Question 1

Which of the following is a disadvantage of international expansion?

Accepted Answer

A) An FI can lower its net regulatory burden and therefore increase its potential net profitability by finding countries that have reduced activity restrictions and reserve requirements. 
B) An FI can generate additional returns from new product innovations if it can sell such services internationally rather than just domestically. 
C) Monitoring and information collection cost often are higher in international markets. 
D) International expansion allows an FI to search for cheaper and more available sources of funds. 
E) International activities enhance the opportunities to diversify the risk of earnings flows. 
A) An FI can lower its net regulatory burden and therefore increase its potential net profitability by finding countries that have reduced activity restrictions and reserve requirements. 
B) An FI can generate additional returns from new product innovations if it can sell such services internationally rather than just domestically. 
C) Monitoring and information collection cost often are higher in international markets. 
D) International expansion allows an FI to search for cheaper and more available sources of funds. 
E) International activities enhance the opportunities to diversify the risk of earnings flows. C

Question 2

Research suggests that the total risk exposure of a financial services organization could actually increase if there is excessive product expansion in some nonbank lines.

Accepted Answer

A) True 
 B)False  True

Question 3

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 these. 
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 these. 
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. D

Question 4

The International Banking Act of 1978 attempted to provide a level playing field for domestic and foreign banks in U.S. banking markets.

Accepted Answer

A) True 
 B)False

Question 5

What are the ways in which an FI can establish a global or international presence?

Accepted Answer

A) Selling financial services from its domestic offices to foreign customers. 
B) Selling financial services through a branch, agency, or representative office established in the foreign customer's country. 
C) Selling financial services to a foreign customer through subsidiary companies in the foreign customer's country. 
D) All of these. 
E) Selling financial services from its domestic offices to foreign customers, and selling financial services through a branch, agency, or representative office established in the foreign customer's country. 
A) Selling financial services from its domestic offices to foreign customers. 
B) Selling financial services through a branch, agency, or representative office established in the foreign customer's country. 
C) Selling financial services to a foreign customer through subsidiary companies in the foreign customer's country. 
D) All of these. 
E) Selling financial services from its domestic offices to foreign customers, and selling financial services through a branch, agency, or representative office established in the foreign customer's country.

Question 6

Of the ten largest financial service firms in the world, none are headquartered in Canada.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following items is an advantage of international expansion for an FI?

Accepted Answer

A) An FI faces the political risk that a change in government may lead to the nationalization of fixed assets. 
B) A global FI must master the rules and regulations of each market in which it operates. 
C) The fixed costs of establishing overseas organizations may be very high in certain markets. 
D) International expansions allow an FI to maintain contact with and provide service to the needs of domestic multinational corporations. 
E) The absolute level of risk exposure in certain markets can be very high. 
A) An FI faces the political risk that a change in government may lead to the nationalization of fixed assets. 
B) A global FI must master the rules and regulations of each market in which it operates. 
C) The fixed costs of establishing overseas organizations may be very high in certain markets. 
D) International expansions allow an FI to maintain contact with and provide service to the needs of domestic multinational corporations. 
E) The absolute level of risk exposure in certain markets can be very high.

Question 8

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

Accepted Answer

A) True 
 B)False

Question 9

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 10

The USA Patriot Act of 2001 prohibits U.S. banks from providing banking services to foreign banks.

Accepted Answer

A) True 
 B)False

Question 11

One result of the FBSEA was the increase in the regulatory burden of foreign banks in the U.S.

Accepted Answer

A) True 
 B)False

Question 12

The U.S. Financial Services Modernization Act of 1999

Accepted Answer

A) stipulates that a financial services holding company that engages in commercial banking, investment banking, and insurance activities will be functionally regulated. 
B) allows bank holding companies to open insurance underwriting affiliates. 
C) requires banks that underwrite and sell insurance to operate under the same set of state regulations as insurance companies. 
D) All of these. 
E) stipulates that a financial services holding company that engages in commercial banking, investment banking, and insurance activities will be functionally regulated, and allows bank holding companies to open insurance underwriting affiliates. 
A) stipulates that a financial services holding company that engages in commercial banking, investment banking, and insurance activities will be functionally regulated. 
B) allows bank holding companies to open insurance underwriting affiliates. 
C) requires banks that underwrite and sell insurance to operate under the same set of state regulations as insurance companies. 
D) All of these. 
E) stipulates that a financial services holding company that engages in commercial banking, investment banking, and insurance activities will be functionally regulated, and allows bank holding companies to open insurance underwriting affiliates.

Question 13

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 14

The following three FIs dominate a local market and their total assets are given below.   What is the Herfindahl-Hirschman Index (HHI) for the local market?

Accepted Answer

A) 1,000. 
B) 3,450. 
C) 3,550. 
D) 3,400. 
E) 60. 
A) 1,000. 
B) 3,450. 
C) 3,550. 
D) 3,400. 
E) 60.

Question 15

The purpose of the Foreign Bank Supervision Enhancement Act of 1991 was to extend federal authority over foreign banking organizations in the U.S.

Accepted Answer

A) True 
 B)False

Question 16

The realization of revenue synergies from the acquisition of a bank may come

Accepted Answer

A) from expansion into less than fully competitive markets. 
B) from acquiring a bank in a growing market. 
C) through diversification of asset and liability mixes between the two banks. 
D) All of these. 
E) from acquiring a bank in a growing market, and through diversification of asset and liability mixes between the two banks. 
A) from expansion into less than fully competitive markets. 
B) from acquiring a bank in a growing market. 
C) through diversification of asset and liability mixes between the two banks. 
D) All of these. 
E) from acquiring a bank in a growing market, and through diversification of asset and liability mixes between the two banks.

Question 17

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 18

As of the end of 2012, the total worldwide assets of the shadow banking system was approximately

Accepted Answer

A) US$12 trillion 
B) US$37 trillion 
C) US$52 trillion 
D) US$67 trillion 
E) US$91 trillion 
A) US$12 trillion 
B) US$37 trillion 
C) US$52 trillion 
D) US$67 trillion 
E) US$91 trillion

Question 19

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 20

The following three FIs dominate a local market and their total assets are given below.   If Bank A acquires Bank C, what is the new Herfindahl 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.

Exam 21: Product and Geographic Expansion

Which of the following is a disadvantage of international expansion?

Research suggests that the total risk exposure of a financial services organization could actually increase if there is excessive product expansion in some nonbank lines.

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

The International Banking Act of 1978 attempted to provide a level playing field for domestic and foreign banks in U.S. banking markets.

What are the ways in which an FI can establish a global or international presence?

Of the ten largest financial service firms in the world, none are headquartered in Canada.

Which of the following items is an advantage of international expansion for an FI?

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

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

The USA Patriot Act of 2001 prohibits U.S. banks from providing banking services to foreign banks.

One result of the FBSEA was the increase in the regulatory burden of foreign banks in the U.S.

The U.S. Financial Services Modernization Act of 1999

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

The following three FIs dominate a local market and their total assets are given below. What is the Herfindahl-Hirschman Index (HHI) for the local market?

The purpose of the Foreign Bank Supervision Enhancement Act of 1991 was to extend federal authority over foreign banking organizations in the U.S.

The realization of revenue synergies from the acquisition of a bank may come

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

As of the end of 2012, the total worldwide assets of the shadow banking system was approximately

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

The following three FIs dominate a local market and their total assets are given below. If Bank A acquires Bank C, what is the new Herfindahl Index (HHI)?

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