Q256
Issues sold by investment banks and guarantees issuer by buying new issue at fixed price is classified as
A.
index commitment underwriting
B.
insurance underwriting
C.
default risk underwriting
D.
firm commitment underwriting
AnswerAnswer: Option D
Solution
Answer: Option D
Solution:
Issues sold by investment banks and guarantees issuer by buying new issue at fixed price is classified as firm commitment underwriting. A firm commitment has three general meanings in finance, but is most known as an underwriter's agreement to assume all inventory risk and purchase all securities for an initial public offering (IPO) directly from the issuer for sale to the public. It is also known as "firm commitment underwriting" or "bought deal."