Question

1) Which of the following terms refers to the process of converting a not-for-profit stock exchange owned by its members to a for-profit organization with publicly-traded stocks that are owned by outside shareholders?

a. Privatization

b. Flotation

c. Consolidation

d. Diversification

e. Demutualization

2) When issuing new securities, which of the following decisions does the firm make by itself?

a. Deciding whether to go for a competitive bid or a negotiated deal with an investment banker

b. Reevaluating the decisions about the size of the issue and the type of securities to be issued

c. Deciding the offering price d. Determining the flotation costs

e. Deciding whether to go for a best-efforts or an underwritten issue

Answer 1

Answer(1): Privatization is the correct answer.

Privatization is the process of converting government or not for profit enterprise into the private company by selling the shares to the individual or institutional investors. It is done by Government to raise the funds.

Answer(2): Reevaluating the decisions about the size of the issue and the type of securities to be issued.

Company has to analyze the size of funds that it needs and type of security, equity or debt? This is company's decisions before hiring the underwriter. Rest IPO formalities are taken care by Underwriter.