Question 1

What is the impact of underpricing a securities issue?

Accepted Answer

A) The underwriter loses while the issuing firm gains. 
B) Both the underwriter and the outside investor gains while the issuing firm loses. 
C) The outside investor loses while the issuing firm gains. 
D) Both the underwriter and the outside investor loses while the issuing firm gains. 
E) All three parties lose when the securities are underpriced. 
A) The underwriter loses while the issuing firm gains. 
B) Both the underwriter and the outside investor gains while the issuing firm loses. 
C) The outside investor loses while the issuing firm gains. 
D) Both the underwriter and the outside investor loses while the issuing firm gains. 
E) All three parties lose when the securities are underpriced. B

Question 2

Mutual funds that offer high liquidity, check-writing ability and a money market return to smaller individual investors are called MMMFs or money market mutual funds.

Accepted Answer

A) True 
 B)False  True

Question 3

An agreement to allow competition from certain geographic areas, usually in return for the ability to compete within those areas, is

Accepted Answer

A) a federal charter. 
B) an integrated agreement. 
C) a holding company agreement. 
D) an interstate banking pact. 
E) a state charter. 
A) a federal charter. 
B) an integrated agreement. 
C) a holding company agreement. 
D) an interstate banking pact. 
E) a state charter. D

Question 4

The FBSEA of 1991 required a foreign bank to have Fed approval to establish a branch as a new entry, but does not require such approval if the entry is by acquisition.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following is not a feature of the Foreign Bank Supervision Enhancement Act?

Accepted Answer

A) The Federal Reserve has the power to close a foreign bank if it is engaged in unsafe and unsound banking practice. 
B) The Federal Reserve has the responsibility to examine each subsidiary, branch, agency, or representative office at least once each year. 
C) The Fed's approval is necessary to establish a subsidiary, branch, agency or representative office in the U.S. 
D) Only foreign subsidiaries with access to FDIC insurance can take retail deposits under $100,000. 
E) After December 19, 1992, state-licensed agencies and branches could not engage in any activity no permitted to a federal branch. 
A) The Federal Reserve has the power to close a foreign bank if it is engaged in unsafe and unsound banking practice. 
B) The Federal Reserve has the responsibility to examine each subsidiary, branch, agency, or representative office at least once each year. 
C) The Fed's approval is necessary to establish a subsidiary, branch, agency or representative office in the U.S. 
D) Only foreign subsidiaries with access to FDIC insurance can take retail deposits under $100,000. 
E) After December 19, 1992, state-licensed agencies and branches could not engage in any activity no permitted to a federal branch.

Question 6

A value below 1,000 of the Herfindahl-Hirschman Index (HHI) is considered to reflect

Accepted Answer

A) a highly concentrated market. 
B) an unconcentrated market. 
C) a high growth market. 
D) a moderately concentrated market. 
E) an untapped market. 
A) a highly concentrated market. 
B) an unconcentrated market. 
C) a high growth market. 
D) a moderately concentrated market. 
E) an untapped market.

Question 7

A disadvantage to international bank expansion is the potential increase in the monitoring and information collection costs in some overseas markets.

Accepted Answer

A) True 
 B)False

Question 8

Information transfer refers to the conflict of interest that occurs when banks have the power to sell nonbank products.

Accepted Answer

A) True 
 B)False

Question 9

Concern about the ability to analyze a more complex corporate structure has been used to justify product segmentation on the grounds of

Accepted Answer

A) safety and soundness issues. 
B) economy of scale and scope issues. 
C) conflict of interest issues. 
D) deposit insurance issues. 
E) regulatory oversight issues. 
A) safety and soundness issues. 
B) economy of scale and scope issues. 
C) conflict of interest issues. 
D) deposit insurance issues. 
E) regulatory oversight issues.

Question 10

Which of the following is NOT a potential conflict of interest identified by regulators and academics?

Accepted Answer

A) Salesperson's stake. 
B) Stuffing fiduciary accounts. 
C) Bankruptcy risk transference. 
D) Procompetitive effects. 
E) Third-party loans. 
A) Salesperson's stake. 
B) Stuffing fiduciary accounts. 
C) Bankruptcy risk transference. 
D) Procompetitive effects. 
E) Third-party loans.

Question 11

The existence of the "too big to fail" doctrine may encourage large banks to take excessive risks in securities underwriting activities.

