Question 1

The merger bid premium usually is defined as

Accepted Answer

A) the difference between the price paid for the company and the market value immediately prior to the merger announcement. 
B) the ratio of the purchase price of a target bank's equity to its book value. 
C) the difference between the market value immediately prior to the merger announcement and the book value of the company. 
D) All of the options. 
A) the difference between the price paid for the company and the market value immediately prior to the merger announcement. 
B) the ratio of the purchase price of a target bank's equity to its book value. 
C) the difference between the market value immediately prior to the merger announcement and the book value of the company. 
D) All of the options.

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 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 4

The establishment of a global or international presence by an FI can be achieved in all but which of the following ways?

Accepted Answer

A) Selling financial services from a domestic office to a domestic customer who has commercial activities in a foreign country. 
B) Selling financial services to a foreign customer through subsidiary companies in a foreign country. 
C) Selling financial services through a branch,agency,or representative office. 
D) Selling financial services from domestic offices to foreign customers. 
A) Selling financial services from a domestic office to a domestic customer who has commercial activities in a foreign country. 
B) Selling financial services to a foreign customer through subsidiary companies in a foreign country. 
C) Selling financial services through a branch,agency,or representative office. 
D) Selling financial services from domestic offices to foreign customers.

Question 5

Of the ten largest financial service firms in the world,three are headquartered in the U.S.

Accepted Answer

A) True 
 B)False

Question 6

The following three FIs dominate a local market and their total assets are given below. 
$\begin{array}{lccc}
  \text {Institution  }&  \text { Asset Size}\
  \text {Bank A}&\$ 50    \text { million}\
  \text {Bank B}& \$ 60   \text { million}\
  \text {Bank  C}&\$ 90  \text {  million}\
\end{array}$
 If Bank A acquires Bank C,what is the new Herfindahl-Hirschman Index (HHI)?

Accepted Answer

A) 60. 
B) 100. 
C) 5,800. 
D) 5,050. 
A) 60. 
B) 100. 
C) 5,800. 
D) 5,050.

Question 7

An agreement to allow competition from certain geographic areas,usually in return for the ability to compete within those areas,is

Accepted Answer

A) a federal charter. 
B) an integrated agreement. 
C) a holding company agreement. 
D) an interstate banking pact. 
A) a federal charter. 
B) an integrated agreement. 
C) a holding company agreement. 
D) an interstate banking pact.

Question 8

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. 
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.

Question 9

Banks typically have faced few restrictions in expanding their businesses,while securities firms and insurance companies have faced complex rules regarding expansion.

Accepted Answer

A) True 
 B)False

Question 10

The Douglas amendment to the Bank Holding Company was passed to address a potential loophole to interstate banking posed by

Accepted Answer

A) unit banks. 
B) multibank holding companies. 
C) one-bank holding companies. 
D) foreign banks. 
A) unit banks. 
B) multibank holding companies. 
C) one-bank holding companies. 
D) foreign banks.

Question 11

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

Accepted Answer

A) True 
 B)False

Question 12

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

Question 13

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. 
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.

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. 
A) Salesperson's Stake. 
B) Stuffing fiduciary accounts. 
C) Tie-ins. 
D) Third-party loans.

Question 15

The following three FIs dominate a local market and their total assets are given below. 
$\begin{array}{lccc}
  \text {Institution  }&  \text { Asset Size}\
  \text {Bank A}&\$ 50    \text { million}\
  \text {Bank B}& \$ 60   \text { million}\
  \text {Bank  C}&\$ 90  \text {  million}\
\end{array}$
 Under the 1982 guidelines,would the Fed approve the merger of Banks A and B?

Accepted Answer

A) It is likely to approve because it is not a concentrated market. 
B) It is unlikely to approve because the post-merger HHI has increased by over 100. 
C) It is likely to approve because the post-merger HHI has increased by over 100. 
D) Likely to approve because the post-merger HHI has increased by less than 5,000. 
A) It is likely to approve because it is not a concentrated market. 
B) It is unlikely to approve because the post-merger HHI has increased by over 100. 
C) It is likely to approve because the post-merger HHI has increased by over 100. 
D) Likely to approve because the post-merger HHI has increased by less than 5,000.

Question 16

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 17

A value below 1,000 of the Herfindahl-Hirschman Index (HHI)is considered to reflect

Accepted Answer

A) a highly concentrated market. 
B) an unconcentrated market. 
C) a high growth market. 
D) a moderately concentrated market. 
A) a highly concentrated market. 
B) an unconcentrated market. 
C) a high growth market. 
D) a moderately concentrated market.

Question 18

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

Accepted Answer

A) True 
 B)False

Question 19

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. 
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.

Question 20

The first regional banking pact in the U.S.was in

Accepted Answer

A) the Southeast. 
B) New England. 
C) the Northwest. 
D) the Southwest. 
A) the Southeast. 
B) New England. 
C) the Northwest. 
D) the Southwest.

Exam 21: Product and Geographic Expansion

The merger bid premium usually is defined as

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

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

The establishment of a global or international presence by an FI can be achieved in all but which of the following ways?

Of the ten largest financial service firms in the world,three are headquartered in the U.S.

The following three FIs dominate a local market and their total assets are given below. Institution Asset Size Bank A \ 50 million Bank B \ 60 million Bank C \ 90 million If Bank A acquires Bank C,what is the new Herfindahl-Hirschman Index (HHI)?

An agreement to allow competition from certain geographic areas,usually in return for the ability to compete within those areas,is

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

Banks typically have faced few restrictions in expanding their businesses,while securities firms and insurance companies have faced complex rules regarding expansion.

The Douglas amendment to the Bank Holding Company was passed to address a potential loophole to interstate banking posed by

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

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?

Identify a condition under which conflicts of interest are exploitable.

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.

The following three FIs dominate a local market and their total assets are given below. Institution Asset Size Bank A \ 50 million Bank B \ 60 million Bank C \ 90 million Under the 1982 guidelines,would the Fed approve the merger of Banks A and B?

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

A value below 1,000 of the Herfindahl-Hirschman Index (HHI)is considered to reflect

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

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

The first regional banking pact in the U.S.was in

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

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