Question 1

$$\begin{array} { | c | r | } 
\hline \text { Bank } & \text { Asset Size } \
\hline 1 & \text { \$100 million } \
\hline 2 & \text { \$200 million } \
\hline 3 & \text { \$500 million } \
\hline
\end{array}$$
-If Bank 1 is acquired by Bank 2, what is the impact on the market's HHI?

Accepted Answer

A) An increase in the HHI of 1600. 
B) An increase in the HHI of 625. 
C) An increase in the HHI of 1563. 
D) A decrease in the HHI of 222. 
E) A decrease in the HHI of 360. 
A) An increase in the HHI of 1600. 
B) An increase in the HHI of 625. 
C) An increase in the HHI of 1563. 
D) A decrease in the HHI of 222. 
E) A decrease in the HHI of 360.

Question 2

Tie-ins and third-party loans are prohibited by current bank regulations.

Accepted Answer

A) True 
 B)False

Question 3

The Financial Services Modernization Act of 1999 prohibits insurance companies from opening commercial banks.

Accepted Answer

A) True 
 B)False

Question 4

The effect of the International Banking Act of 1978 was to accelerate the expansion of foreign bank activities in the U.S. primarily because of their access to the Federal Reserve's discount window, Fedwire, and FDIC insurance.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following is a disadvantage of international expansion?

Accepted Answer

A) An FI can lower its net regulatory burden and therefore increase its potential net profitability by finding countries that have reduced activity restrictions and reserve requirements. 
B) An FI can generate additional returns from new product innovations if it can sell such services internationally rather than just domestically. 
C) Monitoring and information collection cost often are higher in international markets. 
D) International expansion allows an FI to search for cheaper and more available sources of funds. 
E) International activities enhance the opportunities to diversify the risk of earnings flows. 
A) An FI can lower its net regulatory burden and therefore increase its potential net profitability by finding countries that have reduced activity restrictions and reserve requirements. 
B) An FI can generate additional returns from new product innovations if it can sell such services internationally rather than just domestically. 
C) Monitoring and information collection cost often are higher in international markets. 
D) International expansion allows an FI to search for cheaper and more available sources of funds. 
E) International activities enhance the opportunities to diversify the risk of earnings flows.

Question 6

Firewalls are

Accepted Answer

A) barriers introduced to protect the bank against losses. 
B) mechanisms to insure bank shareholders against loss. 
C) regulations restricting the proliferation of Section 20 subsidiaries. 
D) limitations on capital flows to the parent company. 
E) safety codes required in tall skyscrapers. 
A) barriers introduced to protect the bank against losses. 
B) mechanisms to insure bank shareholders against loss. 
C) regulations restricting the proliferation of Section 20 subsidiaries. 
D) limitations on capital flows to the parent company. 
E) safety codes required in tall skyscrapers.

Question 7

Banks increasingly have been susceptible to nonbank competition on both sides of the balance sheet.

Accepted Answer

A) True 
 B)False

Question 8

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. 
E) Two of the above do not qualify an FI as achieving an international presence. 
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. 
E) Two of the above do not qualify an FI as achieving an international presence.

Question 9

Concern about the financial impact of an extension of the federal safety net 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 10

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. 
E) 0 
A) -$500,000. 
B) $500,000. 
C) $750,000. 
D) -$750,000. 
E) 0

Question 11

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 
E) 50 percent 
A) 5 percent 
B) 10 percent 
C) 15 percent 
D) 25 percent 
E) 50 percent

Question 12

The following three FIs dominate a local market and their total assets are given below. $$\begin{array} { | c | r | } 
\hline \text { Institution } & \text { Asset Size } \
\hline \text { Bank A } & \text { \$50 million } \
\hline \text { Bank B } & \text { \$60 million } \
\hline \text { Bank C } & \text { \$90 million } \
\hline
\end{array}$$
-What are the market shares of banks A, B and C, respectively?