Accepted Answer

A) True 
 B)False

Question 12

The Financial Services Modernization Act of 1999 prohibits insurance companies from opening commercial banks.

Accepted Answer

A) True 
 B)False

Question 13

A bank holding company has a banking affiliate and a securities affiliate.If the securities affiliate fails, it could cause the bank to also fail because

Accepted Answer

A) the bank holding company could use funds from the banking affiliate to provide funds to the securities affiliate by downstreaming. 
B) the bank holding company could use funds from the banking affiliate to provide funds to the securities affiliate by upstreaming. 
C) the bank holding company could induce the banking affiliate to make loans to the securities affiliate. 
D) the bank holding company could use funds from the banking affiliate to provide funds to the securities affiliate by downstreaming and could induce the banking affiliate to make loans to the securities affiliate. 
E) the bank holding company could use funds from the banking affiliate to provide funds to the securities affiliate by upstreaming and could induce the banking affiliate to make loans to the securities affiliate. 
A) the bank holding company could use funds from the banking affiliate to provide funds to the securities affiliate by downstreaming. 
B) the bank holding company could use funds from the banking affiliate to provide funds to the securities affiliate by upstreaming. 
C) the bank holding company could induce the banking affiliate to make loans to the securities affiliate. 
D) the bank holding company could use funds from the banking affiliate to provide funds to the securities affiliate by downstreaming and could induce the banking affiliate to make loans to the securities affiliate. 
E) the bank holding company could use funds from the banking affiliate to provide funds to the securities affiliate by upstreaming and could induce the banking affiliate to make loans to the securities affiliate.

Question 14

The following three FIs dominate a local market and their total assets are given below. $$\begin{array} { | c | r | } 
\hline \text { Institution } & \text { Asset Size } \
\hline \text { Bank A } & \text { \$50 million } \
\hline \text { Bank B } & \text { \$60 million } \
\hline \text { Bank C } & \text { \$90 million } \
\hline
\end{array}$$ If Bank A acquires Bank B, what is the new Herfindahl-Hirschman Index (HHI)?

Accepted Answer

A) 60. 
B) 100. 
C) 5,800. 
D) 5,050. 
E) 6,525. 
A) 60. 
B) 100. 
C) 5,800. 
D) 5,050. 
E) 6,525.

Question 15

Concern about bank solvency has been used to justify product segmentation on the grounds of

Accepted Answer

A) safety and soundness issues. 
B) economy of scale and scope issues. 
C) conflict of interest issues. 
D) deposit insurance issues. 
E) regulatory oversight issues. 
A) safety and soundness issues. 
B) economy of scale and scope issues. 
C) conflict of interest issues. 
D) deposit insurance issues. 
E) regulatory oversight issues.

Question 16

The establishment of a global or international presence by an FI can be achieved in all but which of the following ways?

Accepted Answer

A) Selling financial services from a domestic office to a domestic customer who has commercial activities in a foreign country. 
B) Selling financial services to a foreign customer through subsidiary companies in a foreign country. 
C) Selling financial services through a branch, agency, or representative office. 
D) Selling financial services from domestic offices to foreign customers. 
E) Two of the above do not qualify an FI as achieving an international presence. 
A) Selling financial services from a domestic office to a domestic customer who has commercial activities in a foreign country. 
B) Selling financial services to a foreign customer through subsidiary companies in a foreign country. 
C) Selling financial services through a branch, agency, or representative office. 
D) Selling financial services from domestic offices to foreign customers. 
E) Two of the above do not qualify an FI as achieving an international presence.

Question 17

The following three FIs dominate a local market and their total assets are given below. $$\begin{array} { | c | r | } 
\hline \text { Institution } & \text { Asset Size } \
\hline \text { Bank A } & \text { \$50 million } \
\hline \text { Bank B } & \text { \$60 million } \
\hline \text { Bank C } & \text { \$90 million } \
\hline
\end{array}$$ Under the 1982 guidelines, would the Fed approve the merger of Banks A and C?

Accepted Answer

A) It is likely to approve because it is not a concentrated market. 
B) It is unlikely to approve because the post-merger HHI has increased by over 100. 
C) It is likely to approve because the post-merger HHI has increased by over 100. 
D) Likely to approve because the post-merger HHI has increased by less than 5,000. 
E) It is unlikely to approve because the post-merger HHI has increased by an amount over 5,000. 
A) It is likely to approve because it is not a concentrated market. 
B) It is unlikely to approve because the post-merger HHI has increased by over 100. 
C) It is likely to approve because the post-merger HHI has increased by over 100. 
D) Likely to approve because the post-merger HHI has increased by less than 5,000. 
E) It is unlikely to approve because the post-merger HHI has increased by an amount over 5,000.

