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CFA Level I · CFA Level I Exam · Fixed-Income Issuance and Trading

In a public offering of bonds, an investment bank agrees to buy the entire issue from the issuer at a fixed price and then resell the bonds to investors, bearing the risk that it may not be able to sell them at the offer price. This arrangement is best described as a:

This is an underwritten offering. The investment bank buys the whole issue from the issuer at a fixed price and resells it to investors, so the bank bears the risk of unsold bonds. In a best-efforts deal the bank carries no such risk.

  1. Abest-efforts offering
  2. Bunderwritten offeringCorrect
  3. Cshelf registration

Explanation

In an underwritten offering, the investment bank guarantees the proceeds to the issuer by purchasing the whole issue, and so takes the risk of reselling it. In a best-efforts offering the bank only tries to sell the bonds and does not guarantee proceeds. A shelf registration is a filing that lets the issuer sell securities later, not a way of sharing risk.

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