The investment banking process 1. When a firm needs to raise funds in the financ

Question

The investment banking process

1. When a firm needs to raise funds in the financial markets, it usually uses the services of an investment banker.

Last year Maverick Inc. entered into an agreement with Ginobli Partners, an investment bank. It has been a year since Maverick first registered its shares, but the firm still hasn’t gone public. Maverick plans to go through with its security issuance in a couple of months. This is an example of:

A. A shelf registration

B. A prospectus

C. An underwriting syndicate

D. A registration statement

2. The cost incurred during the security issuing process is called the:

A. Underwriter’s spread

B. Offer price

C. Asked price

D. Flotation costs

E. Bid price

3. 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 (Selling group, participating dealer, OR managing underwriter).    

Explanation / Answer

Question 1: Shelf Registration

Shelf registration or shelf prospectus is a type of public share offering where the issuer can choose to offer and sell securities to the public without a separate prospectus for each act of offering and without the issue of further prospectus. The issuer can sell the shares within a 2 year period, without seperate permission for each time they go public.

Question 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.

Question 3: Managing Underwriter

Managing underwriter is the primary or the lead underwriter of the syndicate. The firm works on behalf of a syndicate of underwriters to perform functions as dealing with the registrant, organizing road shows, etc.

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