What is the difference between a competitive bid and a negotiated deal?

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What is the difference between a competitive bid and a negotiated deal?

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What is the difference between a competitive bid and a negotiated deal?

Explanation & AnswerSolution by a verified expert

Explanation

Under competitive bidding, the company sends the bid to the potential investors for the issue of new securities. The investors examine the bid, estimate the price they can pay for the securities and communicate the price to the company. The company then selects the offer with the best price and issues the securities to the respective investor. However, under negotiable deals, the company sells its securities to an underwriter, who in turn sells the securities to the potential investors on behalf of the company.
 
Under competitive bid, the investors determine the price of the securities whereas under negotiable deals, the underwriter or the company determines the price of the securities.

Verified Answer

Competitive bids select the investors who are willing to pay the best possible price for securities by first offering the bids to various investors whereas negotiable deals offer the new securities of the company to underwriters who in turn sell the securities on company's behalf.

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