities they underwrite; this is especially true of theissues of firms going public for the first time. Because the banks do not themselves plan to hold the securities but intend to sell them to others as soon aspossible, why are they so concerned about making careful investigations?

If an investment bank offers both underwriting/distribution functions and investment advisory or management functions, which situation would be acceptable under U.S. Securities and Exchange regulations and ethics guidelines with regard to material non-public information (MNPI)? Allowing MNPI acquired in the sell side of the business to influence the recommendations made by the buy side of the business. Trading of personal securities based on MNPI available only to the buy side of the business and not to the sell side due to a "wall." "Bringing someone over the wall" to provide value to underwriting, who does not comment on MNPI until it has been made public. Acquiring MNPI in the buy side of the business and disseminating it to the sell side of the business.

Which of the following should a bank do if they wish to engage in both security rating and investment banking? Group of answer choices a. Restrict prepublication of analyst reports to research personnel only b. Base compensation for analysts on positive ratings of securities c. Place analysts in the supervisory organization under sales personnel d. All of the above