Question 1

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 2

Identify a condition under which conflicts of interest are exploitable.

Accepted Answer

A) Market for bank service is very competitive. 
B) Banks have monopoly power over their customers. 
C) Information flows between the customer and the bank are symmetric. 
D) Bank does not possess any information advantage over its customers. 
E) Bank places a relatively high value on its reputation. 
A) Market for bank service is very competitive. 
B) Banks have monopoly power over their customers. 
C) Information flows between the customer and the bank are symmetric. 
D) Bank does not possess any information advantage over its customers. 
E) Bank places a relatively high value on its reputation.

Question 3

If the firm commitment price is $15 and one million shares are sold in the primary market for $13 and then resold in the secondary market for $13.25, what is the underwriter's profit/loss?

Accepted Answer

A) -$2,000,000. 
B) $2,000,000. 
C) -$1,750,000. 
D) $1,750,000. 
E) 0 
A) -$2,000,000. 
B) $2,000,000. 
C) -$1,750,000. 
D) $1,750,000. 
E) 0

Question 4

Banks increasingly have been susceptible to nonbank competition on both sides of the balance sheet.

Accepted Answer

A) True 
 B)False

Question 5

The Herfindahl-Hirschman Index (HHI) is a measure of

Accepted Answer

A) market concentration. 
B) profitability. 
C) market performance. 
D) annual sector growth. 
E) investor reaction. 
A) market concentration. 
B) profitability. 
C) market performance. 
D) annual sector growth. 
E) investor reaction.

Question 6

The argument that mergers are valuable because they create revenue synergies is based on

Accepted Answer

A) the opportunity to expand into less than fully competitive markets. 
B) the diversification effects of combining dissimilar asset and liability portfolios. 
C) realizable economies of scope. 
D) the enhancement of revenues by acquiring a bank in a growing market. 
E) the opportunity to expand into less than fully competitive markets, the diversification effects of combining dissimilar asset and liability portfolios, and the enhancement of revenues by acquiring a bank in a growing market. 
A) the opportunity to expand into less than fully competitive markets. 
B) the diversification effects of combining dissimilar asset and liability portfolios. 
C) realizable economies of scope. 
D) the enhancement of revenues by acquiring a bank in a growing market. 
E) the opportunity to expand into less than fully competitive markets, the diversification effects of combining dissimilar asset and liability portfolios, and the enhancement of revenues by acquiring a bank in a growing market.

Question 7

The following three FIs dominate a local market and their total assets are given below.   If Bank C agrees to be purchased by Banks A and B, what proportion of assets of Bank C should be taken by Banks A and B, respectively in order to have equal post-merger assets?

Accepted Answer

A) 52 percent and 48 percent. 
B) 50 percent and 40 percent. 
C) 56 percent and 44 percent. 
D) 40 percent and 50 percent. 
E) 45 percent and 55 percent. 
A) 52 percent and 48 percent. 
B) 50 percent and 40 percent. 
C) 56 percent and 44 percent. 
D) 40 percent and 50 percent. 
E) 45 percent and 55 percent.

Question 8

Which of the following describes a firm commitment underwriting?

Accepted Answer

A) Finding a large institutional buyer or investor such as another FI for a private placement. 
B) Investment bankers acting as agents on a fee basis related to their success in placing the issue. 
C) Investment bankers act as agents and purchase securities from the issuer at one price for sale to the public at a different price. 
D) Bank using its lending powers to coerce customers to buy the products sold by its securities affiliate. 
E) Purchase of securities from the issuer at one price for resale to the public at a slightly higher price. 
A) Finding a large institutional buyer or investor such as another FI for a private placement. 
B) Investment bankers acting as agents on a fee basis related to their success in placing the issue. 
C) Investment bankers act as agents and purchase securities from the issuer at one price for sale to the public at a different price. 
D) Bank using its lending powers to coerce customers to buy the products sold by its securities affiliate. 
E) Purchase of securities from the issuer at one price for resale to the public at a slightly higher price.

Question 9

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 10

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 11

A Canadian bank subsidiary in the U.S. is restricted to using only funds borrowed on the wholesale and money markets.

Accepted Answer

A) True 
 B)False

Question 12

In recent years, commercial banks have attempted to expand their activities into nonbanking areas, but securities firms have not been interested in expanding into commercial banking.

