SIE Understanding Products and Their Risks Question 42: Answer and Explanation

Question: 42

A firm planning to make an offering of a bond issue engages which of the following to advise on characteristics of the issue, such as the interest rate?

• A. Broker-dealer firm
• B. Investment bank
• C. Member of the NYSE
• D. Depositary bank

Correct Answer: B

Explanation:

B: Choice B is correct because a firm planning to make an offering of a bond issue typically engages an investment bank to advise on characteristics of the issue, such as selecting the interest rate and increasing its marketability by offering convertible bonds. Choice A is incorrect, though one or more broker-dealer firms may assist, sometimes as part of a syndicate, to market the bond issue. Choice C is incorrect, though a member of the New York Stock Exchange (NYSE) may be involved in auctioning bonds. Choice D is incorrect, though a depositary bank assists in issuing ADRs on behalf of foreign companies.