Banking Practice Exam 2025 - Free Banking Practice Questions and Study Guide

The investment bank typically receives payment for various costs associated with the underwriting process. Generally, these costs include flotation costs, legal costs, and marketing costs. Flotation costs encompass the expenses necessary to issue new securities, including underwriting fees. Legal costs refer to the expenses incurred for legal services during the issuance of securities, ensuring proper compliance with regulations. Marketing costs relate to the promotional activities undertaken to generate interest in the new securities.

In contrast, Federal Reserve costs are not typically a direct expense incurred by the investment bank during the underwriting process. The Federal Reserve, as the central bank, does not directly charge underwriting fees; instead, its role focuses on monetary policy and the stability of the banking system. Therefore, payments made to the Federal Reserve do not fall under the typical costs that an investment bank would receive payment for during underwriting.