Question 1

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. 
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. D

Question 2

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. 
A) Commercial paper market. 
B) Money market mutual funds. 
C) Finance company business credit. 
D) Hedge funds. B

Question 3

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  False

Question 4

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 5

If the firm commitment price is $15 and one million shares are sold in the primary market for $15.50 and then resold in the secondary market for $15.75,what is the underwriter's profit/loss?

Accepted Answer

A) -$500,000. 
B) $500,000. 
C) $750,000. 
D) -$750,000. 
A) -$500,000. 
B) $500,000. 
C) $750,000. 
D) -$750,000.

Question 6

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 7

A foreign 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 8

Concern about the ability to analyze a more complex corporate structure 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 9

The process of using lending power to coerce a loan customer to use products sold by a securities affiliate is called information transfer.

Accepted Answer

A) True 
 B)False

Question 10

Commercial banks have expanded their activities in each of the following ways EXCEPT

Accepted Answer

A) opening nonbank banks. 
B) grandfathering previously permitted activities. 
C) expanding off shore. 
D) petitioning regulators for enhanced powers. 
E) acquiring nonfinancial firms. 
A) opening nonbank banks. 
B) grandfathering previously permitted activities. 
C) expanding off shore. 
D) petitioning regulators for enhanced powers. 
E) acquiring nonfinancial firms.

Question 11

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 12

Which of the following has NOT been a factor deterring U.S.bank expansion abroad?

Accepted Answer

A) The implementation of risk-based capital requirements effective in 1993. 
B) The increased competition from the large Japanese banks through the mid-1990s. 
C) The effects of the collapse of the financial markets in several emerging markets. 
D) The ability of the U.S.banks to achieve large excess capital positions in the second half of the 1990s. 
A) The implementation of risk-based capital requirements effective in 1993. 
B) The increased competition from the large Japanese banks through the mid-1990s. 
C) The effects of the collapse of the financial markets in several emerging markets. 
D) The ability of the U.S.banks to achieve large excess capital positions in the second half of the 1990s.

Question 13

The Financial Services Modernization Act of 1999 allows bank holding companies to open insurance underwriting affiliates.

Accepted Answer

A) True 
 B)False

Question 14

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 to shifts in the demand for financial products. 
C) product restrictions limit the ability of FI managers to adjust to shifts in costs due to technology and related innovations. 
D) All of the options. 
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 to shifts in the demand for financial products. 
C) product restrictions limit the ability of FI managers to adjust to shifts in costs due to technology and related innovations. 
D) All of the options.

Question 15

What is the market share of Bank 3? 
$\begin{array}{lccc}
  \text {Bank }&  \text { Asset Size}\
 1&\$ 100    \text { million}\
2& \$ 200   \text { million}\
3&\$ 500  \text {  million}\
\end{array}$

Accepted Answer

A) 12.5 percent. 
B) 37.5 percent. 
C) 25.0 percent. 
D) 62.5 percent. 
A) 12.5 percent. 
B) 37.5 percent. 
C) 25.0 percent. 
D) 62.5 percent.

Question 16

Under the Financial Services Modernization Act of 1999,commercial banks can own and actively manage nonfinancial corporations.

Accepted Answer

A) True 
 B)False

Question 17

Concern about potential abuses of fiduciary responsibility 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. 
A) safety and soundness issues. 
B) economy of scale and scope issues. 
C) conflict of interest issues. 
D) deposit insurance issues.

Question 18

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 19

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 20

A bank holding company must obtain the approval of the Fed before acquiring more than _____ of the shares of an additional bank,bank holding company,or financial services firm.

Accepted Answer

A) 5 percent 
B) 10 percent 
C) 15 percent 
D) 25 percent 
A) 5 percent 
B) 10 percent 
C) 15 percent 
D) 25 percent

Exam 21: Product and Geographic Expansion

The USA Patriot Act of 2001

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

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

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.

If the firm commitment price is $15 and one million shares are sold in the primary market for $15.50 and then resold in the secondary market for $15.75,what is the underwriter's profit/loss?

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

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

Concern about the ability to analyze a more complex corporate structure has been used to justify product segmentation on the grounds of

The process of using lending power to coerce a loan customer to use products sold by a securities affiliate is called information transfer.

Commercial banks have expanded their activities in each of the following ways EXCEPT

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

Which of the following has NOT been a factor deterring U.S.bank expansion abroad?

The Financial Services Modernization Act of 1999 allows bank holding companies to open insurance underwriting affiliates.

The economic value of narrowly defined bank franchises has declined because

What is the market share of Bank 3? Bank Asset Size 1 \ 100 million 2 \ 200 million 3 \ 500 million

Under the Financial Services Modernization Act of 1999,commercial banks can own and actively manage nonfinancial corporations.

Concern about potential abuses of fiduciary responsibility has been used to justify product segmentation on the grounds of

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.

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.

A bank holding company must obtain the approval of the Fed before acquiring more than _____ of the shares of an additional bank,bank holding company,or financial services firm.

Why Are Financial Institutions Special

Financial Services: Depository Institutions

Financial Services: Finance Companies

Financial Services: Securities Firms and Investment Banks

Financial Services: Mutual Fund and Hedge Fund Companies

Financial Services: Insurance Companies

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

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