Question 1

The commercial paper market is an example of nonbank competition on the asset side of the balance sheet that has become increasingly intense for banks.

Accepted Answer

A) True 
 B)False

Question 2

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 C, 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 3

Banks have been permitted to acquire existing investment banks since 1997.

Accepted Answer

A) True 
 B)False

Question 4

The USA Patriot Act of 2001

Accepted Answer

A) requires U.S.banks to improve their due diligence reviews to guard against money laundering. 
B) prohibits U.S.banks from providing banking services to foreign banks that do not have a physical presence in any country. 
C) gives to federal authorities the power to subpoena the records of a foreign bank's U.S.correspondent account. 
D) All of the options. 
E) prohibits U.S.banks from providing banking services to foreign banks that do not have a physical presence in any country and gives to federal authorities the power to subpoena the records of a foreign bank's U.S.correspondent account. 
A) requires U.S.banks to improve their due diligence reviews to guard against money laundering. 
B) prohibits U.S.banks from providing banking services to foreign banks that do not have a physical presence in any country. 
C) gives to federal authorities the power to subpoena the records of a foreign bank's U.S.correspondent account. 
D) All of the options. 
E) prohibits U.S.banks from providing banking services to foreign banks that do not have a physical presence in any country and gives to federal authorities the power to subpoena the records of a foreign bank's U.S.correspondent account.

Question 5

Restrictions on branching occurred initially at the state level because

Accepted Answer

A) money center banks could not operate as correspondent banks. 
B) small unit banks feared a loss of business from the larger branching banks. 
C) of improved communications and customer needs. 
D) of the lack of federal oversight. 
E) money center banks could not operate as correspondent banks and small unit banks feared a loss of business from the larger branching banks. 
A) money center banks could not operate as correspondent banks. 
B) small unit banks feared a loss of business from the larger branching banks. 
C) of improved communications and customer needs. 
D) of the lack of federal oversight. 
E) money center banks could not operate as correspondent banks and small unit banks feared a loss of business from the larger branching banks.

Question 6

The NAFTA agreement and other agreements reached through the help of the World Trade Organization should reduce some of the restrictions that have face U.S.banks in attempts to enter emerging market countries.

Accepted Answer

A) True 
 B)False

Question 7

Reciprocal banking pacts allowed the non-state companies to purchase banks as long as the purchase permission went in both directions.

Accepted Answer

A) True 
 B)False

Question 8

Increased competition for securities underwritings should reduce the spreads and thus lower the price paid for the securities by the investing public.

Accepted Answer

A) True 
 B)False

Question 9

As of 2015, the total worldwide assets of the shadow banking system was estimated to be approximately

Accepted Answer

A) $32 trillion 
B) $57 trillion 
C) $75 trillion 
D) $87 trillion 
E) $91 trillion 
A) $32 trillion 
B) $57 trillion 
C) $75 trillion 
D) $87 trillion 
E) $91 trillion

Question 10

Offices of foreign banks may be examined by the Federal Reserve under the FBSEA of 1991.

Accepted Answer

A) True 
 B)False

Question 11

Historically, regulations have encouraged the expansion of bank offices domestically.

Accepted Answer

A) True 
 B)False

Question 12

A bank threatens to credit ration unless the customer agrees to let the bank's securities affiliate do its securities underwritings.Identify the conflict of interest in this scenario.

Accepted Answer

A) Salesperson's Stake. 
B) Stuffing fiduciary accounts. 
C) Tie-ins. 
D) Third-party loans. 
E) Information transfer. 
A) Salesperson's Stake. 
B) Stuffing fiduciary accounts. 
C) Tie-ins. 
D) Third-party loans. 
E) Information transfer.

Question 13

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 C splits into two separate institutions at ½ its original size each, what is the new Herfindahl-Hirschman (HHI) Index?

Accepted Answer

A) 60. 
B) 340. 
C) 2,538. 
D) 2,847. 
E) 10,000. 
A) 60. 
B) 340. 
C) 2,538. 
D) 2,847. 
E) 10,000.

Question 14

A Eurodollar transaction

Accepted Answer

A) can only occur in Europe. 
B) is a swap of Euros for dollars. 
C) is a transaction that involves dollars outside of the U.S. 
D) is a swap of dollars for Euros. 
E) must be reported immediately to international monetary authorities. 
A) can only occur in Europe. 
B) is a swap of Euros for dollars. 
C) is a transaction that involves dollars outside of the U.S. 
D) is a swap of dollars for Euros. 
E) must be reported immediately to international monetary authorities.

