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Question

Difficulty: MediumCapital Market: Institutions and Instruments

A public limited company intends to raise long-term capital by issuing new debentures to the investing public. Which specialized financial intermediary is primarily responsible for packaging, underwriting, and managing this new issue in the primary capital market?

  1. A
    Discount house
  2. B
    Commercial bank
  3. Issuing houseAnswer
  4. D
    Central bank

Answer

Issuing house
An issuing house is a specialized investment banking institution operating within the capital market that assists corporate bodies and governments to raise long-term capital by underwriting and managing new issues of shares and debentures.

Step-by-Step Solution

1
Identify the nature of the transaction
The firm is raising long-term debt funds by floating new debentures in the primary capital market.
Debentures are long-term capital market debt instruments issued to raise long-term finance.
2
Determine the responsible financial institution
An issuing house is the designated capital market institution responsible for packaging, pricing, and underwriting public share or debenture offerings.
Other options operate in the money market or serve overall monetary regulatory functions.

Key Concept

Capital Market Institutions and the Role of Issuing Houses
Estimated Time:1m 0s
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Topics

Capital Market: Institutions and Instruments

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