Q&A Hero

Q: T F 45. A ‘Chinese wall’ is supposed to prevent the transfer of insider information about clients between the investment banker’s security underwriter division and the internal unit where proprietary trading of stocks and bonds takes place.

Q: The idea of "maximizing shareholder value" is widely accepted in: I) U.S.A.; II) U.K; III) Germany; IV) France; V) Japan A. I only B. I and II only C. III, IV and V only D. I, II, III, IV and V

Q: T F 74. U.S. banks tend to do better when the yield curve is upward-sloping.

Q: The following are some of the actions shareholders can take if the corporation is not performing well: A. Replace the board of directors in an election. B. Force the board of directors to change the management team. C. Sell their shares of stock in the corporation. D. Any of the above

Q: T F 44. The prohibition against combining investment banking and commercial banking activity during the Depression centered on possibly forcing customers seeking loans to buy securities the IB was trying to sell and increasing the risk exposure of commercial banking firms.

Q: Managers' actions are monitored by: A. The board of directors B. Commercial banks that have loaned funds to the firm C. The Wall Street analysts D. All of the above

Q: T F 32. The Truth in Lending (or Consumer Credit Protection) Act was passed by the U.S. Congress to outlaw discrimination in providing bank services to the public.

Q: The financial goal of a corporation is to: A. Minimize stockholder wealth B. Maximize profit C. Maximize value of the corporation to the stockholders D. Decrease job security

Q: T F 73. The change in the market price of an asset's price from a change in market interest rates is roughly equal to the asset's duration times the change the interest rate divided by the original interest rate.

Q: The following are examples of tangible assets except: I) Machinery; II) Office buildings; III) Warehouse; IV) Training for employees A. I only B. I and II only C. IV only D. I, II, and III only

Q: T F 31. National banks cannot merge without the prior approval of the Comptroller of the Currency.

Q: T F 72. Convexity is the idea that the rate of change of an asset's price varies with the level of interest rates.

Q: The following are examples of real assets: I) Machinery; II) Office buildings; III) Warehouse; IV) Common stock A. I, II, and III only B. I and II only C. IV only D. I only

Q: Of the following list, which is a stakeholder? I) Employee; II) Customer; III) Community; IV) Supplier A. I, II and IV only B. III only C. I and II only D. All

Q: T F 43. Traditionally the most profitable and best known investment banking activity is providing client advice.

Q: Which of the following is not a common function of the firm's chief financial officer? A. Hiring CEO B. Hiring controller C. Investing capital D. Paying dividends

Q: T F 71. A bank with a duration gap of zero is immunized against changes in the value of net worth due to changes in interest rates in the market.

Q: The mixture of debt and equity, used to finance a corporation is also known as: A. Capital budgeting B. Capital structure C. Investing D. Treasury

Q: T F 42. Investment bankers are financial advisors to individuals and act as brokers and dealers for those individuals.

Q: The sale of financial assets is also referred to as the: A. Capital decision B. CFO decision C. Financing decision D. Investment decision

Q: T F 30. The Bank Merger Act and its amendments requires that Bank Holding Companies be under the jurisdiction of the Federal Reserve.

Q: The purchase of real assets is also referred to as the: A. Capital decision B. CFO decision C. Financing decision D. Investment decision

Q: T F 70. Long-term interest rates tend to change very little with the cycle of economic activity.

Q: The financial goal of a corporation is to: A. Maximize profits B. Maximize sales C. Maximize the value of the firm for the shareholders D. Maximize managers' benefits

Q: The following groups are some of the claimants to a firm's income stream: I) Shareholders; II) Bondholders; III) Employees; IV) Management and V) Government A. I and II only B. I, II, and III only C. I, II, III and IV only D. I, II, III, IV and V

Q: T F 41. As a consequence of recent legislation, securities firms and insurance companies have the right to apply to the Federal Reserve Board to become a financial holding company.

Q: T F 69. A bond with a greater duration will have a smaller price change in percentage terms when interest rates change.

Q: Agency costs are incurred by a corporation because: A. managers may not attempt to maximize the value of the firm to shareholders B. shareholders incur monitoring cost C. separation of ownership and management D. all of the above

Q: T F 40. As a consequence of recent legislation, banks cannot offer insurance products or services.

Q: Costs associated with the conflicts of interest between the bondholders and the shareholders of a corporation are called: A. Legal costs B. Bankruptcy costs C. Administrative costs D. Agency costs

Q: T F 29. The Federal Reserve changes reserve requirements frequently because the affect of these changes is so small.

Q: In the principal-agent framework: A. Shareholders are the principals B. Managers are the principals C. Managers are the agents D. A and D

Q: Conflicts of interest between shareholders and managers of a firm result in: A. Principal-agent problem B. Increased agency costs C. Both A and B D. Managers owning the firm

Q: T F 68. Duration is a direct measure of the price risk of a bond.

Q: T F 39. An insurance product or annuity sold by a depository institution is NOT insured by the FDIC.

Q: The Chief Financial Officer (CFO) of a corporation oversees: A. Treasurer's functions B. Controller's functions C. Both A and B D. None of the above

Q: T F 67. Duration is the weighted average maturity of a promised stream of future cash flows.

Q: The following are important functions of financial markets: I) Source of financing; II) Provide liquidity; III) Reduce risk; IV) Source of information A. I only B. I and II only C. I, II, III, and IV D. IV only

Q: T F 38. State Street Bank in Boston is a good example of a fee-focused banking company.

