Certified Anti-Money Laundering Specialist Certification (CAMS) Practice Exam

What is the primary role of an underwriter in the securities market?

1. Develop technology for trading

2. Conduct market analysis

3. Agree to purchase and distribute new securities

4. Manage investor relations

The correct answer is: Agree to purchase and distribute new securities

The primary role of an underwriter in the securities market is to agree to purchase and distribute new securities. This function is essential in the process of bringing a new security to the market, which often includes initial public offerings (IPOs). The underwriter assesses the value of the securities, sets the price, and takes on the risk of buying the securities from the issuer, thereby facilitating the transaction. In this capacity, underwriters provide essential services, including advising issuers on the timing and method of the offering, helping to determine the appropriate offering price, and ensuring adequate distribution of the securities post-offering. This role is critical because it helps maintain market stability and efficiency by ensuring that the issuer raises the necessary capital while providing investors with access to new investment opportunities. The other roles mentioned do not encapsulate the core responsibilities of an underwriter. While conducting market analysis and managing investor relations are vital aspects of the securities market, they pertain more to the research and communication functions, rather than the underwriting process itself. Additionally, developing technology for trading is an important task, but it typically falls under the responsibilities of financial technology firms and trading platforms, not within the traditional role of an underwriter.