How does the role of underwriting affect the issuing of securities?

What will be an ideal response?


Answer: The investment bankers who handle the issuing of securities either to the public or to private investors are financial intermediaries, and they must be compensated for the use of their scarce resources. This compensation includes a monetary fee, but it also often includes an underwriting discount, or spread. The underwriting discount between what the corporation receives from issuing the securities and what the public pays for the securities is often a large part of the compensation of the investment bank that underwrites the issue.

Business

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