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

underwriting is a process by investment bank under which an investment bank takes the ownership of getting the shares subscribed of an issuing company, against payment of a commission.

There are different types of underwriting there as follows -

1. Firm commitment-this is the type of underwriting under which the underwriting company takes the complete ownership by assuring issuing company that, either the public will completely subscribe its share or the remaining shares will be subscribe by underwriters.

2. Best efforts-it is the most common form of underwriting under which underwriter commits to sell all of the shares of the company at issued price but it is never the obligation of underwriter to subscribe the shares, if shares have not been subscribed by the public.

3. All or None form of underwriting-this form of underwriting advocates that either all of the shares of the company must be sold by the underwriter to the public, else the agreement will be null and void.

These are the basic type of underwriting I will recommend to my CEO, so that he can choose the best among it