Q&A Hero

Q: Organizational devices used by international banks to take deposits offshore and avoid regulations (such as deposit insurance assessments) are known as: A) International Banking Facility (IBF) B) Export Trading Company (ETC) C) Shell branches D) Subsidiaries E) None of the above

Q: These specialized firms can be operated by U.S. banking companies and Edge Act Corporations and must receive over half their income from their roles in assisting exporting activities from the U.S. are called: A) International Banking Facility (IBF) B) Export Trading Company (ETC) C) Shell Branches D) Subsidiaries E) None of the above

Q: An organizational form used by international banks that was created by U.S. regulations enforced by the Federal Reserve Board and consists of computerized account records is known as: A) International Banking Facility (IBF) B) Export Trading Company (ETC) C) Edge Acts D) Agencies E) None of the above

Q: Separate corporate entities affiliated either with a U.S. bank or with a foreign bank operating in the U.S. that can cross state lines, but must devote the majority of their accounts to international activities are known as: A) Joint ventures B) Representative offices C) Subsidiaries D) Edge Act Corporations E) None of the above

Q: A limited service facility that can market services supplied by the home office of an international bank and identify new customers is known as a: A) Branch office B) Agency office C) Subsidiary D) Representative office E) None of the above

Q: T F 61. The Eurobond market provides a firm with access to funds outside its home country.

Q: An international loan risk evaluation system that uses expert opinion is the .

Q: An international loan risk evaluation system that lists economic and political factors believed to be correlated with loan risk is called the . It may apply comparative weights to each factor or consider each factor equally.

Q: When a foreign government takes actions that interfere with the repayment of an international loan, it causes a special type of risk called .

Q: When a loan is made thousands of miles away and where the court system and bankruptcy laws needed to support the enforcement of contracts and loans is missing, it causes a special type of risk called .

Q: are primarily medium term credit agreements between international banks and their larger corporate an government customers. The customer is authorized to periodically offer short term notes that come due in 90 to 180 days over a stipulated period.

Q: When dealers speculate on trends in the price of selected currencies it is called .

Q: A device which aids customers in selling goods abroad is known by the acronym _________ and which was originally developed by the Japanese.

Q: A(n)____________________________________________ is a device used to satisfy creditors by giving them stock in place of paying off any remaining debt.

Q: ____________________________________________ is the risk that has to do with the fluctuations in currency prices.

Q: ____________________________________________ refers to the market for foreign currency or trading one currency for another.

Q: A(n)______________________ is where a customer anticipating a future need for a foreign currency will negotiate with another party, with the help of their bank, a contract for the delivery of the currency at a set price on a set date.

Q: ____________________________________________ are separate domestic U.S. companies owned by U.S. or foreign banks located outside the home state of the bank that owns them. These organizations are limited primarily to international or foreign business transactions.

Q: When an international bank acquires majority ownership of a separate, legally incorporated foreign bank, this foreign bank is called a(n)______________________ of the international bank.

Q: The____________________________________________ is a measure of the market concentration of a given market area. The larger this number is the more concentrated the market.

Q: The____________________________________________ is the amount over the current stock price shareholders of the acquired firm will receive from the acquiring bank in a merger.

Q: The______________________ tells how may shares of stock the shareholders of the acquired firm will receive from the acquiring firm.

Q: If the earning per share of the merged firm has declined then the shareholders have suffered a problem known as____________________________________________ .

Q: In the____________________________________________ method of acquiring a bank, the bank assumes all of the assets and liabilities of the other bank which ceases to exist.

Q: In the______________________ method of acquiring a bank, the bank purchases all or a portion of another bank's assets.

Q: Under the terms of Bank Merger Act, the federal regulating agencies must give top priority to the______________________ of the proposed merger.

Q: The____________________________________________ is the law that requires each merging bank to seek approval from its principal federal regulating agency before a merger can take place.

