Q&A Hero

Q: Mutual funds hold about ________ of financial intermediaries' total assets. A) one-sixth B) one-fourth C) one-half D) two-thirds

Q: Companies may not seek the protection of bankruptcy court to avoid liquidation. True of False

Q: Explain what happened to the large, free-standing investment banks as a result of the 2007-2009 financial crisis.

Q: Explain the innovations that have been created to lower interest-rate risk.

Q: As part of a Chapter 15 proceeding, the U.S. bankruptcy court may authorize a trustee to act in a foreign country on behalf of the U.S. Bankruptcy Court. True or False

Q: The purpose of Chapter 15 of the U.S. Bankruptcy Code is to prioritize the payment of creditors. True or False

Q: Describe Edge Act corporations, international banking facilities, and the structure of foreign banks in the United States.

Q: When and why was the Glass-Steagall Act passed? When and why was it repealed?

Q: The court can ignore the objections of creditors and stockholders if it feels the reorganization is both fair and feasible. True or False

Q: Are bank consolidations and nationwide banking good things? Why?

Q: The court must approve any plan accepted by the debtors shareholders and creditors. True of False

Q: Is the large number of banking firms in the United States an indication of a competitive banking industry? Explain why or why not.

Q: Prior to the Bankruptcy Abuse Protection and Consumer Protection Act of 2005, the debtor had the exclusive right to file a plan of reorganization for the first 120 days after it filed the case.

Q: What are the reasons for the decline of traditional banking?

Q: Prior to the Bankruptcy Abuse Protection and Consumer Protection Act of 2005 (BAPCPA), commercial enterprises used Chapter 11 Reorganization to continue operating a business and to repay creditors through a court-approved plan of reorganization.

Q: What are Treasury strips? What roles have reinvestment risk and information technology played in the development of this financial product?

Q: Chapter 11 of the U.S. bankruptcy code deals with liquidation while Chapter 7 addresses reorganization. True or False

Q: U.S. bankruptcy laws and practices focus on maintaining shareholder value during the bankruptcy process. True or False

Q: What new forms of making payments have been spawned by the advances in information technology of the past two decades? Is it likely that ours will become a cashless society anytime soon as a result of these innovations? Why?

Q: What new forms of banking have been spawned by the advances in information technology of the past two decades? Is it likely that traditional banks will disappear as a result of these innovations? Why?

Q: Automatic stays are granted by the court only when the debtor files for bankruptcy. True or False

Q: The filing of a petition triggers an automatic stay once the court accepts the request, which provides a period suspending all judgments, collection activities, foreclosures, and repossessions of property by the creditors on any debt or claim that arose before the filing of the bankruptcy petition. True or False

Q: What financial innovations are best explained as attempts to avoid regulations?

Q: In the absence of a voluntary settlement out of court, the debtor firm may seek protection from its creditors by initiating bankruptcy or may be forced into bankruptcy by its creditors. True or False

Q: Unlike commercial banks, S&Ls can only be chartered by the federal government.

Q: In the absence of a voluntary settlement out of court, the debtor firm may seek protection from its creditors by initiating bankruptcy. However, creditors cannot force the debtor firm into bankruptcy. True or False .

Q: An alternative corporate structure for U.S. banks that operate overseas is the Edge Act corporation, a special subsidiary engaged primarily in international banking.

Q: Through a process called an assignment, a committee representing creditors grants the power to liquidate the firms assets to a third party called an assignee or trustee. True or False

Q: Reserve requirements that force banks to keep a certain fraction of their deposits as reserves and restrictions on the interest rates that can be paid on deposits have been the major forces behind financial innovation.

Q: A change in the financial environment will stimulate a search by financial institutions for innovations that are likely to be profitable.

Q: If the insolvent firm is willing to accept liquidation,, legal proceedings are not necessary, regardless of what the creditors think. True or False

Q: Checkable deposits, a traditional source of low-cost funds for banks, have declined dramatically in importance, falling from over 60 percent of bank liabilities to less than 10 percent today.

Q: By law, corporate liquidation can only be conducted outside of the U.S. bankruptcy court. True or False

Q: Economies of scope come from increasing the size of a given financial activity and economies of scale come from combining different activities to lower their costs.

Q: If the creditors conclude that the insolvent firms situation cannot be resolved, liquidation may be the only acceptable course of action.

Q: The principle underlying Treasury strips is that an investor will earn a higher interest rate when reinvestment risk is eliminated.

Q: If a creditor is owed a large amount of money, it could become a major or even the controlling shareholder in the reorganized firm. True or False

Q: Disintermediation occurs when funds are deposited into banks and lent to borrowers.

Q: A debt-for-equity swap occurs when creditors surrender a portion of their claims on the firm in exchange for an ownership position in the firm. True or False

Q: Securitization is the process of transforming illiquid financial assets such as residential mortgages into marketable securities.

Q: Speculate as to why News Corp, a major entertainment industry content provider, might have been interested in acquiring Hughes. Be specific.

Q: Americans are the biggest users of checks in the world but nonetheless are ahead of Europeans in the proportion of noncash payments that are made by electronic means.

Q: Why did Hughes move so aggressively to hire employees from the cable TV and broadcast industry?

