How under writer is considered as intermediary body in capital markets?
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Suppose a company have to issue bonds of 100 crore rupees to increase its money supply for various purposes. Single investor cannot buy the whole 100 crore bond. Thus this company will have some difficulties in searching for large number of retail investors. But a bank can do it easily by its retail banking chain.
Then this company will go to a bank(i.e. underwriter), which will buy all the bonds and pay company the whole bond amount.
Then bank/underwriter will sell these bonds of the company to different retail investors at some higher price to make some profits also.
Thus underwriters are considered as intermediary body because they are becoming intermediaries between a company and retail investors.
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