Q: The State Bank of Stillwater has had record profits this year. They are interested in purchasing the National Bank of Durant because they have had losses this year. The State Bank of Stillwater feels that they 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 they wont 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. 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 them 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. They want to do this because management feels that South Carolina faces very different economic conditions than does 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) Tax and Market Positioning 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 geographic diversification will increase earnings as new markets will be exploited and new services are 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) Tax and Market-Positioning E) Maximizing Management Welfare

Q: What caused there to be 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) A, B and C above

Q: There are 10 banks in a particular market area, all with a market share of 10%. Two of the banks plan to merger and the Hirfindahl-Hirschmann Index moves from 1000 to 1200. Would the Justice Department likely bring suit against the merger? A) Yes B) No C) Only if the banks divest themselves of half of their branches D) Cannot be determined from the information given

Q: There are 10 banks in a particular market area all with a market share of 10%. Two of the banks plan to merge. What would the Hirfindahl-Hirschmann Index be after the merger? A) 5000 B) 1200 C) 1000 D) 0 E) None of the above

Q: There are 10 banks in a particular market area all with a market share of 10%. What is the Hirfindahl-Hirschmann Index for this market area? A) 10,000 B) 5000 C) 1000 D) 0 E) None of the above

Q: Dorchester County has the following five banks in its market area. Bank Total Assets First National Bank, NA $1,500 million Dorchester County Bank $750 million First State Bank $500 million Summerfield Bank $250 million Charlestown Bank $250 million All Banks $3,250 million If the Summerfield and Charlestown banks merge, what would be the Hirfindahl-Hirschmann Index after the merger? A) 3017 B) 3136 C) 5000 D) 10,000 E) None of the above

Q: Dorchester County has the following five banks in its market area. Bank Total Assets First National Bank, NA $1,500 million Dorchester County Bank $750 million First State Bank $500 million Summerfield Bank $250 million Charlestown Bank $250 million All Banks $3,250 million Using this information, what is the Hirfindahl-Hirschman Index for this market area? A) 3017 B) 5000 C) 10,000 D) 3,187,000 E) None of the above

Q: Dorchester County has the following five banks in its market area. Bank Total Assets First National Bank, NA $1,500 million Dorchester County Bank $750 million First State Bank $500 million Summerfield Bank $250 million Charlestown Bank $250 million All Banks $3,250 million Using this information, what is the market share of the First National Bank? A) 100.00% B) 75.00% C) 46.15% D) 15.38% E) None of the above

Q: Research indicates economies of scale (cost savings) for financial institution mergers which are: A) Small B) Large C) Medium D) All sizes E) No economies of scale have been found

Q: In the United States, most bank mergers have occurred in 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) 1000 C) 1150 D) 1200 E) 1250

Q: Suppose there are four banks in a local community. Each of these banks has 25 percent of the deposits in this community. This market is: A) Unconcentrated B) Mildly concentrated C) Moderately concentrated D) Concentrated E) None of the above

Q: Suppose there are four banks in a local community. Each of these banks has 25 percent of the deposits in this community. What is the Herfindahl-Hirschman Index (HHI) for this community? A) 10,000 B) 100 C) 2500 D) 625 E) None of the above

Q: Andover Bank is thinking about purchasing Berkley Bank. The current market value of Andover's stock is $55 per share. The current market value of Berkley's stock is $15 per share and Andover is planning on paying Berkley's stockholders a $5 bonus per share. Currently, Andover has 100,000 shares outstanding and earnings per share of $12. Currently, 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 the earnings per share of the new bank be? A) $17.00 per share B) $13.54 per share C) $9.67 per share D) $12.27 per share E) None of the above