Question 18

Success in a merger from revenue enhancement is more likely if the markets into which expansion occurs are less than fully competitive.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following has NOT been a factor deterring U.S.bank expansion abroad?

Accepted Answer

A) The implementation of risk-based capital requirements effective in 1993. 
B) The increased competition from the large Japanese banks through the mid-1990s. 
C) The effects of the collapse of the financial markets in several emerging markets. 
D) The ability of the U.S.banks to achieve large excess capital positions in the second half of the 1990s. 
E) The passage of the European Community Second Banking Derivative. 
A) The implementation of risk-based capital requirements effective in 1993. 
B) The increased competition from the large Japanese banks through the mid-1990s. 
C) The effects of the collapse of the financial markets in several emerging markets. 
D) The ability of the U.S.banks to achieve large excess capital positions in the second half of the 1990s. 
E) The passage of the European Community Second Banking Derivative.

Question 20

Banks typically have faced few restrictions in expanding their businesses, while securities firms and insurance companies have faced complex rules regarding expansion.

Accepted Answer

A) True 
 B)False

Exam 22: Product and Geographic Expansion

What is the impact of underpricing a securities issue?

Mutual funds that offer high liquidity, check-writing ability and a money market return to smaller individual investors are called MMMFs or money market mutual funds.

An agreement to allow competition from certain geographic areas, usually in return for the ability to compete within those areas, is

The FBSEA of 1991 required a foreign bank to have Fed approval to establish a branch as a new entry, but does not require such approval if the entry is by acquisition.

Which of the following is not a feature of the Foreign Bank Supervision Enhancement Act?

A value below 1,000 of the Herfindahl-Hirschman Index (HHI) is considered to reflect

A disadvantage to international bank expansion is the potential increase in the monitoring and information collection costs in some overseas markets.

Information transfer refers to the conflict of interest that occurs when banks have the power to sell nonbank products.

Concern about the ability to analyze a more complex corporate structure has been used to justify product segmentation on the grounds of

Which of the following is NOT a potential conflict of interest identified by regulators and academics?

The existence of the "too big to fail" doctrine may encourage large banks to take excessive risks in securities underwriting activities.

The Financial Services Modernization Act of 1999 prohibits insurance companies from opening commercial banks.

A bank holding company has a banking affiliate and a securities affiliate.If the securities affiliate fails, it could cause the bank to also fail because

The following three FIs dominate a local market and their total assets are given below. Institution Asset Size Bank A \5 0 million Bank B \6 0 million Bank C \9 0 million If Bank A acquires Bank B, what is the new Herfindahl-Hirschman Index (HHI)?

Concern about bank solvency has been used to justify product segmentation on the grounds of

The establishment of a global or international presence by an FI can be achieved in all but which of the following ways?

The following three FIs dominate a local market and their total assets are given below. Institution Asset Size Bank A \5 0 million Bank B \6 0 million Bank C \9 0 million Under the 1982 guidelines, would the Fed approve the merger of Banks A and C?

Success in a merger from revenue enhancement is more likely if the markets into which expansion occurs are less than fully competitive.

Which of the following has NOT been a factor deterring U.S.bank expansion abroad?

Banks typically have faced few restrictions in expanding their businesses, while securities firms and insurance companies have faced complex rules regarding expansion.

Why Are Financial Institutions Special

Financial Services: Depository Institutions

Financial Services: Finance Companies

Financial Services: Securities Brokerage and Investment Banking

Financial Services: Mutual Funds and Hedge Funds

Financial Services: Insurance

Risks of Financial Institutions

Interest Rate Risk I

Interest Rate Risk II

Credit Risk: Individual Loan Risk

Credit Risk: Loan Portfolio and Concentration Risk

Liquidity Risk

Foreign Exchange Risk

Sovereign Risk

Market Risk

Off-Balance-Sheet Risk

Technology and Other Operational Risks

Fintech Risks

Liability and Liquidity Management

Deposit Insurance and Other Liability Guarantees

Capital Adequacy

Futures and Forwards

Options, Caps, Floors, and Collars

Swaps

Loan Sales

Securitization

Filters