alleryStart learning →What is underwriting, the main activity of the investment banker?
AInsuring investors against any trading losses
BBuying securities from issuers to resell them
CLending money to investors buying securities
DRating the quality of new securities issued
Answer & Solution
Correct answer: B. Buying securities from issuers to resell them
1. Investment bankers help companies raise long-term financing by acting as intermediaries.
2. They buy securities from corporations and governments and resell them to the public.
3. That process is called underwriting, and it is the investment banker's main activity.
4. The banker acquires the security for an agreed price and hopes to resell it higher to make a profit, so it bears the risk of the issue.
5. Rating the quality of bonds is the work of agencies such as Moody's and Standard and Poor's instead.
_Source: OpenStax Introduction to Business (CC BY 4.0), Ch 16 "Understanding Financial Management and Securities Markets", section 16.6 Securities Markets_
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