Question 1

The Herfindahl-Hirschman Index (HHI) is a measure of

Accepted Answer

A) market concentration. 
B) profitability. 
C) market performance. 
D) annual sector growth. 
E) investor reaction. 
A) market concentration. 
B) profitability. 
C) market performance. 
D) annual sector growth. 
E) investor reaction.

Question 2

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

Accepted Answer

A) True 
 B)False

Question 3

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. 
E) The minimum amount that can be earned (ignoring other costs) by the underwriter is -$1,000,000. 
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. 
E) The minimum amount that can be earned (ignoring other costs) by the underwriter is -$1,000,000.

Question 4

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. 
E) Technology and communications improvements. 
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. 
E) Technology and communications improvements.

Question 5

The passage of which regulation extended the interstate acquisition powers of banks to encompass healthy thrifts?

Accepted Answer

A) Bank Holding Company Act. 
B) McFadden Act. 
C) Garn-St.Germain Act. 
D) Financial Institutions Reform, Recovery, and Enforcement Act. 
E) Glass-Steagall Act. 
A) Bank Holding Company Act. 
B) McFadden Act. 
C) Garn-St.Germain Act. 
D) Financial Institutions Reform, Recovery, and Enforcement Act. 
E) Glass-Steagall Act.

Question 6

By the early 1990s interstate banking pacts basically had opened the doors for nearly all banks to practice interstate branching in any geographic locations.

Accepted Answer

A) True 
 B)False

Question 7

Identify the procompetitive effect of banks' expansion of their securities activities.

Accepted Answer

A) Reduces the degree of underpricing of new issues. 
B) Encourages stuffing of fiduciary accounts. 
C) Increased provision of cheap loans on the implicit condition that this loan is used to purchase securities. 
D) Use of lending powers by a bank to coerce a customer to buy the products sold by its securities affiliate. 
E) Use of inside information by a bank to set the prices, or help the distribution of securities offerings by its affiliate. 
A) Reduces the degree of underpricing of new issues. 
B) Encourages stuffing of fiduciary accounts. 
C) Increased provision of cheap loans on the implicit condition that this loan is used to purchase securities. 
D) Use of lending powers by a bank to coerce a customer to buy the products sold by its securities affiliate. 
E) Use of inside information by a bank to set the prices, or help the distribution of securities offerings by its affiliate.

Question 8

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 above. 
E) Answers A and B only. 
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 above. 
E) Answers A and B only.

Question 9

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 above. 
E) Answers B and C only. 
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 above. 
E) Answers B and C only.

Question 10

In the U.S., the Glass-Steagall Act limited the integration of commercial banking and securities activities.

Accepted Answer

A) True 
 B)False

Question 11

Match between columns
                        Premises:    To avoid being exposed to potential losses in a securities offering, a bank may place the securities in the accounts of customers in the trust department or other areas over which it has discretionary investment powers. 
   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. 
   The approval of cheap loans to an investor under the implicit condition that the loan proceeds are to be used to purchase securities underwritten by a securities affiliate. 
   The use of inside information about customers or rivals that can be useful in setting securities prices or distributing securities offerings. 
Using lending power to coerce a customer to purchase or use the products sold by an affiliate.
   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  Third-party loans  and  Information is...

Question 12

Historically, regulations have encouraged the expansion of bank offices domestically.

Accepted Answer

A) True 
 B)False

Question 13

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 14

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. 
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 15

If Bank A acquires Bank C, what is the new Herfindahl Index (HHI)?

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 16

Interstate banking barriers have deteriorated in part because of the decisions to deal with the failing thrift industry by allowing acquiring firms to cross state lines.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following items has not been a factor in the erosion of interstate banking restrictions?

Accepted Answer

A) The purchase of troubled banks. 
B) The establishment of nonbank banks. 
C) The Bank Holding Company Act Amendments of 1970. 
D) The expansion of OBHC activities. 
E) The establishment of regional and national banking pacts. 
A) The purchase of troubled banks. 
B) The establishment of nonbank banks. 
C) The Bank Holding Company Act Amendments of 1970. 
D) The expansion of OBHC activities. 
E) The establishment of regional and national banking pacts.

Question 18

$$\begin{array} { | c | r | } 
\hline \text { Bank } & \text { Asset Size } \
\hline 1 & \text { \$100 million } \
\hline 2 & \text { \$200 million } \
\hline 3 & \text { \$500 million } \
\hline
\end{array}$$
-What is the market's Herfindahl Hirschman Index (HHI)?

Accepted Answer

A) 4,688. 
B) 3,600. 
C) 548. 
D) 8. 
E) 0. 
A) 4,688. 
B) 3,600. 
C) 548. 
D) 8. 
E) 0.

Question 19

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 20

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

Exam 21: Product and Geographic Expansion

The Herfindahl-Hirschman Index (HHI) is a measure of

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

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.

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

The passage of which regulation extended the interstate acquisition powers of banks to encompass healthy thrifts?

By the early 1990s interstate banking pacts basically had opened the doors for nearly all banks to practice interstate branching in any geographic locations.

Identify the procompetitive effect of banks' expansion of their securities activities.

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

The USA Patriot Act of 2001

In the U.S., the Glass-Steagall Act limited the integration of commercial banking and securities activities.

Historically, regulations have encouraged the expansion of bank offices domestically.

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

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

If Bank A acquires Bank C, what is the new Herfindahl Index (HHI)?

Interstate banking barriers have deteriorated in part because of the decisions to deal with the failing thrift industry by allowing acquiring firms to cross state lines.

Which of the following items has not been a factor in the erosion of interstate banking restrictions?

Bank Asset Size 1 \1 00 million 2 \2 00 million 3 \5 00 million -What is the market's Herfindahl Hirschman Index (HHI)?

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.

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

Why Are Financial Institutions Special

Financial Services: Depository Institutions

Financial Services: Finance Companies

Financial Services: Securities Brokerage and Investment Banking

Financial Services: Mutual Funds and Hedge Funds

Financial Services: Insurance

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