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Banking
Q:
What challenges did AT&T face in trying to split-up the company in 2000? What might you have done differently to overcome these obstacles?
Q:
Deposits in European banks denominated in dollars for the purpose of international transactions are known as ________.
A) Eurodollars
B) European Currency Units
C) euros
D) International Monetary Units
Q:
To what extent did AT&Ts ineffectual restructuring reflect factors beyond their control and to what extent was it poor implementation?
Q:
Eurodollars are
A) dollar-denominated deposits held in banks outside the United States.
B) deposits held by U.S. banks in Europe.
C) deposits held by U.S. banks in foreign countries.
D) dollar-denominated deposits held in U.S. banks by Europeans.
Q:
AT&T overpaid for many of its largest acquisitions made during the 1990s? How might this have contributed to its subsequent restructuring efforts?
Q:
U.S. banks have most of their foreign branches in
A) Latin America, the Far East, the Caribbean, and London.
B) Latin America, the Middle East, the Caribbean, and London.
C) Mexico, the Middle East, the Caribbean, and London.
D) South America, the Middle East, the Caribbean, and Canada.
Q:
Was AT&T proactive or reactive in initiating its 2000 restructuring program? Explain your answer.
Q:
A special subsidiary of a U.S. bank that is engaged in international banking is called
A) an international banking facility.
B) an agency office.
C) an Edge Act corporation.
D) a foreign bank subsidiary.
Q:
Why do you believe that AT&T chose to split-off its wireless operations rather than to divest the unit? What might you have done differently?
Q:
Since the passage of the International Banking Act of 1978, the competitive advantage enjoyed by foreign banks has been ________.
A) reduced
B) mildly expanded
C) completely eliminated
D) greatly expanded
Q:
What were the primary factors contributing to AT&Ts numerous restructuring efforts since 1984? How did they differ? How were they similar?
Q:
In what ways might the spin-offs harm parent firm shareholders?
Q:
Which of the following is a reason for the rapid expansion of international banking?
A) the rapid growth in international trade
B) the growth of multinational corporations
C) the desire of U.S. banks to expand
D) all of the above
Q:
Major differences between the United States and Japanese banking systems include:
A) American banks are allowed to hold substantial equity stakes in commercial firms, whereas Japanese banks cannot.
B) Japanese banks are allowed to hold substantial equity stakes in commercial firms, whereas American banks cannot.
C) bank holding companies are illegal in Japan.
D) both A and C of the above.
E) both B and C of the above.
Q:
Speculate as to why a firm may choose to spin-off rather than divest a business?
Q:
A major difference between the United States and Japanese banking systems is that
A) American banks are allowed to hold substantial equity stakes in commercial firms, whereas Japanese banks cannot.
B) Japanese banks are allowed to hold substantial equity stakes in commercial firms, whereas American banks cannot.
C) bank holding companies are illegal in the United States.
D) both A and C of the above
E) both B and C of the above
Q:
Why did Bristol-Myers Squibb prorate the number of shares tendered in the exchange offer?
Q:
In a ________ banking system, commercial banks engage in securities underwriting, but separate subsidiaries conduct the different activities. Also, banking and insurance are not typically undertaken together in this system.
A) universal
B) British-style universal
C) divided
D) compartmentalized
E) severable
Q:
Why did Bristol-Myers Squibb offer its shareholders $1.11 worth of Mead Johnson stock for each $1 of Bristol-Myers Squibb stock tendered and accepted in the exchange offer?
Q:
To what extent do you believe that Verizons activities could be viewed as fraudulent? Explain your answer.
Q:
In a ________ banking system, commercial banks provide a full range of banking, securities, and insurance services, all within a single legal entity.
A) universal
B) British-style universal
C) barrier-free
D) seamless
Q:
Do you believe shareholders should have the right to approve a spin-off? Explain your answer?
Q:
In recent years, commercial banks have been allowed to
A) invest in real estate.
B) enter certain insurance markets.
C) underwrite stocks.
D) do all of the above.
E) do only A and B of the above.
Q:
Do you believe that it is fair for Idearc to repay a portion of the debt incurred by Verizon relating to Idearc's operations even though Verizon included Idearc's earnings in its consolidated income statement? Is the transfer of excess cash to the parent fair? Explain your answer.
Q:
The Riegle-Neal Act of 1994
A) required all banks to become universal banks.