Accepted Answer

A) True 
 B)False

Question 13

What is seen as a reason for the increased expansion of foreign bank activities in the United States following the passage of the International Banking Act?

Accepted Answer

A) Access to the Federal Reserve's discount window, Fedwire, and FDIC insurance. 
B) Absence of the Federal Reserve's reserve requirements, audits, and exams. 
C) No interstate branching restrictions. 
D) No restrictions on corporate securities underwriting activities. 
E) None of these. 
A) Access to the Federal Reserve's discount window, Fedwire, and FDIC insurance. 
B) Absence of the Federal Reserve's reserve requirements, audits, and exams. 
C) No interstate branching restrictions. 
D) No restrictions on corporate securities underwriting activities. 
E) None of these.

Question 14

According to economists, this is the main reason for underpricing of new issues.

Accepted Answer

A) Lack of competition among existing investment banks. 
B) Entry of banks into the investment banking sector. 
C) Monopoly power of the existing investment banks. 
D) Mismatch of demand and supply of securities. 
E) Risk premium for information advantage possessed by issuers. 
A) Lack of competition among existing investment banks. 
B) Entry of banks into the investment banking sector. 
C) Monopoly power of the existing investment banks. 
D) Mismatch of demand and supply of securities. 
E) Risk premium for information advantage possessed by issuers.

Question 15

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 16

despite a sovereign debt problem that plagued Greece in 2010, by 2012 Canadian banks had increased their exposure to Greek debt.

Accepted Answer

A) True 
 B)False

Question 17

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

Accepted Answer

A) True 
 B)False

Question 18

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 19

Identify the procompetitive effect of banks' expansion of their securities activities.

Accepted Answer

A) Reduces the degree of underpricing of new issues. 
B) Encourages stuffing of fiduciary accounts. 
C) Increased provision of cheap loans on the implicit condition that this loan is used to purchase securities. 
D) Use of lending powers by a bank to coerce a customer to buy the products sold by its securities affiliate. 
E) Use of inside information by a bank to set the prices, or help the distribution of securities offerings by its affiliate. 
A) Reduces the degree of underpricing of new issues. 
B) Encourages stuffing of fiduciary accounts. 
C) Increased provision of cheap loans on the implicit condition that this loan is used to purchase securities. 
D) Use of lending powers by a bank to coerce a customer to buy the products sold by its securities affiliate. 
E) Use of inside information by a bank to set the prices, or help the distribution of securities offerings by its affiliate.

Question 20

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

Exam 21: Product and Geographic Expansion

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

Identify a condition under which conflicts of interest are exploitable.

If the firm commitment price is $15 and one million shares are sold in the primary market for $13 and then resold in the secondary market for $13.25, what is the underwriter's profit/loss?

Banks increasingly have been susceptible to nonbank competition on both sides of the balance sheet.

The Herfindahl-Hirschman Index (HHI) is a measure of

The argument that mergers are valuable because they create revenue synergies is based on

The following three FIs dominate a local market and their total assets are given below. If Bank C agrees to be purchased by Banks A and B, what proportion of assets of Bank C should be taken by Banks A and B, respectively in order to have equal post-merger assets?

Which of the following describes a firm commitment underwriting?

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.

A Eurodollar transaction

A Canadian bank subsidiary in the U.S. is restricted to using only funds borrowed on the wholesale and money markets.

In recent years, commercial banks have attempted to expand their activities into nonbanking areas, but securities firms have not been interested in expanding into commercial banking.

What is seen as a reason for the increased expansion of foreign bank activities in the United States following the passage of the International Banking Act?

According to economists, this is the main reason for underpricing of new issues.

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

despite a sovereign debt problem that plagued Greece in 2010, by 2012 Canadian banks had increased their exposure to Greek debt.

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

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

Identify the procompetitive effect of banks' expansion of their securities activities.

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

Why Are Financial Institutions Special

Deposit-Taking Institutions

Finance Companies

Securities, Brokerage, and Investment Banking

Mutual Funds, Hedge Funds, and Pension Funds

Insurance Companies

Risks of Financial Institutions

Interest Rate Risk I

Interest Rate Risk II

Credit Risk: Individual Loans

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

Liability and Liquidity Management

Deposit Insurance and Other Liability Guarantees

Capital Adequacy

Futures and Forwards

Options, Caps, Floors, and Collars

Swaps

Loan Sales

Securitization Index

Filters