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Banking
Q:
A time draft is a payment for purchase of goods and services across national borders which is payable upon presentation to the bank.
Q:
A sight draft is a payment for purchase of goods and services across national borders which is payable only on a specific future date.
Q:
In a foreign currency swap, a customer who needs to borrow in foreign currency, receives the domestic currency today and swaps it back for the foreign currency just in time to repay the loan in the foreign currency.
Q:
A foreign currency swap fully removes the borrower's currency risk exposure.
Q:
A call option is often employed to protect a bank or bank customer against losses from falling currency prices.
Q:
A put option on currency futures is often used to protect against a rise in currency prices.
Q:
Short hedges in currency futures contracts are used to protect a bank or bank customer against rising currency prices.
Q:
A bank's net foreign-currency-denominated assets in a given currency are equal to the volume of its assets denominated in that currency less any liabilities that the bank has issued denominated in the same currency.
Q:
If an international bank has adopted a net short position in a particular currency, and that currency's exchange value increases, the bank will achieve a profit from trading the currency.
Q:
If an international bank has gone net long in a particular currency, it will score a positive gain if the value of that currency declines.
Q:
An international bank's net position in a foreign currency is measured by the difference between the volume of that currency purchased and the volume of that currency sold.
Q:
An international bank with a positive net exposure in a given foreign currency is said to be in a net short position in that particular currency.
Q:
Under the terms of the International Lending and Supervision Act, the size of loan rescheduling fees that U.S. banks charge their international borrowers, is restricted.
Q:
The Federal Reserve Board can terminate the operations of a foreign bank in the United States if it finds that the bank is not being operated in a manner consistent with the public interest.
Q:
ADRs are issued by foreign banks operating outside the U.S. and sold to investors in the Eurodollar market.
Q:
Currency options give their buyer the right, but not the obligation, to deliver or take delivery of a foreign currency or currency futures contract.
Q:
Long hedges in currency futures are designed to protect a bank or its customer from increases in the price of the currency it must eventually acquire.
Q:
The Basel Agreement, on international capital standards, does not cover Japanese banks but does cover major banks in the U.S. and Western Europe.
Q:
The International Lending and Supervision Act does not require federal regulators to supervise the U.S. banks under their jurisdiction more closely but to give banks and the private marketplace more freedom in deciding what their capital requirements should be.
Q:
The approach in which the firm to be acquired is valued at its purchase price and that price is added to the total assets of the acquirer is known as the:
A. purchase accounting method.
B. merger accounting method.
C. pooling of interest method.
D. pooling of equity method.
E. pooling of accounting method.
Q:
The approach in which the merger partners merely sum the volume of their assets, liabilities, and equity in the amounts recorded just before their merger takes place is known as the:
A. purchase accounting method.
B. merger accounting method.
C. pooling of interest method.
D. pooling of equity method.
E. pooling of accounting method.
Q:
Empirical evidence suggests that earnings outcomes from mergers exhibit:
A. a symmetric distribution.
B. a positively skewed distribution.
C. a negatively skewed distribution.
D. a leptokurtic distribution.
E. no fixed pattern of distribution.
Q:
Marking off a certain neighborhood by a bank within their trade area and declining to extend financial services (especially credit) to the residents of that neighborhood is known as:
A. redlining.
B. redlisting.
C. protectionism.
D. collective dominance.
E. managerial hubris.
Q:
The federal agency that is the merging banks' principal supervisor must review the banks' record to determine if they have made an affirmative effort to serve all segments of the population in their trade area without any discrimination. This assessment is required under the terms of:
A. Gramm-Leach-Bliley Act.
B. Riegle-Neal Interstate Banking Act.
C. Sherman Antitrust Act.
D. Community Reinvestment Act.
E. Sarbanes-Oxley Act.
Q:
A merger where the institutions involved don't overlap much or at all in terms of geographic area served is known as:
A. convergence.
B. consolidation.
C. market extension merger.
D. market making merger.
E. market pooling merger.
Q:
According to the text, many European bank mergers in recent years is motivated by the search of:
A. cost efficiency.
B. failing institutions.
C. cash-rich banks.
D. complementarity.
E. tax efficiency.
Q:
________________________ refers to the movement of two or more industries over time toward each other, resulting in different firms offering many of the same services.