B) removed ceilings on bank deposit interest rates.
C) allowed banks to underwrite insurance and securities and engage in real estate activities.
D) overturned prohibitions on interstate banking and branching.
Q:
How do you believe the Idearc shares were valued for purposes of the spin-off? Be specific.
Q:
The prohibition against banks underwriting corporate securities and engaging in brokerage, real estate, and insurance activities was repealed by the
A) Gramm-Leach-Bliley Financial Services Modernization Act.
B) Competitive Equality in Banking Act.
C) Depositary Institution Deregulation and Monetary Control Act.
D) Glass-Steagall Act.
Q:
How could Apache have protected itself from risks that they might be required at some point in the future to be liablefor some portion of the BP Gulfrelated liabilities? What are some of the ways Apache could have estimated the potential costs of such liabilities? Be specific.
Q:
The legislation that separated investment banking from commercial banking was the
A) National Bank Act.
B) Federal Reserve Act.
C) Glass-Steagall Act.
D) McFadden Act.
Q:
Which of the following is not expected to result from bank consolidation in the U.S.?
A) The disappearance of small community banks.
B) The acceleration of the decline in the number of banks.
C) Banks will be more efficient.
D) Banks will be less likely to fail.
Q:
In what sense were the BP properties strategically more valuable to Apache than to British Petroleum?
Q:
As a result of restrictive banking regulations, the United States
A) has too few banks when compared to other industrialized countries.
B) has banks that are quite large relative to those in other countries.
C) has too many banks when compared to other industrialized countries.
D) has both A and B of the above.
Q:
Explain why Sara Lee may have chosen to spin-off rather than to divest HanesBrands Inc.? Be specific.
Q:
A bank with a large credit-card customer base can market other financial products to these customers at a low cost. This is an example of
A) economies of scale.
B) economies of scope.
C) becoming a superregional bank.
D) none of the above.
Q:
Why is a breakup strategy conceptually simple to explain but often difficult to implement? Be specific.
Q:
The McFadden Act's prohibition against interstate branching
A) was weakened by the introduction of shared electronic banking facilities that provide banking services nationwide.
B) was weakened by regional compacts that allowed banks to own banks in other states in their region.
C) impeded banks' ability to diversify their loans and take advantage of economies of scale.
D) did all of the above.
Q:
Speculate as to why the 2005 restructure program appears to have been unsuccessful in achieving a sustained increase in Sara Lees earnings per share and in turn creating value for the Sara Lee shareholders?
Q:
As a result of shared electronic banking facilities,
A) barriers to branching have become less burdensome.
B) banking has become less competitive.
C) both of the above have occurred.
D) neither of the above has occurred.
Q:
Would you expect investors to be better off buying Sara Lee stock or investing in a similar set of consumer product businesses in their own personal investment portfolios? Explain your answer.
Q:
In what sense is the Sara Lee business strategy in effect a breakup strategy? Be specific.
Q:
Which of the following are true statements concerning bank holding companies?
A) Bank holding companies own almost all large banks.
B) Bank holding companies have experienced dramatic growth in the past twenty-five years.
C) Through a loophole in the McFadden Act, bank holding companies have successfully evaded interstate branching restrictions.
D) All of the above are true.
E) Only A and B of the above are true.
Q:
There is often a natural tension between so-called activist investors interested in short-term profits and a firms management interested in pursuing a longer-term vision. When is this tension helpful to shareholders and when does it destroy shareholder value?
Q:
Which of the following is an advantage of forming a bank holding company?
A) It allows ownership of several banks where branching is prohibited.
B) It allows owners to engage in activities related to banking that are prohibited to banks.
C) Both A and B of the above.
D) None of the above.
Q:
While Krafts share value did increase following the Cadbury deal, it lagged the performance of key competitors. Why do you believe this was the case? Explain your answer.
Q:
The legislation that effectively prohibited banks from branching across state lines and forced all national banks to conform to the branching regulations of the state in which they reside is the
A) McFadden Act.
B) National Banking Act.
C) Glass-Steagall Act.
D) Garn-St. Germain Act.
Q:
Kraft CEO Irene Rosenfeld argued that an important justification for the Cadbury acquisition in 2010 was to create two portfolios of businesses: some very strong cash generating businesses and some very strong growth businesses in order to increase shareholder value. How might this strategy have boosted the firms value?
