Final answer:
Underwriters acting as agents purchase securities directly from the issuer and sell them in secondary markets, offering liquidity. An example of this is mortgage lenders securitizing loans and selling them to investors in the form of mortgage-backed securities, transferring the risk from lenders to investors.
Step-by-step explanation:
The type of underwriting mentioned is where underwriters or syndicates act as agents to buy securities from the issuer. This question refers to secondary markets, which are critical because they offer liquidity for assets, meaning investments can be easily sold without substantial penalties. A real-world example of these principles can be found in the pre-2008 financial bubble, where lenders off-loaded mortgage risks to investors through securitizing loans.
Mortgages were pooled together, forming mortgage-backed securities (MBS), which were then sold to investors seeking steady income streams, based on the assumption that borrowers would repay their loans. This process off-loaded mortgage risks from the lenders to the investors. However, in retrospect, the credit risk associated with these MBS was underrated by credit agencies, and the rise in the market went largely unregulated by financial authorities.