Q: The controller is usually responsible for the following functions of a corporation except: I) Preparation of financial statements; II) Internal accounting; III) Cash management; IV) Taxes A. I only B. III only C. I and II only D. IV only

Q: The controller usually oversees the following functions of a corporation: I) Preparation of financial statements; II) Internal accounting; III) Cash management and IV) Taxes A. I, II and IV only B. III only C. I and II only D. II and III

Q: T F 28. Government-sponsored deposit insurance typically encourages individual depositors to monitor their banks' behavior in accepting risk.

Q: The treasurer is usually responsible the following functions of a corporation: I) Tax obligations; II) Investor relationships; III) Cash management; IV) raising new capital A. I only B. I and II only C. II, III and IV only D. I, II, III and IV

Q: T F 66. A bank with a negative duration gap experiencing a decrease in interest rates will experience an increase in its net worth.

Q: The treasurer usually oversees the following functions of a corporation except: I) Preparation of financial statements; II) Investor relationships; III) Cash management; IV) raising new capital A. I only B. I and II only C. II, III and IV only D. III only

Q: T F 37. The first mutual fund was offered in France.

Q: The following are examples of financial assets except: A. Common stock B. Bank loan C. Preferred stock D. Buildings

Q: T F 27. Federal Reserve Act authorized the creation of the Federal Deposit Insurance Corporation.

Q: A firm's investment decision is also called the: A. Financing decision B. Liquidity decision C. Capital budgeting decision D. None of the above

Q: T F 65. A bank with a positive duration gap experiencing a decrease in interest rates will experience an increase in its net worth.

Q: T F 36. One attractive feature of investment banking is that it is generally less risky than commercial banking.

Q: The following are examples of tangible assets except: A. Machinery B. Factories C. Trademarks D. Offices

Q: The following are examples of intangible assets except: A. Building B. Trademarks C. Patents D. Technical expertise

Q: As a legal entity a corporation can perform the following functions except: I) borrow money; II) lend money; III) sue and be sued; IV) vote A. I and II only B. I, II, and III only C. IV only D. I, II, III and IV

Q: Limited liability is an important feature of: A. Sole proprietorships B. Partnerships C. Corporations D. All of the above

Q: T F 64. Duration is a direct measure of the reinvestment risk of a bond.

Q: Corporations, potentially, have infinite life because: A. it is a legal entity B. of separation of ownership and management C. it has limited liability D. none of the above

Q: T F 35. Customers have no rights to opt out of having their private information collected by banks and other financial-service firms shared with other financial-services firms.

Q: Generally, a corporation is owned by the: I) Managers; II) Board of Directors; III) Shareholders A. I only B. II and III C. III only D. I, II and III

Q: T F 45. Banks which offer virtually all financial services are known as universal banks.

Q: Shareholders of a corporation may be, among others: I) Individuals; II) Pension Funds; III) Insurance Companies A. I only B. I and II only C. II only D. I, II and III

Q: The following are examples of foreign-based corporations except: I) British Petroleum; II) General Electric; III) Sony; IV) Volkswagen A. I only B. II only C. II and III only D. I, II, & IV only

Q: T F 34. A mutual fund is a savings instrument where the customer makes cash payments to an investment manager who invests them in earning assets. Later the purchaser receives a stream of income from these assets.

Q: T F 44. Convergence refers to the fact that the number of bank mergers has increased in recent years.

Q: The following are examples of the United States-based corporations except: I) Boeing; II) Microsoft; III) Bank of America; IV) Sony A. I only B. I and II only C. I, II, and III only D. IV only

Q: This book is mainly about: A. financial decisions made by households B. financial decisions made by corporations C. financial decisions made by governments D. none of the above

Q: Finance, generally, deals with: I) Money; II) Markets; III) People A. I only B. I and II only C. I and III only D. I, II and III

Q: T F 33. An annuity is a company that offers shares in a pool of securities (stocks, bonds, etc.) and flows through any earnings generated to the shareholding customer. Answer: False

Q: T F 43. According to the textbook, traditional banking may be on the decline.

Q: As you increase the time interval in a binomial model the result will approach the Black-Scholes model.

Q: T F 61. Weighted interest-sensitive gap is less accurate than interest-sensitive gap in determining the affect of changes in interest rates on net interest margin.

Q: Delta of a put option is equal to the delta of an equivalent call option minus one.

Q: T F 32. A proprietary mutual fund is where the bank sells a mutual fund through one of their affiliated companies and where the bank can act as an investment advisor.

Q: 22. If e is the base of natural logarithms, and (s) is the standard deviation of the continuously compounded annual returns on the asset, and h is the interval as a fraction of a year, then the quantity (1 + upside change) is equal to: A. e^[(s) * SQRT(h)] B. e^[h SQRT(s)] C. (s) e^[SQRT(h)] D. none of the above.

Q: T F 42. Today U.S. banks account for approximately fifty percent of the largest banks in the world.

Q: Options can have a value even when the stock is worthless.

Q: The value of a firm is the present value of free cash flows minus the present value of horizon value.

Q: T F 60. Interest-sensitive gap and weighted interest-sensitive gap will always reach the same conclusion as to whether a bank is asset sensitive or liability sensitive.

Q: Financial distress occurs when promises to creditors are not honored or honored with great difficulty.

Q: T F 31. While the trust department performs a variety of roles their activities center on establishing a fiduciary relationship with the customer.