Question

The investment banking process When a firm needs to raise funds in the financial markets, it usually uses the services of an investment banker. Last year Nowitzki Inc. entered into an agreement with Duncan Partners, an investment bank. At the time of issue, Duncan Partners has agreed to purchase all offered shares from Nowitzki and then try to sell all shares in the primary market. What kind of arrangement is this? An underwritten agreement A best efforts arrangement In the event that an issuer elects to use an underwritten arrangement, who bears all the risk that the stock issue might be undersubscribed? In other words, who is at risk if the investment bank cannot sell all shares to investors at the time of issue? Because of the magnitude of the potential losses that may be incurred by an investment bank participating in the sale of a large underwritten security issue, it is customary for a group of banks to create an underwriting syndicate to reduce the risk exposure of each participating bank. The investment bank that organizes and leads the syndicate is called the .

Answer 1

Solution:

Answer 1: Shelf Registration

Shelf registration or shelf prospectus is a sort of open offer contribution where the backer can decide to offer and offer protections to the general population without a different outline for each demonstration of offering and without the issue of further outline. The issuer can sell the shares within a 2 year period, without seperate permission for each time they go public.

Answer 2: Floatation Costs

The cost inccured to raise the capital by the firm is known as floatation cost. This includes underwriting fees, legal fees and all other fees that the company needs to pay in its run up to raising capital from various sources.

Answer 3: Managing Underwriter

Managing underwriter is the primary or the lead underwriter of the syndicate. The firm takes a shot at benefit of a syndicate of guarantors to perform works as managing the registrant, sorting out street appears, and so forth.