In securities, what does 'underwriting' mean?

Underwriting refers to the process in which a financial institution or underwriter agrees to purchase securities (such as stocks or bonds) from an issuer, typically a corporation, and then sell those securities to the public. This process is essential for raising capital, enabling the issuing company to obtain the necessary funds for various business operations, projects, or growth initiatives.

The role of the underwriter includes evaluating the risks associated with the securities and determining their pricing. This function is crucial in initial public offerings (IPOs) where new stocks are sold to the public for the first time. By guaranteeing the sale of securities, underwriters play a pivotal role in the capital formation process, assisting companies in raising funds effectively.

The other options do not accurately define underwriting in the context of securities. Selling shares directly to the public does not involve an underwriter's role. Purchasing insurance for a public offering is not typically a responsibility of underwriters. Enhancing the value of existing shares is unrelated to the underwriting process and pertains more to market dynamics and company performance.