Question 1

A level _____ of the Herfindahl-Hirschman Index (HHI) is considered to reflect a highly concentrated market.

Accepted Answer

A) above 1,000 
B) above 10,000 
C) between 1,000 and 1,500 
D) above 1,800 
E) below 1,000 
A) above 1,000 
B) above 10,000 
C) between 1,000 and 1,500 
D) above 1,800 
E) below 1,000

Question 2

Nonbank institutions have NOT gained competitive momentum for which of the following financial products?

Accepted Answer

A) Commercial paper. 
B) Money market mutual funds. 
C) Annuities. 
D) Business credit market. 
E) Savings accounts. 
A) Commercial paper. 
B) Money market mutual funds. 
C) Annuities. 
D) Business credit market. 
E) Savings accounts.

Question 3

The Riegle-Neal Act of 1994

Accepted Answer

A) specifically allows banks to establish de novo branches in new states. 
B) effectively stopped full interstate branching within the U.S. 
C) is given credit for initiating a wave of bank mergers across the U.S. 
D) allowed foreign banks to acquire U.S.banks. 
E) All of the options. 
A) specifically allows banks to establish de novo branches in new states. 
B) effectively stopped full interstate branching within the U.S. 
C) is given credit for initiating a wave of bank mergers across the U.S. 
D) allowed foreign banks to acquire U.S.banks. 
E) All of the options.

Question 4

The use of the Herfindahl-Hirschman Index (HHI) to measure bank concentration has been criticized because

Accepted Answer

A) ascertaining whether the relevant geographic scope of the market should be regional, national, or city is becoming increasingly difficult to determine. 
B) the index was originally designed for nonfinancial competition. 
C) separating financial markets into banks, thrifts, and insurance companies is becoming increasingly difficult to justify. 
D) All of the options. 
E) ascertaining whether the relevant geographic scope of the market should be regional, national, or city is becoming increasingly difficult to determine and separating financial markets into banks, thrifts, and insurance companies is becoming increasingly difficult to justify. 
A) ascertaining whether the relevant geographic scope of the market should be regional, national, or city is becoming increasingly difficult to determine. 
B) the index was originally designed for nonfinancial competition. 
C) separating financial markets into banks, thrifts, and insurance companies is becoming increasingly difficult to justify. 
D) All of the options. 
E) ascertaining whether the relevant geographic scope of the market should be regional, national, or city is becoming increasingly difficult to determine and separating financial markets into banks, thrifts, and insurance companies is becoming increasingly difficult to justify.

Question 5

Concern about the cost of managing a widely diversified financial company 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 6

International expansion often produces revenue-risk diversification benefits for U.S.banks.

Accepted Answer

A) True 
 B)False

Question 7

This legislation defines a bank as any institution that accepts deposit insurance coverage.

Accepted Answer

A) The McCarran-Ferguson Act of 1945. 
B) The Bank Holding Company Act of 1956. 
C) The Garn-St.Germain Act of 1982. 
D) The Competitive Equality Banking Act of 1987. 
E) The International Banking Act of 1978. 
A) The McCarran-Ferguson Act of 1945. 
B) The Bank Holding Company Act of 1956. 
C) The Garn-St.Germain Act of 1982. 
D) The Competitive Equality Banking Act of 1987. 
E) The International Banking Act of 1978.

Question 8

The use of the Herfindahl-Hirschman Index (HHI) to measure market concentration is encouraged for banks because of the ease of separating banks from thrifts and insurance companies.

Accepted Answer

A) True 
 B)False

Question 9

Expansion on a de novo basis implies the establishment and construction of a new office in a location where previously no office existed.

Accepted Answer

A) True 
 B)False

Question 10

Chinese Walls are

Accepted Answer

A) internally imposed barriers that limits the flow of confidential client information among departments or areas. 
B) regulatory barriers that are introduced to insulate the bank against losses. 
C) regulations that prohibit a bank from lending anything at all to its securities affiliates. 
D) restrictions on a bank holding company that prevents the use of subsidiary funds to support ailing affiliates. 
E) hurdles created by excessive drain in the form of dividends and fees from a bank. 
A) internally imposed barriers that limits the flow of confidential client information among departments or areas. 
B) regulatory barriers that are introduced to insulate the bank against losses. 
C) regulations that prohibit a bank from lending anything at all to its securities affiliates. 
D) restrictions on a bank holding company that prevents the use of subsidiary funds to support ailing affiliates. 
E) hurdles created by excessive drain in the form of dividends and fees from a bank.

Question 11

An organization form that establishes bank subsidiaries rather than branches to expand is

Accepted Answer

A) an unit bank. 
B) a multibank holding company. 
C) a one-bank holding company. 
D) a representative office. 
E) a nonbank bank. 
A) an unit bank. 
B) a multibank holding company. 
C) a one-bank holding company. 
D) a representative office. 
E) a nonbank bank.

Question 12

The banking industry in the U.S.has faced increased competition

Accepted Answer

A) on the liability side of the balance sheet from the commercial paper market. 
B) on the asset side of the balance sheet from money market mutual funds. 
C) on the liability side of the balance sheet from money market mutual funds. 
D) on the asset side of the balance sheet from the commercial paper market. 
E) on the liability side of the balance sheet from money market mutual funds and on the asset side of the balance sheet from the commercial paper market. 
A) on the liability side of the balance sheet from the commercial paper market. 
B) on the asset side of the balance sheet from money market mutual funds. 
C) on the liability side of the balance sheet from money market mutual funds. 
D) on the asset side of the balance sheet from the commercial paper market. 
E) on the liability side of the balance sheet from money market mutual funds and on the asset side of the balance sheet from the commercial paper market.