A. Divergence
B. Convergence
C. Consortium
D. Diversification
E. Consolidation
Q:
____________________ refers to a declining population of businesses in any one industry.
A. Convergence
B. Consortium
C. Consolidation
D. Divergence
E. Expansion
Q:
The passage of _______________________ Act in the United States allowed various combinations of bank-nonbank financial services and permitted banks, insurance companies, and securities firms to acquire each other.
A. Gramm-Leach-Bliley
B. Riegle-Neal Interstate Banking
C. Sherman Antitrust
D. Bank Merger
E. Community Reinvestment
Q:
The State Bank of Stillwater has had record profits this year. It is interested in purchasing the National Bank of Durant because it has had losses this year. The State Bank of Stillwater feels that it can turn around the National Bank of Durant and in the meantime they can enjoy a reduced tax burden after this acquisition. What motive for a merger does this most likely reflect?
A. Profit potential
B. Risk reduction
C. Rescue of failing institution
D. Tax and market positioning
E. Maximizing management welfare
Q:
The First National Bank of Edmond had decided to purchase The First National Bank of Plano in Texas. The bank is interested in this purchase because The First National Bank of Plano is in financial distress and the First National Bank of Edmond thinks this is a cheap way to get a start in the large Texas market. The FDIC supports this acquisition because it won't have to make any insurance payouts. What motive for a merger does this most likely reflect?
A. Profit potential
B. Risk reduction
C. Rescue of failing institution
D. Tax and market positioning
E. Maximizing management welfare
Q:
The First National Bank of Edmond wants to acquire the First State Bank of Oklahoma City. The management believes that this merger will enhance their reputation in the labor market because the new firm will be twice as big as what they are managing now. In addition, the First National Bank of Edmond has promised to pay $10,000,000 in compensation to the top managers of the First State Bank of Oklahoma City and help it cover any resulting tax liability. What motive for a merger does this most likely reflect?
A. Profit potential
B. Risk reduction
C. Rescue of failing institution
D. Tax and market positioning
E. Maximizing management welfare
Q:
The First State Bank of Wyoming wants to acquire the Second National Bank of South Carolina. It wants to do this because the management feels that South Carolina faces very different economic conditions than Wyoming and that this acquisition will reduce variability in earnings in the future. What motive for a merger does this most likely reflect?
A. Profit potential
B. Risk reduction
C. Rescue of failing institution
D. Cost savings
E. Maximizing management welfare
Q:
The First State Bank of Wyoming wants to acquire the First State Bank of Oklahoma. The management of the bank feels that this will increase earnings as new markets will be exploited and new services will be offered to all of their bank customers. Which motive for a merger does this most likely reflect?
A. Profit potential
B. Risk reduction
C. Rescue of failing institution
D. Cost savings
E. Maximizing management welfare
Q:
According to the text, which of the following is a trigger that created a wave of mergers in Europe?
A. Passage of the Riegle-Neal Interstate Banking Act
B. Passage of the Gramm-Leach-Bliley Act
C. Passage of the Bank Merger Act
D. Formation of the European Union
E. Unicredito Italiano's take-over of Germany's HUB Group AG
Q:
There are 10 banks in a particular market area, all with a market share of 10 percent. Two of the banks plan to merge and the Herfindahl-Hirschman Index moves from 1,000 to 1,200. The Justice Department: A. will treat this market as unconcentrated.B. will not be concerned and no further review is likely.C. may raise competitive concerns depending on the circumstances.D. will treat the market as highly concentrated.E. will block the merger by filing a suit.
Q:
If Summerfield and Charlestown banks merge, what would be the Herfindahl-Hirschman Index after the merger? A. 3,017B. 3,136C. 5,000D. 10,000E. None of the options is correct
Q:
What is the Herfindahl-Hirschman Index for this market area? A. 3,017B. 5,000C. 10,000D. 3,187,000E. None of the options is correct
Q:
What is the market share of the First National Bank? A. 100.00 percentB. 75.00 percentC. 46.15 percentD. 15.38 percentE. None of the options is correct
Q:
Research indicates that economies of scale (cost savings) often results in mergers of financial institutions which are relatively:
A. small in size.
B. large in size.
C. medium in size.
D. undercapitalized.
E. overcapitalized.
Q:
In the United States, most bank mergers have occurred in which of the following geographic region of the country?
