How does a competitive sale of securities differ from a negotiated sale? Which type of underwriting would you prefer? Why might you still choose the alternative?

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How does a competitive sale of securities differ from a negotiated sale? Which type of underwriting would you prefer? Why might you still choose the alternative?

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The investment bank can purchase the bonds through competitive bidding against other investment bankers or by directly negotiating with the issuer. In a competitive sale, the bond issuing firm invites bids from a number of underwriters. The investment bank that submits the highest bid to the bond issuer wins the bid. The underwriter may use a syndicate of other underwriters and investment banks to distribute (sell) the issue to the public. With a negotiated sale, a single investment bank obtains the exclusive right to originate, underwrite, and distribute the new bonds through a one-on-one negotiation process. With a negotiated sale, the investment bank provides the origination and advising services to the issuers.

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