The main risk that investment banks face from their underwriting services is:

Question

Quizplus · Accepted Answer

Investment banks typically guarantee a certain price for the securities they underwrite, which is known as the underwriting spread. If the market price for the securities ends up being less than what the investment bank guaranteed, then the investment bank may incur losses. This is known as underpricing risk and is the main risk associated with underwriting services. The other options, such as the client not paying, the company going bankrupt, or the price paid by investors exceeding the guaranteed price, are also risks, but they are not typically associated with underwriting services.

The Main Risk That Investment Banks Face from Their Underwriting