Question

A broker-dealer has successfully bid with the state to underwrite a GO issue on a best-efforts basis. This requires the broker-dealer to:

a. privately place the issue
b. buy the entire issue
c. sell the entire issue
d. sell as much of the issue as possible

Answer 1

In a best-efforts underwriting, a broker-dealer is responsible for selling as much of the issue as possible without the obligation to buy or guarantee the sale of the entire issue. The correct option is D.

Step-by-step explanation:

When a broker-dealer bids successfully to underwrite a general obligation (GO) issue on a best-efforts basis, it is their responsibility to sell as much of the issue as possible.

This does not mean they have to buy the entire issue or that they promise to sell the entire issue. In a best-efforts underwriting, the broker-dealer acts as an agent rather than a principal, meaning they sell securities on behalf of the issuer and do not take on the risk of buying the securities themselves.