A. Southeastern U.S.
B. Northeastern U.S.
C. The West
D. The Midwest
E. Southwestern U.S.
Q:
Suppose there are four banks in a local community. Each of these banks has 25 percent of the deposits in this community. Calculate the change in the Herfindahl-Hirschman Index (HHI) if two of these banks merge.
A. 625
B. 1,000
C. 1,150
D. 1,200
E. 1,250
Q:
Andover Bank is planning to purchase Berkley Bank. The current market value of Andover's stock is $55 per share while that of Berkley's stock is $15 per share. Andover plans to pay Berkley's stockholders a $5 bonus per share. Currently, Andover has 100,000 shares outstanding and earnings per share of $12, while Berkley has 50,000 shares outstanding and earnings per share of $5. Suppose the earnings of the combined bank do not increase over the total earnings of the two banks before the merger. In addition assume that the new bank will have 118,182 shares outstanding. What will be the earnings per share for the new bank?
A. $17.00 per share
B. $13.54 per share
C. $9.67 per share
D. $12.27 per share
E. None of the options is correct
Q:
Which of the following is(are) reason(s) that many bank mergers do not work?
A. Ill-prepared management
B. A mismatch of corporate cultures
C. Excessive price paid by the acquirer
D. A failure to take into account customers' feelings and concerns
E. All of the options are reasons bank mergers do not work.
Q:
The most important goal of any merger should be to:
A. increase the market value of the surviving firm.
B. reduce the risk of the surviving firm through geographic diversification.
C. increase managerial compensation.
D. increase the efficiency of the target firm.
E. None of the options is correct.
Q:
Suppose Bank A's stock price is $75 and Bank B's stock price is $25. Bank A is planning to purchase Bank B by paying Bank B's shareholders a bonus of $10 per share. If Bank B has 100,000 shares outstanding, how many shares of Bank A will the shareholders of Bank B receive?
A. 100,000 shares
B. 33,333 shares
C. 46,667 shares
D. 214,286 shares
E. None of the options is correct
Q:
Recent research on interstate bank mergers suggests that generally such mergers have resulted in:
A. increased earnings.
B. improved employee productivity.
C. faster growth.
D. improved cost control.
E. All of the options are correct.
Q:
First National Bank's stock is currently selling at $40 per share and the bank recently reported earnings per share of $4.50 on its 200,000 shares outstanding. Second National Bank has 150,000 shares outstanding, with a current market price of $30 per share. It just reported its earnings per share of $5. If First National acquires Second National in a stock purchase, with the two banks agreeing to exchange stock at the current market prices, and post-merger earnings are expected to be $1,800,000, what is the expected EPS post merger?
A. $4.36
B. $5.76
C. $5.28
D. $5.14
E. None of the options is correct
Q:
There are three banks in East Panhandle. First State Bank which currently has 25 percent of the deposits, Second State Bank which currently has 40 percent of the deposits and Third State Bank which has the rest. Compute the share of the Third State Bank in the market. Suppose First State Bank and Third State Bank propose to merge in order to compete with Second State Bank. According to the Department of Justice Guidelines, would this merger be allowed?
A. Very likely
B. Likely, but with certain regulatory restrictions
C. Highly unlikely
D. Not enough information to make the determination
E. None of the options is correct
Q:
There are three banks in East Panhandle. First National Bank which currently has 40 percent of the deposits in the area, Second State Bank which currently has 30 percent of the deposits, and New State Bank and Trust which also has 30 percent of the deposits. What is the Herfindahl-Hirschman Index for East Panhandle?
A. 100
B. 1,200
C. 3,400
D. 2,400
E. None of the options is correct
Q:
The Herfindahl-Hirschman Index is a measure of:
A. market concentration.
B. merger premium.
C. synergies gained from a merger.
D. employee strength of the combined firm after merger.
E. All of the options are correct.
Q:
A merger may increase a bank's expected future earnings or reduce its level of risk exposure by:
A. improved operating efficiency.
B. increased earnings per share.
C. geographic or product diversification.
D. product diversification.
E. All of the options are correct.
Q:
The federal law that requires each U.S. merging bank to notify its principal federal regulatory agency and request for an approval before a merger can take place is the:
A. Bank Merger Act.
B. Glass-Steagall Act.
C. Depository Institutions Deregulation and Monetary Control Act.
D. Garn-St Germain Depository Institutions Act.
E. Gramm-Leach-Bliley Act.
Q:
_________________ is a danger faced by the stockholders of an acquiring firm in a merger if excessive numbers of new shares are issued relative to the value of their old shares.
