Question

In a firm commitment (bought deal) type of underwriting of a Eurobond offering:

In a firm commitment (bought deal) type of underwriting of a Eurobond offering:

Homework Answers

Answer #1

In bought deal type of underwriting of a eurobond offering an investment bank commits to buy the entire offering of euro bond from the company. In this type of underwriting the investment bank takes all the risk of selling the offering. It buys all the bonds/ shares from the company and himself sells them in market.

As the all the financial risk of offering is undertaken by the investment bank it negotiates over the price and buys from the company at discount to sell them in market to make a profit.

If the deal is large, an investment bank group up with other investment banks and form a syndicate to decrease the portion of risk on each bank (to share the risk).

Hope it helps!

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