Q&A Hero

Banking

Q: M&As represent by far the most profitable means of entering foreign markets. True or False
Q: How did AIG, a trillion-dollar insurance giant, find itself on the brink of bankruptcy in 2008?
Q: Describe how insurance companies try to reduce adverse selection and moral hazards.
Q: Licensing allows a firm to purchase the right to manufacture and sell another firms products within a specific country or set of countries. True or False
Q: Why will Social Security funding problems rise in the coming decades? Identify and evaluate the proposals that have been suggested to ease or reverse these problems.
Q: The disadvantages of exporting include high transportation costs, exchange rate fluctuations, and possible tariffs placed on imports into the local country. True or False
Q: What are the major differences between life insurance and property and casualty insurance?
Q: M&As can provide quick access to a new market; and, they are subject to fewer problems than domestic M&As. True or False
Q: Distinguish between different types of life insurance.
Q: Appreciating foreign currencies relative to the dollar increase the overall cost of investing in the U.S. True or False
Q: Why must insurance companies screen applicants so carefully?
Q: Quotas and tariffs on imports imposed by governments to protect domestic industries tend to discourage foreign direct investment. True or False
Q: Why do life insurance companies and pension plans invest heavily in long-term assets?
Q: Firms with significant expertise, brands, patents, copyrights, and proprietary technologies seek to grow by exploiting these advantages in emerging markets. True or False
Q: Who has the strongest incentive to monitor the performance of individual pension plans such as Keoghs and IRAs? Explain.
Q: Excess capacity in many industries often drives M&A activity as firms strive to achieve greater economies of scale and scope, as well as pricing power with customers and suppliers. True or False
Q: A monoline insurance company is an insurance company which specialize in credit insurance alone.
Q: Firms investing in industries or countries whose economic cycles are highly correlated may lower the overall volatility in their consolidated earnings and cash flows. True or false
Q: Casualty insurance can be provided in either named-peril policies or open-peril policies.
Q: Investors in segmented markets will bear a lower level of risk by holding a disproportionately large share of their investments in their local market as opposed to the level of risk if they invested in a globally diversified portfolio. True or False
Q: Arbitrage should drive the prices in different markets to be the same, as investors sell those assets that are undervalued to buy those that are overvalued. True or False
Q: Health maintenance organizations (HMOs) shift the risk from the provider to the insurance company.
Q: Property and casualty insurance protects against losses from fire, theft, storm, explosion, and even neglect.
Q: Like globally integrated capital markets, segmented capital markets exhibit different bond and equity prices in different geographic areas for different assets in terms of risk and maturity. True or False
Q: Most private pension plans are insured by the Penny Benny, which pays benefits when a plan's sponsor goes bankrupt.
Q: Factors contributing to the integration of global capital markets include the reduction in trade barriers, removal of capital controls, the growing disparity in tax rates among countries, floating exchange rates, and the free convertibility of currencies. True or False
Q: A whole life insurance policy pays a death benefit if the policyholder dies.
Q: Globally integrated capital markets provide foreigners with unfettered access to local capital markets and local residents to foreign capital markets. True or False
Q: Demographic trends and changes in retirement patterns suggest that Social Security funding problems will ease over the next few decades.
Q: How does the complexity described in your answer to the first question add to the potential risk of the transaction? Be specific.
Q: The Social Security system is an example of a pension plan that is fully funded.
Q: A debt-for-equity swap occurs when the distressed firms shareholders are willing to surrender a portion of their ownership for debt in the firm. True or False
Q: Social Security is a "pay-as-you-go" system.
Q: A composition is an agreement in which creditors agree to settle for less than the full amount they are owed. True or False
Q: The Pension Benefit Guarantee Corporation performs a role similar to that of the Office of Thrift Supervision.
Q: A debt extension occurs when creditors agree to lengthen the period during which the debtor firm can repay its debt. True or False
Q: A defined-contribution plan promises employees a specific amount of retirement income.
Q: A workout is an arrangement conducted inside of bankruptcy court by a debtor and its creditors for payment or re-scheduling of payment of the debtors obligations. True or False
Q: Vesting refers to the length of time that a person must be enrolled in a pension plan before being entitled to receive benefits.
Q: Large companies often have a difficult time achieving out-of-court settlements because they usually have hundreds of creditors. True or False
Q: The higher the insurance coverage, the more the policyholder can gain from risky activities that make an insurance payoff less likely.