Accepted Answer

A) 25 percent, 45 percent, and 30 percent. 
B) 30 percent, 40 percent, and 30 percent. 
C) 40 percent, 30 percent, and 30 percent. 
D) 25 percent, 30 percent, and 45 percent. 
E) 25 percent, 35 percent, and 40 percent. 
A) 25 percent, 45 percent, and 30 percent. 
B) 30 percent, 40 percent, and 30 percent. 
C) 40 percent, 30 percent, and 30 percent. 
D) 25 percent, 30 percent, and 45 percent. 
E) 25 percent, 35 percent, and 40 percent.

Question 13

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

Question 14

The Garn-St Germain Act is an interstate banking law that allows banks to branch on an interstate basis rather than building more expensive holding company structures.

Accepted Answer

A) True 
 B)False

Question 15

The FBSEA of 1991 required a foreign bank to have Fed approval to establish a branch as a new entry, but does not require such approval if the entry is by acquisition.

Accepted Answer

A) True 
 B)False

Question 16

In late 2012, shadow banking activities came under federal government regulation.

Accepted Answer

A) True 
 B)False

Question 17

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

Accepted Answer

A) 12.5 percent. 
B) 37.5 percent. 
C) 25.0 percent. 
D) 62.5 percent. 
E) 50.0 percent. 
A) 12.5 percent. 
B) 37.5 percent. 
C) 25.0 percent. 
D) 62.5 percent. 
E) 50.0 percent.

Question 18

What is seen as a reason for the increased expansion of foreign bank activities in the United States following the passage of the International Banking Act?

Accepted Answer

A) Access to the Federal Reserve's discount window, Fedwire, and FDIC insurance. 
B) Absence of the Federal Reserve's reserve requirements, audits, and exams. 
C) No interstate branching restrictions. 
D) No restrictions on corporate securities underwriting activities. 
E) Answers C and D only. 
A) Access to the Federal Reserve's discount window, Fedwire, and FDIC insurance. 
B) Absence of the Federal Reserve's reserve requirements, audits, and exams. 
C) No interstate branching restrictions. 
D) No restrictions on corporate securities underwriting activities. 
E) Answers C and D only.

Question 19

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. 
E) Bank places a relatively high value on its reputation. 
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. 
E) Bank places a relatively high value on its reputation.

Question 20

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

Exam 21: Product and Geographic Expansion

Bank Asset Size 1 \1 00 million 2 \2 00 million 3 \5 00 million -If Bank 1 is acquired by Bank 2, what is the impact on the market's HHI?

Tie-ins and third-party loans are prohibited by current bank regulations.

The Financial Services Modernization Act of 1999 prohibits insurance companies from opening commercial banks.

The effect of the International Banking Act of 1978 was to accelerate the expansion of foreign bank activities in the U.S. primarily because of their access to the Federal Reserve's discount window, Fedwire, and FDIC insurance.

Which of the following is a disadvantage of international expansion?

Firewalls are

Banks increasingly have been susceptible to nonbank competition on both sides of the balance sheet.

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

Concern about the financial impact of an extension of the federal safety net has been used to justify product segmentation on the grounds of

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 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.

The following three FIs dominate a local market and their total assets are given below. Institution Asset Size Bank A \5 0 million Bank B \6 0 million Bank C \9 0 million -What are the market shares of banks A, B and C, respectively?

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

The Garn-St Germain Act is an interstate banking law that allows banks to branch on an interstate basis rather than building more expensive holding company structures.

The FBSEA of 1991 required a foreign bank to have Fed approval to establish a branch as a new entry, but does not require such approval if the entry is by acquisition.

In late 2012, shadow banking activities came under federal government regulation.

Bank Asset Size 1 \1 00 million 2 \2 00 million 3 \5 00 million -What is the market share of Bank 3?

What is seen as a reason for the increased expansion of foreign bank activities in the United States following the passage of the International Banking Act?

Identify a condition under which conflicts of interest are exploitable.

The merger bid premium usually is defined as

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