Question 1

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 2

An organization form that limits business transactions to a single location is

Accepted Answer

A) an unit bank. 
B) a multibank holding company. 
C) a one-bank holding company. 
D) an interstate bank. 
A) an unit bank. 
B) a multibank holding company. 
C) a one-bank holding company. 
D) an interstate bank.

Question 3

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 4

The establishment of a presence in local markets by insurance companies is reasonably inexpensive because of low capital requirements established by state regulators.

Accepted Answer

A) True 
 B)False

Question 5

The use of the Herfindahl-Hirschman Index (HHI)to measure bank concentration has been criticized because

Accepted Answer

A) ascertaining whether the relevant geographic scope of the market should be regional,national,or city is becoming increasingly difficult to determine. 
B) the index was originally designed for nonfinancial competition. 
C) separating financial markets into banks,thrifts,and insurance companies is becoming increasingly difficult to justify. 
D) All of the options. 
A) ascertaining whether the relevant geographic scope of the market should be regional,national,or city is becoming increasingly difficult to determine. 
B) the index was originally designed for nonfinancial competition. 
C) separating financial markets into banks,thrifts,and insurance companies is becoming increasingly difficult to justify. 
D) All of the options.

Question 6

An underwriter is quoting the following rates for the issue of new securities on behalf of a firm on a firm commitment basis: $64.00-64.25.2,000,000 shares are being offered.

Accepted Answer

A) The maximum amount that can be earned by the underwriter (ignoring other costs)$1,000,000. 
B) The maximum amount that can be earned by the underwriter (ignoring other costs)is $500,000. 
C) The minimum amount that can be earned (ignoring other costs)by the underwriter is $0. 
D) The minimum amount that can be earned (ignoring other costs)by the underwriter is -$500,000. 
A) The maximum amount that can be earned by the underwriter (ignoring other costs)$1,000,000. 
B) The maximum amount that can be earned by the underwriter (ignoring other costs)is $500,000. 
C) The minimum amount that can be earned (ignoring other costs)by the underwriter is $0. 
D) The minimum amount that can be earned (ignoring other costs)by the underwriter is -$500,000.

Question 7

The existence of the "too big to fail" doctrine may encourage large banks to take excessive risks in securities underwriting activities.

Accepted Answer

A) True 
 B)False

Question 8

Permissible section 20 subsidiary activities include

Accepted Answer

A) insurance activities. 
B) hedging. 
C) factoring. 
D) extensions of lines of credit. 
E) investment banking activities. 
A) insurance activities. 
B) hedging. 
C) factoring. 
D) extensions of lines of credit. 
E) investment banking activities.

Question 9

The Glass-Steagall Act allowed commercial banks to underwrite new issues of Treasury securities.

Accepted Answer

A) True 
 B)False

Question 10

Which of the following was not an operating characteristic of foreign banks operating in the U.S.prior to the International Banking Act of 1978?

Accepted Answer

A) They had no access to the Federal Reserve's discount window. 
B) They were not subject to the Federal Reserve's audits and exams. 
C) They had special rates on FDIC deposit insurance. 
D) They could not use the Fedwire or the fed funds market. 
A) They had no access to the Federal Reserve's discount window. 
B) They were not subject to the Federal Reserve's audits and exams. 
C) They had special rates on FDIC deposit insurance. 
D) They could not use the Fedwire or the fed funds market.

Question 11

During most of the twentieth century the banking industry was able to continue to expand geographically by

Accepted Answer

A) utilizing multi-bank holding companies. 
B) utilizing one-bank holding companies. 
C) successfully implementing reciprocal regional banking pacts. 
D) All of the options. 
A) utilizing multi-bank holding companies. 
B) utilizing one-bank holding companies. 
C) successfully implementing reciprocal regional banking pacts. 
D) All of the options.