Q: Andover Bank is thinking about purchasing Berkley Bank. The current market value of Andover's stock is $55 per share. The current market value of Berkley's stock is $15 per share and Andover is planning on paying Berkley's stockholders a $5 bonus per share. Currently, Andover has 100,000 shares outstanding and earnings per share of $12. Currently, Berkley has 50,000 shares outstanding and earnings per share of $5. Suppose that the earnings of the new bank are $1,600,000 and the combined bank will have 118,182 shares outstanding. What will the earnings per share of the new bank be? A) $17.00 per share B) $13.54 per share C) $9.67 per share D) $12.27 per share E) None of the above

Q: Andover Bank is thinking about purchasing Berkley Bank. The current market value of Andover's stock is $55 per share. The current market value of Berkley's stock is $15 per share and Andover is planning on paying Berkley's stockholders a $5 bonus per share. Currently, Andover has 100,000 shares outstanding and earnings per share of $12. Currently, Berkley has 50,000 shares outstanding and earnings per share of $5. What should the total number of shares outstanding be in the new bank? A) 118,182 shares B) 150,000 shares C) 166,667 shares D) 200,000 shares E) None of the above

Q: Andover Bank is thinking about purchasing Berkley Bank. The current market value of Andover's stock is $55 per share. The current market value of Berkley's stock is $15 per share and Andover is planning on paying Berkley's stockholders a $5 bonus per share. Currently, Andover has 100,000 shares outstanding and earnings per share of $12. Currently, Berkley has 50,000 shares outstanding and earnings per share of $5. What is the exchange ratio for this transaction? A) 3:11 B) 4:3 C) 5:2 D) 4:11 E) None of the above

Q: Andover Bank is thinking about purchasing Berkley Bank. The current market value of Andover's stock is $55 per share. The current market value of Berkley's stock is $15 per share and Andover is planning on paying Berkley's stockholders a $5 bonus per share. Currently, Andover has 100,000 shares outstanding and earnings per share of $12. Currently, Berkley has 50,000 shares outstanding and earnings per share of $5. What is the market premium that Andover is paying on Berkley's shares? A) 367 percent B) 275 percent C) 133 percent D) 100 percent E) None of the above

Q: Which of the following are reasons that bank mergers do not work? A) Ill-prepared management B) A mismatch of corporate cultures C) Excessive prices paid by the acquirer for the acquired bank D) A failure to take into account customers' feelings and concerns E) All of the above 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 above

Q: Suppose Bank A's stock price is $75 and Bank B's stock price is $25. Bank A is planning on purchasing Bank B and plans on paying Bank B 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 above

Q: Suppose Bank A's stock price is $75 and Bank B's stock price is $25. Bank A is planning on purchasing Bank B and plans on paying Bank B shareholders a bonus of $10 per share. What is the merger premium that Bank B shareholders will receive? A) 110 percent B) 46.6 percent C) 200 percent D) 140 percent E) None of the above

Q: Recent research on interstate bank mergers suggests that: A) Earnings increased B) Employee productivity improved C) Faster growth ensued D) All of the above. E) None of the above.

Q: First National Bank's stock is currently selling at $40 per share and the bank recently reported earnings per share of $4.50 for its 200,000 shares. Second National Bank has 150,000 shares outstanding, with a current market price of $30 per share. Second National 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 will the post-merger EPS be? A) $4.36 B) $5.76 C) $5.28 D) $5.14 E) None of the above

Q: There are three banks in East Panhandle. First State Bank currently has 25 percent of the deposits, while Second State Bank currently has 40 percent. Compute the share of the Third State Bank in the market. Suppose First State and Third State propose to merge in order to compete with Second State Bank. According to the Department of Justice Guidelines, would this merger be allowed? A) Yes B) Yes but with certain regulatory restrictions C) No D) Not enough information to make the determination E) None of the above

Q: There are three banks in East Panhandle. First State Bank currently has 25 percent of the deposits, while Second State Bank currently has 40 percent. Compute the share of the Third State Bank in the market and use the Department of Justice Guidelines to identify this market as: A) Unconcentrated B) Mildly concentrated C) Moderately concentrated D) Concentrated E) Excessively concentrated

