Listen to a Business English Dialogue About Underwriting group
Stephen: Violet, do you know what an underwriting group is?
Violet: No, what is it?
Stephen: An underwriting group is a group of investment banks or financial institutions responsible for assessing the risk of issuing securities and guaranteeing their sale to investors.
Violet: How does the underwriting group operate in the process of issuing securities?
Stephen: The underwriting group works with the issuing company to determine the terms of the securities, assess market demand, and set the offering price, ensuring that the securities are sold effectively to investors.
Violet: Are there different types of underwriting arrangements?
Stephen: Yes, there are different types, such as firm commitment underwriting, where the underwriters agree to purchase all of the securities from the issuer and then resell them to investors, and best efforts underwriting, where the underwriters agree to do their best to sell the securities but are not obligated to purchase any unsold shares.
Violet: How do underwriters earn money?
Stephen: Underwriters earn money through underwriting fees, which are typically a percentage of the total offering amount, paid by the issuing company for their services in managing the securities offering.
Violet: What are some of the risks associated with being part of an underwriting group?
Stephen: One risk is that the underwriters may not be able to sell all of the securities at the desired price, leaving them with unsold inventory and potential losses if they have committed to purchasing the securities from the issuer.
Violet: How do underwriters mitigate these risks?
Stephen: Underwriters mitigate risks by conducting thorough due diligence on the issuing company, assessing market conditions, and pricing the securities appropriately to attract investor interest and minimize the likelihood of unsold inventory.
Violet: Thanks for explaining, Stephen. The role of the underwriting group seems crucial in facilitating the issuance of securities and managing associated risks.