Question 13

Identify the fundamental regulatory philosophy underlying the International Banking Act.

Accepted Answer

A) Too big to fail. 
B) National treatment. 
C) Reciprocal arrangement. 
D) X efficiencies. 
E) Unit banks. 
A) Too big to fail. 
B) National treatment. 
C) Reciprocal arrangement. 
D) X efficiencies. 
E) Unit banks.

Question 14

The following three FIs dominate a local market and their total assets are given below. $$\begin{array} { | c | r | } 
\hline \text { Institution } & \text { Asset Size } \
\hline \text { Bank A } & \text { \$50 million } \
\hline \text { Bank B } & \text { \$60 million } \
\hline \text { Bank C } & \text { \$90 million } \
\hline
\end{array}$$ What are the market shares of banks A, B and C, respectively?

Accepted Answer

A) 25 percent, 45 percent, and 30 percent. 
B) 30 percent, 40 percent, and 30 percent. 
C) 40 percent, 30 percent, and 30 percent. 
D) 25 percent, 30 percent, and 45 percent. 
E) 25 percent, 35 percent, and 40 percent. 
A) 25 percent, 45 percent, and 30 percent. 
B) 30 percent, 40 percent, and 30 percent. 
C) 40 percent, 30 percent, and 30 percent. 
D) 25 percent, 30 percent, and 45 percent. 
E) 25 percent, 35 percent, and 40 percent.

Question 15

In the U.S., the Glass-Steagall Act limited the integration of commercial banking and securities activities.

Accepted Answer

A) True 
 B)False

Question 16

The effect of the International Banking Act of 1978 was to accelerate the expansion of foreign bank activities in the U.S.primarily because of their access to the Federal Reserve's discount window, Fedwire, and FDIC insurance.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following has proven to be strong competition for bank deposit and transaction account products?

Accepted Answer

A) Commercial paper market. 
B) Money market mutual funds. 
C) Finance company business credit. 
D) Hedge funds. 
E) None of the options. 
A) Commercial paper market. 
B) Money market mutual funds. 
C) Finance company business credit. 
D) Hedge funds. 
E) None of the options.

Question 18

Which of the following is a factor deterring U.S.bank expansions abroad?

Accepted Answer

A) The dollar as an international medium of exchange. 
B) Political risk concerns among savers in emerging markets. 
C) Domestic regulatory restrictions. 
D) Capital constraints. 
E) Technology and communications improvements. 
A) The dollar as an international medium of exchange. 
B) Political risk concerns among savers in emerging markets. 
C) Domestic regulatory restrictions. 
D) Capital constraints. 
E) Technology and communications improvements.

Question 19

Firewalls are

Accepted Answer

A) barriers introduced to protect the bank against affiliate losses. 
B) mechanisms to insure bank shareholders against loss. 
C) regulations restricting the proliferation of Section 20 subsidiaries. 
D) limitations on capital flows to the parent company. 
E) safety codes required in tall skyscrapers. 
A) barriers introduced to protect the bank against affiliate losses. 
B) mechanisms to insure bank shareholders against loss. 
C) regulations restricting the proliferation of Section 20 subsidiaries. 
D) limitations on capital flows to the parent company. 
E) safety codes required in tall skyscrapers.

Question 20

Similar to the Volcker rule in the U.S., bank structural reforms in the U.K.and
E.U.have tried to limit risks emanating from bank's trading activities by advocating the "partial separation" approach.

Accepted Answer

A) True 
 B)False

Exam 22: Product and Geographic Expansion

A level _____ of the Herfindahl-Hirschman Index (HHI) is considered to reflect a highly concentrated market.

Nonbank institutions have NOT gained competitive momentum for which of the following financial products?

The Riegle-Neal Act of 1994

The use of the Herfindahl-Hirschman Index (HHI) to measure bank concentration has been criticized because

Concern about the cost of managing a widely diversified financial company has been used to justify product segmentation on the grounds of

International expansion often produces revenue-risk diversification benefits for U.S.banks.

This legislation defines a bank as any institution that accepts deposit insurance coverage.

The use of the Herfindahl-Hirschman Index (HHI) to measure market concentration is encouraged for banks because of the ease of separating banks from thrifts and insurance companies.

Expansion on a de novo basis implies the establishment and construction of a new office in a location where previously no office existed.

Chinese Walls are

An organization form that establishes bank subsidiaries rather than branches to expand is

The banking industry in the U.S.has faced increased competition

Identify the fundamental regulatory philosophy underlying the International Banking Act.

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 What are the market shares of banks A, B and C, respectively?

In the U.S., the Glass-Steagall Act limited the integration of commercial banking and securities activities.

The effect of the International Banking Act of 1978 was to accelerate the expansion of foreign bank activities in the U.S.primarily because of their access to the Federal Reserve's discount window, Fedwire, and FDIC insurance.

Which of the following has proven to be strong competition for bank deposit and transaction account products?

Which of the following is a factor deterring U.S.bank expansions abroad?

Firewalls are

Similar to the Volcker rule in the U.S., bank structural reforms in the U.K.and E.U.have tried to limit risks emanating from bank's trading activities by advocating the "partial separation" approach.

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