Q: There are three banks in East Panhandle. First State Bank currently has 25 percent of the deposits, while Second State Bank currently has 40 percent. What is the Herfindahl-Hirschman Index for East Panhandle (compute the share of Third State Bank first)? A) 100. B) 2200. C) 3450. D) 3640. E) None of the above

Q: There are three banks in East Panhandle. First National Bank currently has 40 percent of the deposits, while Second State Bank currently has 30 percent, as does New State Bank and Trust. What is the Herfindahl-Hirschman Index for East Panhandle? A) 100. B) 1200. C) 3400. D) 2400. E) None of the above

Q: The Herfindahl-Hirschman Index is a measure of: A) Market concentration. B) Merger premium. C) Synergy gained from a merger. D) All of the above. E) None of the above.

Q: A merger may increase the bank's expected future earnings or reduce its level of risk exposure by: A) Improved operating efficiency. B) Improved earnings per share. C) Geographic or product diversification. D) All of the above. E) A and B, only.

Q: The federal law that requires each U.S. merging bank to notify its principal federal regulatory agency and request 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: The danger faced by the stockholders of an acquiring firm in a merger if an excessive number of new shares are issued relative to the value of their old shares is known as: A) More volatile earnings B) Reduction of the exchange ratio C) Dilution of ownership D) Increased risk of bankruptcy E) None of the above

Q: The ratio of the 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 above.

Q: According to the research literature, the lackadaisical profit performance surrounding a merger may be explained by the following: A) Managerial hubris B) The sizeable merger premium that acquirers have to pay to shareholders of the acquired firms C) Accounting irregularities when reporting earnings of the combined entity D) All of the above E) A and B only

Q: According to the research literature, the principal beneficiaries of most bank mergers appear to be: A) The stockholders of the bank acquired 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 above.

Q: According to the literature on bank mergers these mergers are often motivated by: A) Their profit potential B) Expected reduction in the risk of fluctuations in cash flow and earnings C) Expected tax benefits D) All of the above. E) None of the above.

Q: T F 55. Bank regulators may challenge the merger between two institutions but can never require banks to divest themselves of some of their offices in order to secure regulators approval.

Q: The executive body of the EU has emerged as a key arbiter if mergers involving European businesses and uses the doctrine of .

Q: When a national bank wants to acquire another bank they must apply to the for approval.

Q: When a bank enters into a new market area as the result of a merger with another financial institution they have practiced .

Q: When a bank expands the number of service options it offers after acquiring another financial firm they have practiced .

Q: A bank may increase future earnings by . The bank can achieve greater efficiency by consolidating operations and unnecessary duplication.

Q: Many mergers arise from expected . This takes place particularly when the acquired firm has earnings losses that can be used offset taxable profits of the acquirer.

Q: One of the reasons for a merger is . This where the merger is encouraged by the FDIC as a way to conserve scarce federal deposit insurance resources.

Q: "Intangible synergies" is a relatively new name for _____________.

Q: When the existing ownership of the bank experiences a loss in their share of the company due to an increased number of shares going to new stockholders it is known as ______________________.

Q: To most authorities, the recent upsurge in mergers reflects the expectation of the stockholders that the____________________________________________ will increase once the merger is completed. This allows the merged bank to maximize future earnings.

Q: If a bank can show that the merger has___________________________________________ it may be able to overcome anticompetitive problems of the merger. This is the impact the merger has upon the convenience and service needs of the community.

Q: As part of the new regulations of the mortgage market, the Federal Reserve Board moved to tighten the rules on mortgage lending in 2008. All of the following would improve transparency of the market except for: A) Lenders must verify the borrowers reported income B) Lenders cannot rely on a homes current market value to judge a borrowers creditworthiness C) Lenders must rely on a borrowers stated income D) Lenders must disclose more about the actual terms of a home mortgage loan to a borrower E) All of the above are included in the new rules