Question

b. Unlike private placement of securities, a public offer often requires the use of an underwriter to make the issue succeed. As a young and dynamic Financial Engineer who has just been employed by the Mayfair Company, a leading producer of building materials in the Republic of Benin, advise your CEO on the availability of the various types of underwriting that you know to enable him/her make a good

choice.

Answer 1

Before delving into the types one needs to know that there are many classifications (wholly v partially or banking v non banking etc) of underwriting. I'll explain the commonly prevailing types of underwriting -

1. Sub underwriting: Underwriting of an underwriter is called as sub underwriting. This kind of arrangement happens when the underwriter feels to pass on some of the risk to another underwriter.
2. Firm underwriting: In this agreement, underwriter has to take agreed shares even in any case irrespective of the subsription.
3. Joint underwriting: In this case, the firm believes that the risk is too big to be passed on the a single underwriter so it appoints more than one underwriters.
4. Syndicate underwriting: In a similar case, when the risk is higher, multiple underwriters come together & form a syndicate & jointly underwrite an issue