A. Earnings volatility
B. Reduction of the exchange ratio
C. Dilution of ownership
D. Increased risk of bankruptcy
E. None of the options is correct
Q:
The ratio of an acquired bank's current stock price per share plus the additional amount paid by the acquirer for each share of the acquired bank's stock, divided by the acquired bank's current stock price is the:
A. price-earnings ratio.
B. merger premium.
C. exchange rate (of a merger transaction).
D. combined stock price of the merging banks.
E. None of the options is correct.
Q:
According to the textbook, the lackadaisical profit performance surrounding a merger may be explained by the:
A. tax inefficiencies due to a merger.
B. lenders cutting off credit lines due to the merger.
C. accounting irregularities when reporting earnings of the combined entity.
D. managerial hubris and sizeable merger premium that acquirers have to pay to shareholders of the acquired firms.
E. All of the options are correct.
Q:
According to the textbook, the principal beneficiaries of most bank mergers appear to be:
A. the stockholders of the acquired bank.
B. the stockholders of the acquiring bank.
C. the public (in the form of new services offered and lower service fees).
D. the staff of the acquired bank.
E. None of the options is correct.
Q:
According to the textbook, bank mergers are often motivated by:
A. profit potential.
B. expected reduction in the risk of fluctuations in cash flow and earnings.
C. expected tax benefits.
D. market-positioning strategies.
E. All of the options are correct.
Q:
Bank regulators may challenge a merger between two institutions but can never require banks to divest themselves of some of their offices in order to secure regulators' approval.
Q:
One of the most common motives for large banks to acquire smaller banks is to gain access to capable new management which is always in short supply at larger institutions.
Q:
The agency problem described in the textbook is referred to the idea of bank managers driven primarily by their own interest to increase salaries and benefits at the expense of company stockholders.
Q:
The 2007-2009 credit crunch resulted in numerous banks experiencing financial distress for which mergers and acquisitions were often the only option.
Q:
Recent research indicates that some merger activity may actually stimulate "de novo" bank entry into the marketplace.
Q:
There is little evidence for cost savings resulting from large financial institution mergers.
Q:
A study by the Federal Reserve Board indicates that there are economies of scale (cost savings) resulting from mergers among relatively smaller banks and insurance companies.
Q:
In order to get regulatory approval for a merger, many a times banks have been required to open up a number of new branch offices.
Q:
According to FASB, goodwill must now be amortized over its useful life.
Q:
As a result of many bank mergers in the last few decades, research indicates that goodwill as an asset on many bank's balance sheets has grown exponentially.
Q:
Mergers with anticompetitive effects cannot go unchallenged by federal authorities unless the banks can show that the combined bank would have significant public benefits.
Q:
The most important goal of any merger should be to increase the market value of the surviving firm.
Q:
If one of the banks is in financial stress, a merger is not allowed to take place.
Q:
Some merger partners anticipate reduced earnings risk as a result of the merger. One reason for this may be that the merger opens up new markets with different economic characteristics.
Q:
One of the major reasons behind the rapid growth of mergers in recent years is that stockholders expect the profit potential to increase once the merger is completed.
Q:
Bank executives identify the most important factor in choosing a merger target as the ability of the merged bank to better accommodate their corporate customers.
Q:
Under the purchase-of-stock method, the acquired bank ceases to exist as a separate corporation.
Q:
The merger of Bank of America and Security Pacific in 1992 resulted in an expansion of branch offices for both banks.
Q:
The acquisition of First City Bancorporation of Texas by Chemical Bank of New York was motivated by both banks seeking market-positioning benefits.
Q:
According to a recent survey, many European bank mergers in the 1980s and 1990s were motivated by the desire to reduce operating costs(economies of scale).
Q:
A market served by just two banks, equal to each other in size, would have an HHI of 5,000.
Q:
A market area served by one bank which is the only provider of financial services in that market would have an HHI of 100 percent.