Question

In a typical underwriting arrangement, the investment banking firm

I) sells shares to the public via an underwriting syndicate.
II) publicizes the offering and gauges investment demand.
III) assumes the full risk that the shares may not be sold at the offering price.
IV) agrees to help the firm sell the issue to the public, but does not actually purchase the securities.  

		I and II only
		II and IV only
		I, II, and III only
		I, II, and IV only
		I, II, III, and IV

Answer 1

The correct answer is I, II, and III only

An underwriting arrangement refers to a contract between the company who is going to issue new public issue of securities and the investment bankers.

The Investment banks takes the responsibility to sells the shares to public via a underwriting syndicate which is a group of investment bankers who take this opportunity, and they also advertise the new public issue and all it's details to the public and try to create the demand so that it doesn't go undersubscribed.

They also assume that the full risk that the shares may not be sold at the offering price by selling it overprice or underprice in comparison to the demand of security in the market.