Series 79 practice questioneasyBest Efforts vs Firm Commitment
In a best efforts offering, what does the underwriter agree to do?
- AGuarantee full sale proceeds to the issuer
- BUse reasonable efforts to sell the securities without committing its own capital to purchase the full issue✓ Correct answer
- CProvide a credit rating
- DAct as trustee under the indenture
Explanation
Why B — Use reasonable efforts to sell the securities without committing its own capital to purchase the full issue
Use reasonable efforts to sell the securities without committing its own capital to purchase the full issue The underwriter acts more as an agent than a principal in a best efforts transaction. If investor demand is weak, the issuer may raise less capital than originally hoped.
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