A rights offering in which an underwriting syndicate agrees to purchase the unsubscribed portion of an issue is called a _____ underwriting.
A)standby
B)best efforts
C)firm commitment
D)direct fee
E)tombstone

Question

Quizplus · Accepted Answer

In a standby underwriting, the underwriting syndicate agrees to purchase any unsubscribed shares in the issue, providing a form of guarantee to the issuing company. This helps to ensure that the company will receive the funding it needs, even if not all shares or rights are sold to current shareholders. A firm commitment underwriting involves the underwriting syndicate purchasing all of the shares in the issue and reselling them to investors, while a best efforts underwriting involves the underwriting syndicate only agreeing to sell as many shares as possible, with no guarantee of the full subscription. Direct fee and tombstone are not related to underwriting methods.

A Rights Offering in Which an Underwriting Syndicate Agrees to Purchase