A corporation sells securities to an investment banking firm on January 1^st.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

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The investment banking firm acted as an underwriter for the corporation, which means that it purchased the securities from the corporation and then sold them to investors. In this process, the investment banking firm typically takes on some of the risk of the securities not selling or decreasing in value. Therefore, the investment banking firm would have purchased the securities from the corporation at a specific price, and would have been responsible for reselling those securities to investors at a higher price. This means that the investment banking firm would have assumed some of the risks associated with the sale of those securities, including the risk that the value of the securities would decrease. As an underwriter, the investment banking firm may have used various techniques, such as hedging, to limit the risk associated with the sale of the securities, but ultimately the investment banking firm is responsible for any losses due to a decrease in value.

A Corporation Sells Securities to an Investment Banking Firm on January