Q: Financial innovation has widened the cost advantages that banks have in acquiring funds, helping to explain why bank profitability has soared in recent years.

Q: What risks did Hughes face in moving completely away from its core defense business and into a high-technology commercial business? In your judgment, did Hughes move too quickly or too slowly? Explain your answer.

Q: Eurodollars are created when deposits in accounts in the United States are transferred to a bank outside the country and are kept in the form of dollars.

Q: Why did Hughes board and management seem to rely heavily on divestitures rather than other restructuring

Q: Restrictions on commercial banks' securities and insurance activities put American banks at a competitive disadvantage relative to foreign banks.

Q: How did changes in Hughes’ external environment contribute to its dramatic 20-year restructuring effort? Cite specific influences in answering this question. (Hint: Consider some of the motivations discussed in this chapter for engaging in restructuring activities.). Cite examples of how Hughes took advantage of their core competencies in pursuing other alternatives?

Q: What other alternatives could USX have pursued to increase shareholder value? Why do you believe they pursued the breakup strategy rather than some of the alternatives?

Q: The future structure of the U.S. banking industry is likely to be characterized by many more smaller banks, as customers demand neighborhood banks operated by people they know personally.

Q: In your judgment, did the breakup of USX into Marathon Oil and United States Steel Corporation make sense? Why or why not?

Q: Bank holding companies that have begun to rival the money center banks in size but whose headquarters are not based in one of the money center cities are called superregional banks.

Q: Even when an ATM is owned by a bank, states typically have special provisions that allow wider establishment of ATMs than is permissible for traditional "brick and mortar" branches.

Q: Why do you believe USX shareholders were not content to continue to hold tracking stocks in Marathon Oil and U.S. Steel?

Q: Why do you think USX issued separate tracking stocks for its oil and steel businesses?

Q: The existence of large numbers of banks in the United States indicates the presence of vigorous competition.

Q: Why do you believe U.S. Steel may have decided to acquire Marathon Oil? Does this combination make economic sense? Explain your answer.

Q: Bank holding companies are regulated by the FDIC.

Q: Discuss the conditions under which this spin-off would constitute a tax-free transaction.

Q: Today, the United States has a dual banking system in which banks supervised by the federal government and banks supervised by the states operate side by side.

Q: Discuss the reasons why HP may have chosen a staged transaction rather than an outright divestiture of the business.

Q: Because their members share a common bond, credit unions are typically quite small; most hold less than ________ of assets. A) $500,000 B) $10 million C) $100 million D) $1 billion

Q: Describe the motivation for UPS to undertake this type of transaction.

Q: What is the key difference between an S&L and a mutual savings bank? A) Mutual savings banks are jointly owned by depositors, whereas S&Ls aren't. B) The FDIC insures an S&L's deposits, but not those of mutual savings banks. C) Both A and B are correct. D) Neither A nor B is correct.

Q: Comment on the timing of the sale.

Q: In September of 2008, the money market mutual fund Reserve Primary Fund had a price of less than $1.00 for a dollar invested. How did this happen? A) The fund invested in debt of Lehman Brothers, which was worthless when Lehman went broke. B) The fund invested in high-yield junk bonds, which defaulted. C) The fund invested in Treasuries, which yielded less than 0% returns. D) This actually didn't happen. It cannot happen since the fund only invested in low-risk debt.

Q: Describe the process Gillettes management may have gone through to determine which business units to sell and which to keep.

Q: Regulations restricting branching have promoted the development of what two financial innovations? A) bank consolidation and nationwide banking B) bank holding companies and automated teller machines C) money market mutual funds and sweep accounts D) reserve requirements and restrictions on interest paid on deposits

Q: There are approximately how many commerical banks in the United States currently? A) 5,000 B) 7,500 C) 1,000 D) 1,250

Q: Which of the major restructuring motives discussed in this chapter seem to be a work in this business case? Explain your answer.

Q: A financial innovation that enables banks to avoid the "tax" from reserve requirements by taking any balances above a certain amount in a corporation's checking account at the end of the business day and investing them in overnight securities that pay interest is called a ________. A) money market mutual fund B) deposit rate ceiling C) sweep account D) disintermediation

Q: Discuss some of the reasons why you believe the unit may prosper more as an independent operation than as part of Baxter?

Q: A form of electronic money used on the Internet to pay for goods and services is A) e-money. B) e-cash. C) a smart card. D) a virtual bank.

Q: In your judgment, what did Baxters management mean when they admitted that they had not been optimizing the cardiovascular business in recent years? Explain both the strategic and financial implications of this strategy.

Q: An electronic machine that allows customers to make deposits, get cash, transfer funds from one account to another, and check balances is A) an automated banking machine. B) the virtual bank. C) an automated teller machine. D) a smart card.

Q: In your opinion, why did Viacom and Blockbuster share prices react the way they did to the announcement of the spin-off?

Q: In 1975, financial institutions developed financial derivatives that included ________. A) adjustable-rate mortgages B) futures contracts C) financial engineering D) virtual banks

Q: Why would Viacom choose to spin-off rather than divest its Blockbuster unit? Explain your answer.

Q: The main center of the Eurodollar market is ________. A) London B) Basel C) Paris D) New York