A corporation sells securities to an investment banking firm on January 1st.The next day an international oil crisis causes stock prices to drop dramatically.The corporation is immune from the drop in price of its stock due to which function of the investment banking firm?

Question

Quizplus · Accepted Answer

The investment banking firm's function of underwriting protects the corporation from losses due to the drop in stock prices by purchasing the securities from the corporation at a predetermined price. Therefore, the corporation is immune from the drop in price of its stock.

A Corporation Sells Securities to an Investment Banking Firm on January