Question 15

The Douglas amendment to the Bank Holding Company was passed to address a potential loophole to interstate banking posed by

Accepted Answer

A) unit banks. 
B) multibank holding companies. 
C) one-bank holding companies. 
D) foreign banks. 
E) reciprocal agreements. 
A) unit banks. 
B) multibank holding companies. 
C) one-bank holding companies. 
D) foreign banks. 
E) reciprocal agreements.

Question 16

Legislations restricting geographic expansion have been undermined in all of the following ways EXCEPT

Accepted Answer

A) regional banking pacts. 
B) purchase of troubled banks. 
C) opening of nonbank banks. 
D) acquisition of subsidiaries. 
E) acquisition of insurance companies out of state. 
A) regional banking pacts. 
B) purchase of troubled banks. 
C) opening of nonbank banks. 
D) acquisition of subsidiaries. 
E) acquisition of insurance companies out of state.

Question 17

Which action of the holding company to help its securities affiliate can damage the financial health of its banking subsidiary?

Accepted Answer

A) Downstreaming funds from the subsidiary and then upstreaming it to the securities affiliate. 
B) Upstreaming funds from the securities affiliate and then downstreaming it to the bank subsidiary. 
C) Indulging in product diversification. 
D) Upstreaming funds from the bank subsidiary and then downstreaming it to the securities affiliate. 
E) Diversifying the earnings stream of a banking company geographically. 
A) Downstreaming funds from the subsidiary and then upstreaming it to the securities affiliate. 
B) Upstreaming funds from the securities affiliate and then downstreaming it to the bank subsidiary. 
C) Indulging in product diversification. 
D) Upstreaming funds from the bank subsidiary and then downstreaming it to the securities affiliate. 
E) Diversifying the earnings stream of a banking company geographically.

Question 18

A universal FI is an FI that has expanded its operations across country lines.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following is NOT an advantage of domestic geographic diversification?

Accepted Answer

A) Consumer convenience. 
B) Risk diversification. 
C) Efficiency of operations. 
D) Exploitation of economies of scale. 
E) Exploitation of monopoly power. 
A) Consumer convenience. 
B) Risk diversification. 
C) Efficiency of operations. 
D) Exploitation of economies of scale. 
E) Exploitation of monopoly power.

Question 20

Tie-ins and third-party loans are prohibited by current bank regulations.

Accepted Answer

A) True 
 B)False

Exam 22: Product and Geographic Expansion

The commercial paper market is an example of nonbank competition on the asset side of the balance sheet that has become increasingly intense for banks.

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 C, what is the new Herfindahl-Hirschman Index (HHI)?

Banks have been permitted to acquire existing investment banks since 1997.

The USA Patriot Act of 2001

Restrictions on branching occurred initially at the state level because

The NAFTA agreement and other agreements reached through the help of the World Trade Organization should reduce some of the restrictions that have face U.S.banks in attempts to enter emerging market countries.

Reciprocal banking pacts allowed the non-state companies to purchase banks as long as the purchase permission went in both directions.

Increased competition for securities underwritings should reduce the spreads and thus lower the price paid for the securities by the investing public.

As of 2015, the total worldwide assets of the shadow banking system was estimated to be approximately

Offices of foreign banks may be examined by the Federal Reserve under the FBSEA of 1991.

Historically, regulations have encouraged the expansion of bank offices domestically.

A bank threatens to credit ration unless the customer agrees to let the bank's securities affiliate do its securities underwritings.Identify the conflict of interest in this scenario.

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 C splits into two separate institutions at ½ its original size each, what is the new Herfindahl-Hirschman (HHI) Index?

A Eurodollar transaction

The Douglas amendment to the Bank Holding Company was passed to address a potential loophole to interstate banking posed by

Legislations restricting geographic expansion have been undermined in all of the following ways EXCEPT

Which action of the holding company to help its securities affiliate can damage the financial health of its banking subsidiary?

A universal FI is an FI that has expanded its operations across country lines.

Which of the following is NOT an advantage of domestic geographic diversification?

Tie-ins and third-party loans are prohibited by current bank regulations.

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