Question 12

A bank holding company has a banking affiliate and a securities affiliate.If the securities affiliate fails,it could cause the bank to also fail because

Accepted Answer

A) the bank holding company could use funds from the banking affiliate to provide funds to the securities affiliate by downstreaming. 
B) the bank holding company could use funds from the banking affiliate to provide funds to the securities affiliate by upstreaming. 
C) the bank holding company could induce the banking affiliate to make loans to the securities affiliate. 
D) the bank holding company could use funds from the banking affiliate to provide funds to the securities affiliate by downstreaming and could induce the banking affiliate to make loans to the securities affiliate. 
E) the bank holding company could use funds from the banking affiliate to provide funds to the securities affiliate by upstreaming and could induce the banking affiliate to make loans to the securities affiliate. 
A) the bank holding company could use funds from the banking affiliate to provide funds to the securities affiliate by downstreaming. 
B) the bank holding company could use funds from the banking affiliate to provide funds to the securities affiliate by upstreaming. 
C) the bank holding company could induce the banking affiliate to make loans to the securities affiliate. 
D) the bank holding company could use funds from the banking affiliate to provide funds to the securities affiliate by downstreaming and could induce the banking affiliate to make loans to the securities affiliate. 
E) the bank holding company could use funds from the banking affiliate to provide funds to the securities affiliate by upstreaming and could induce the banking affiliate to make loans to the securities affiliate.

Question 13

Merger premiums tend to be higher for target banks in competitive environments,but for which the target bank's loan portfolios are of high quality.

Accepted Answer

A) True 
 B)False

Question 14

The barriers among nonbank financial service firms and commercial firms are generally much stronger than the barriers separating banking and commercial sector activities.

Accepted Answer

A) True 
 B)False

Question 15

How do you think the Department of Justice (DOJ)would characterize this market before the merger and which merger is more likely to be approved? $\begin{array}{lccc}
  \text {Bank }&  \text { Asset Size}\
 1&\$ 100    \text { million}\
2& \$ 200   \text { million}\
3&\$ 500  \text {  million}\
\end{array}$

Accepted Answer

A) This is a competitive market and either merger will be acceptable to the DOJ. 
B) This is a concentrated market and neither merger will be acceptable to the DOJ. 
C) This is a concentrated market,but the merger between Banks 1 and 3 is more likely to be acceptable to the DOJ. 
D) This is a competitive market,but the merger between Banks 1 and 2 is more likely to be acceptable to the DOJ. 
A) This is a competitive market and either merger will be acceptable to the DOJ. 
B) This is a concentrated market and neither merger will be acceptable to the DOJ. 
C) This is a concentrated market,but the merger between Banks 1 and 3 is more likely to be acceptable to the DOJ. 
D) This is a competitive market,but the merger between Banks 1 and 2 is more likely to be acceptable to the DOJ.

Question 16

Identify the fundamental regulatory philosophy underlying the International Banking Act.

Accepted Answer

A) Too big to fail. 
B) National treatment. 
C) Reciprocal arrangement. 
D) X efficiencies. 
A) Too big to fail. 
B) National treatment. 
C) Reciprocal arrangement. 
D) X efficiencies.

Exam 21: Product and Geographic Expansion

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

An organization form that limits business transactions to a single location is

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

The establishment of a presence in local markets by insurance companies is reasonably inexpensive because of low capital requirements established by state regulators.

The use of the Herfindahl-Hirschman Index (HHI)to measure bank concentration has been criticized because

An underwriter is quoting the following rates for the issue of new securities on behalf of a firm on a firm commitment basis: $64.00-64.25.2,000,000 shares are being offered.

The existence of the "too big to fail" doctrine may encourage large banks to take excessive risks in securities underwriting activities.

Permissible section 20 subsidiary activities include

The Glass-Steagall Act allowed commercial banks to underwrite new issues of Treasury securities.

Which of the following was not an operating characteristic of foreign banks operating in the U.S.prior to the International Banking Act of 1978?

During most of the twentieth century the banking industry was able to continue to expand geographically by

A bank holding company has a banking affiliate and a securities affiliate.If the securities affiliate fails,it could cause the bank to also fail because

Merger premiums tend to be higher for target banks in competitive environments,but for which the target bank's loan portfolios are of high quality.

The barriers among nonbank financial service firms and commercial firms are generally much stronger than the barriers separating banking and commercial sector activities.

How do you think the Department of Justice (DOJ)would characterize this market before the merger and which merger is more likely to be approved? Bank Asset Size 1 \ 100 million 2 \ 200 million 3 \ 500 million

Identify the fundamental regulatory philosophy underlying the International Banking Act.

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