Question 1

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 2

Reciprocal banking pacts allowed the non-state companies to purchase banks as long as the purchase permission went in both directions.

Accepted Answer

A) True 
 B)False

Question 3

The European Community Second Banking Directive has aided the international competitive position of European banks by creating a single banking market in Europe.

Accepted Answer

A) True 
 B)False

Question 4

Concern about the improper transfer of inside information 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 5

Concern about the cost of managing a widely diversified financial company 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 6

Banks have been permitted to acquire existing investment banks since 1997.

Accepted Answer

A) True 
 B)False

Question 7

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 the options. 
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 the options.

Question 8

The 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) restricts bank holding companies from opening insurance underwriting affiliates. 
C) requires banks that underwrite and sell insurance to operate under federal rather than state regulations as insurance companies. 
D) All of the options. 
A) stipulates that a financial services holding company that engages in commercial banking,investment banking,and insurance activities will be functionally regulated. 
B) restricts bank holding companies from opening insurance underwriting affiliates. 
C) requires banks that underwrite and sell insurance to operate under federal rather than state regulations as insurance companies. 
D) All of the options.

Question 9

U.S.banking offices abroad normally are permitted by the Federal Reserve System to engage in activities that are allowed in the foreign country even when such activities are not permitted in the U.S.

Accepted Answer

A) True 
 B)False

Question 10

Restrictions on branching occurred initially at the state level because

Accepted Answer

A) money center banks could not operate as correspondent banks. 
B) small unit banks feared a loss of business from the larger branching banks. 
C) of improved communications and customer needs. 
D) of the lack of federal oversight. 
A) money center banks could not operate as correspondent banks. 
B) small unit banks feared a loss of business from the larger branching banks. 
C) of improved communications and customer needs. 
D) of the lack of federal oversight.

Question 11

Which of the following is not a reasonable argument for the increase in the number of banks that can compete in security underwriting activities?

Accepted Answer

A) Small firms gain increased access to the capital markets. 
B) Lower commission and fee expense for firms issuing securities. 
C) Issuing firms realize an increase in the degree of underpricing of new issues. 
D) The market for securities underwriting will see a decline in market concentration. 
A) Small firms gain increased access to the capital markets. 
B) Lower commission and fee expense for firms issuing securities. 
C) Issuing firms realize an increase in the degree of underpricing of new issues. 
D) The market for securities underwriting will see a decline in market concentration.

Question 12

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

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 13

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

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 14

In the middle part of the twentieth century,large banks addressed the issue of interstate branch banking restrictions by forming multibank holding companies with bank subsidiaries in different states.

Accepted Answer

A) True 
 B)False

Question 15

The following three FIs dominate a local market and their total assets are given below. 
$\begin{array}{lccc}
  \text {Institution  }&  \text { Asset Size}\
  \text {Bank A}&\$ 50    \text { million}\
  \text {Bank B}& \$ 60   \text { million}\
  \text {Bank  C}&\$ 90  \text {  million}\
\end{array}$
 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. 
A)  52 percent and 48 percent. 
B)  50 percent and 40 percent. 
C)  56 percent and 44 percent. 
D)  40 percent and 50 percent.

Question 16

The Pecora Commission's findings about the 1929 stock market crash resulted in the

Accepted Answer

A) Financial Services Modernization Act. 
B) Glass-Steagall Act. 
C) Federal Reserve Act. 
D) International Banking Act. 
A) Financial Services Modernization Act. 
B) Glass-Steagall Act. 
C) Federal Reserve Act. 
D) International Banking Act.

Question 17

In firm commitment underwriting,the underwriter's spread is

Accepted Answer

A) the bid ask spread in the secondary market. 
B) the interest spread earned by the FI. 
C) the difference between the underwriter's buy and sell price. 
D) the difference between the offer price under a firm commitments as opposed to a best efforts underwriting contract. 
A) the bid ask spread in the secondary market. 
B) the interest spread earned by the FI. 
C) the difference between the underwriter's buy and sell price. 
D) the difference between the offer price under a firm commitments as opposed to a best efforts underwriting contract.

Question 18

The specialized nature in which credit intermediation is performed by shadow banks makes the process less cost efficient than if done by traditional banks.

Accepted Answer

A) True 
 B)False

Question 19

As of 2015,the total worldwide assets of the shadow banking system was estimated to be approximately

Accepted Answer

A) $32 trillion. 
B) $57 trillion. 
C) $75 trillion. 
D) $87 trillion. 
A) $32 trillion. 
B) $57 trillion. 
C) $75 trillion. 
D) $87 trillion.

Question 20

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

Accepted Answer

A) True 
 B)False

Exam 21: Product and Geographic Expansion

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

Reciprocal banking pacts allowed the non-state companies to purchase banks as long as the purchase permission went in both directions.

The European Community Second Banking Directive has aided the international competitive position of European banks by creating a single banking market in Europe.

Concern about the improper transfer of inside information has been used to justify product segmentation on the grounds of

Concern about the cost of managing a widely diversified financial company has been used to justify product segmentation on the grounds of

Banks have been permitted to acquire existing investment banks since 1997.

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

The Financial Services Modernization Act of 1999

U.S.banking offices abroad normally are permitted by the Federal Reserve System to engage in activities that are allowed in the foreign country even when such activities are not permitted in the U.S.

Restrictions on branching occurred initially at the state level because

Which of the following is not a reasonable argument for the increase in the number of banks that can compete in security underwriting activities?

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

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

In the middle part of the twentieth century,large banks addressed the issue of interstate branch banking restrictions by forming multibank holding companies with bank subsidiaries in different states.

The Pecora Commission's findings about the 1929 stock market crash resulted in the

In firm commitment underwriting,the underwriter's spread is

The specialized nature in which credit intermediation is performed by shadow banks makes the process less cost efficient than if done by traditional banks.

As of 2015,the total worldwide assets of the shadow banking system was estimated to be approximately

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

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