Question 1

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

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 2

Large size is an important characteristic in international banking because it gives a bank a greater ability to diversify across borders.

Accepted Answer

A) True 
 B)False

Question 3

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 4

Research on bank mergers for the decade of the 1990s found that improved performance of the merged bank occurred because of both revenue enhancements and cost reduction.

Accepted Answer

A) True 
 B)False

Question 5

Historically, commercial banks have been prohibited from acting as an underwriter of insurance products.

Accepted Answer

A) True 
 B)False

Question 6

Using lending power to coerce a customer to purchase or use the products sold by an affiliate.

Accepted Answer

The answer of Using lending power to coerce a customer...

Question 7

The U.S. Financial Services Modernization Act allowed for

Accepted Answer

A) the creation of financial services holding companies. 
B) the replacement of all previous regulatory agencies with one super regulator. 
C) the placement of some securities underwriting in bank subsidiaries. 
D) All of these. 
E) the creation of financial services holding companies, and the placement of some securities underwriting in bank subsidiaries. 
A) the creation of financial services holding companies. 
B) the replacement of all previous regulatory agencies with one super regulator. 
C) the placement of some securities underwriting in bank subsidiaries. 
D) All of these. 
E) the creation of financial services holding companies, and the placement of some securities underwriting in bank subsidiaries.

Question 8

A fully integrated universal bank allows a bank to engage in securities activities only through a separately owned securities affiliate.

Accepted Answer

A) True 
 B)False

Question 9

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 10

The conflict of interest that occurs when a bank suggests the issuance of capital market debt for the purpose of reducing bank loans under conditions of deteriorating or questionable firm financial health is commonly referred to as bankruptcy risk transference.

Accepted Answer

A) True 
 B)False

Question 11

Which of the following is an advantage to an FI of expanding globally?

Accepted Answer

A) Exposure to nationalization or expropriation. 
B) Economies of scale. 
C) High fixed costs. 
D) Costs of complying with different regulatory requirements. 
E) Information and monitoring costs. 
A) Exposure to nationalization or expropriation. 
B) Economies of scale. 
C) High fixed costs. 
D) Costs of complying with different regulatory requirements. 
E) Information and monitoring costs.

Question 12

The U.S. Financial Services Modernization Act repealed the Glass-Steagall barriers between commercial banking and investment banking.

Accepted Answer

A) True 
 B)False

Question 13

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 14

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 15

Economies of scope opportunities seem to be available in the financial services industry, but economies of scale opportunities do not seem to exist.

Accepted Answer

A) True 
 B)False

Question 16

International expansion by a commercial bank should provide increased access to funding sources.

Accepted Answer

A) True 
 B)False

Question 17

When banks have the power to sell nonbank products, employees may no longer give dispassionate, or unbiased, advice to customers.

Accepted Answer

The answer of When banks have the power to sell...

Question 18

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 19

The economic value of narrowly defined bank franchises has declined because

Accepted Answer

A) product line restrictions inhibit the ability of an FI to optimize the set of financial services it can offer. 
B) product restrictions limit the ability of FI managers to adjust flexibly to shifts in the demand for financial products. 
C) product restrictions limit the ability of FI managers to adjust flexibly to shifts in costs due to technology and related innovations. 
D) All of these. 
E) product line restrictions inhibit the ability of an FI to optimize the set of financial services it can offer, and limit the ability of FI managers to adjust flexibly to shifts in the demand for financial products. 
A) product line restrictions inhibit the ability of an FI to optimize the set of financial services it can offer. 
B) product restrictions limit the ability of FI managers to adjust flexibly to shifts in the demand for financial products. 
C) product restrictions limit the ability of FI managers to adjust flexibly to shifts in costs due to technology and related innovations. 
D) All of these. 
E) product line restrictions inhibit the ability of an FI to optimize the set of financial services it can offer, and limit the ability of FI managers to adjust flexibly to shifts in the demand for financial products.

Question 20

In late 2012, shadow banking activities came under OSFI'S regulation.

Accepted Answer

A) True 
 B)False

Exam 21: Product and Geographic Expansion

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

Large size is an important characteristic in international banking because it gives a bank a greater ability to diversify across borders.

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

Research on bank mergers for the decade of the 1990s found that improved performance of the merged bank occurred because of both revenue enhancements and cost reduction.

Historically, commercial banks have been prohibited from acting as an underwriter of insurance products.

Using lending power to coerce a customer to purchase or use the products sold by an affiliate.

The U.S. Financial Services Modernization Act allowed for

A fully integrated universal bank allows a bank to engage in securities activities only through a separately owned securities affiliate.

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

The conflict of interest that occurs when a bank suggests the issuance of capital market debt for the purpose of reducing bank loans under conditions of deteriorating or questionable firm financial health is commonly referred to as bankruptcy risk transference.

Which of the following is an advantage to an FI of expanding globally?

The U.S. Financial Services Modernization Act repealed the Glass-Steagall barriers between commercial banking and investment banking.

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

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.

Economies of scope opportunities seem to be available in the financial services industry, but economies of scale opportunities do not seem to exist.

International expansion by a commercial bank should provide increased access to funding sources.

When banks have the power to sell nonbank products, employees may no longer give dispassionate, or unbiased, advice to customers.

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

The economic value of narrowly defined bank franchises has declined because

In late 2012, shadow banking activities came under OSFI'S regulation.

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