An investment banker may merely act as an advisor and/or distributor of the new security. The function of buying the securities from the issuer is called ________.

Question

Quizplus · Accepted Answer

The function of buying the securities from the issuer is known as underwriting. Underwriting involves a group of investment bankers who agree to purchase and resell the entire issue of securities at a predetermined price, taking on the risk of any unsold securities. In this way, the investment bank acts as a sort of insurance policy for the issuer, guaranteeing that the securities will be sold and the issuer will receive the proceeds from the offering.

An Investment Banker May Merely Act as an Advisor And/or