What is Underwriting of Securities?

Question 1

what is an IPO?

Answer 1

initial public offering

company wants to raise capital through issuance of equity shares to the public

Question 2

what is underwriting?

Answer 2

to mitigate the risk if an IPO is unsuccessful, the investment bank ‘underwrites’ the IPO

this means they will purchase the equity shares if the equity shares are under subscribed when there’s an IPO

Question 3

under subscription?

Answer 3

when a company doesn’t raise the intended amount of funds from the IPO

Question 4

what does underwriting mean for an investment bank?

Answer 4

any amount of unsubscribed stock is absorbed by the investment bank