Q: Increasingly, distressed companies are choosing to restructure inside of bankruptcy court, rather than reaching a general agreement with creditors before seeking Chapter 11 protection. True or False
Q: When a life-long chain smoker attempts to purchase a life insurance policy, the insurance company faces the problem of adverse selection.
Q: The debtor firm often initiates the voluntary settlement process, because it generally offers the best chance for the current owners to recover a portion of their investments either by continuing to operate the firm or through a planned liquidation of the firm. True or False
Q: The fact that insurance companies charge young males higher automobile insurance premiums than young females is an example of coinsurance.
Q: Adverse selection occurs when those most likely to get insurance payoffs are the ones who want to purchase the insurance the most.
Q: A firm is not bankrupt or in bankruptcy until it files or its creditors file a petition for reorganization or liquidation with the federal bankruptcy courts. True or False
Q: Discuss the four primary classes of mutual funds available to investors.
Q: A firm is said to be bankrupt once it defaults on a bond payment. True or False
Q: Discuss the proposals that have been made to reduce the conflict of interest abuses in the mutual funds industry.
Q: Bankruptcy is a state-level legal proceeding designed to protect the technically or legally insolvent firm from lawsuits by its creditors until a decision can be made to shut down or to continue to operate the firm. True or False
Q: Legal insolvency occurs when a firms liabilities exceed the book value of its assets. True or False
Q: Describe the practices of late trading and market timing and explain how these practices harm a mutual fund's shareholders.
Q: How does the governance structure of mutual funds lead to asymmetric information and conflicts of interest?
Q: A firm is said to be technically solvent when it is unable to pay its liabilities as they come due. True or False
Q: Credit ratings provided by Moodys and Standard & Poors are highly reliable indicators of a firms degree of financial distress. True or False
Q: How did money market mutual funds originate and why did they become especially popular in the late 1970s and early 1980s?
Q: The term financial distress could apply to a firm unable to meet its obligations or to a specific security on which the issuer has defaulted. True or False
Q: How is a mutual fund's net asset value calculated?
Q: Financially distressed firms also affect communities in which they are located in terms of increasing unemployment and eroding the tax base. True or False
Q: What benefits do mutual funds offer investors?
Q: Reforms in creditor rights tend to increase the availability and reduce the cost of credit in countries where court enforcement is quick and fair. True or False
Q: Mutual funds are regulated under four federal laws designed to protect investors.
Q: For capital markets to function smoothly, disputes involving the legal rights of all participants (both debtors and creditors) need to be resolved quickly and equitably by the courts. True or False
Q: The primary purpose of loads is to provide compensation for sales brokers.
Q: PG&E pursued bankruptcy protection, while Southern California Edison did not. What could PG&E have been done differently to avoid bankruptcy?
Q: Whether a fund is organized as a closed- or an open-end fund, is will have the same basic organizational structure.
Q: In your judgment, did regulators attenuate or exacerbate the situation? Explain your answer.
Q: One factor explaining the rapid growth in mutual funds is that they are financial intermediaries that are not regulated by the federal government.
Q: What should (or can) be done to reduce the likelihood of this type of situation arising in the future? Be specific.
Q: SEC research suggests that about three-fourths of mutual funds let privileged shareholders engage in market timing.
Q: A deferred load is a fee charged when shares in a mutual fund are redeemed.
Q: How were the Enron partnerships used to hide debt and inflate the firms earnings? Should partnership structures be limited in the future? If so, how?
Q: In what way was the Enron debacle a break down in corporate governance (oversight)? Explain your answer.
Q: Money market mutual funds originated when the brokerage firm Merrill Lynch offered its customers an account from which funds could be taken to purchase securities and into which funds could be deposited when securities were sold.
Q: In your judgment, what were the major factors contributing to the demise of Enron? Of these factors, which were the most important?
Q: A mutual fund's board of directors picks the securities that will be held and makes buy and sell decisions.
Q: Why did Centerbridge receive convertible preferred rather than common stock?
Q: The net asset value of a mutual fund is the average market price of the stocks, bonds, and other assets the fund owns.
Q: Does the process outlined in this business case seem equitable for all parties to the bankruptcy proceedings? Why? Why not? Be specific.
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