Q:
The McFadden Act of 1927
A) effectively prohibited banks from branching across state lines.
B) required that banks maintain bank capital equal to at least 6 percent of their assets.
C) effectively required that banks maintain a correspondent relationship with large money center banks.
D) did all of the above.
Q:
How might a spin-off create shareholder value for Kraft Foods shareholders?
Q:
The presence of so many commercial banks in the United States is most likely the result of
A) consumers' strong preference for dealing with only local banks.
B) adverse selection and moral hazard problems that give local banks a competitive advantage over larger banks.
C) regulations that restrict the ability of banks to open branches.
D) all of the above.
Q:
Why did Kraft chose not to divest its grocery business, using the proceeds to either reinvest in its faster growing snack business, to buy back its stock, or a combination of the two?
Q:
Rising market interest rates in the 1960s and the 1970s, combined with regulated deposit rate ceilings,
A) worked in the short-run to give mortgage-issuing institutions a source of low-cost funds.
B) led eventually to an outflow of deposits from depository institutions.
C) led to financial innovations that worked to avoid these regulations.
D) did all of the above.
E) did only A and C of the above.
Q:
What does the decision to split up the firm say about Krafts decision to buy Cadbury in 2010?
Q:
One factor contributing to the decline in income advantages that banks once had is the increased competition from the commercial paper market, which has grown in size to over ________ percent of commercial and industrial bank loans today.
A) 20
B) 30
C) 40
D) 50
Q:
What other restructuring alternatives could Motorola have pursued to increase shareholder value? Why do you believe it pursued this breakup strategy rather than some other option?
Q:
The most important developments that have reduced banks' income advantages in the past twenty years include
A) the growth of the commercial paper market.
B) the growth of the junk bond market.
C) the elimination of Regulation Q ceilings.
D) all of the above.
E) only A and B of the above.
Q:
In your judgment, did the breakup of Motorola make sense? Explain your answer.
Q:
The most important developments that have reduced banks' income advantages in the past twenty years include
A) the growth of the commercial paper market.
B) the growth of the junk bond market.
C) the growth of securitization.
D) all of the above.
E) only A and B of the above.
Q:
The board of directors of a firm approves an exchange offer in which their shareholders are offered stock in one of the firms subsidiaries in exchange for their holdings of parent company stock. This offer is best described as a
a. Split-up
b. Split-off
c. Equity carve-out
d. Spin-off
e. Tender offer
Q:
The most important developments that have reduced banks' cost advantages in the past twenty years include
A) the growth of the junk bond market.
B) the competition from money market mutual funds.
C) the growth of securitization.
D) all of the above.
E) only A and B of the above.
Q:
The board of directors of a large conglomerate has decided that the investment opportunities for the firm are limited and that greater value could be created for the shareholders if the firm were divided into four independent businesses. Following approval by shareholders, the firm executed this strategy which is best described as a
a. Split-up
b. Split-off
c. Spin-off
d. Equity carveout
e. Reverse merger
Q:
The most important developments that have reduced banks' cost advantages in the past twenty years include
A) the elimination of Regulation Q ceilings.
B) the competition from money market mutual funds.
C) the growth of securitization.
D) all of the above.
E) only A and B of the above.
Q:
A firm decides to distribute all of the shares it holds in a subsidiary to its shareholders. The distribution would be called a
a. Divestiture
b. Split-up
c. Spin-off
d. Split-up
e. Equity carveout
Q:
One factor contributing to the decline in cost advantages that banks once had is the decline in the importance of checkable deposits from over ________ percent of banks' source of funds to ________ percent today.
A) 70; 30
B) 60; 5
C) 50; 20
D) 40; 15
Q:
As part of its restructuring plan, a holding company plans to undertake an IPO for 35 percent of the shares it owns in a subsidiary. The sale of these shares would be called a
a. Divestiture
b. Split-off
c. Split-up
d. Equity carveout
e. Breakup
Q:
The process in which people seeking higher interest rates take their money out of financial institutions is called ________.
A) capital mobility
B) loophole mining
C) disintermediation
D) deposit jumping
Q:
A diversified automotive parts supplier has decided to sell its valve manufacturing business. This sale is referred to as a
a. Merger
b. Divestiture
c. Spin-off
d. Equity carveout
e. Liquidation
Q:
The traditional financial intermediation role of banking has been to make ________-term loans and to fund them with ________-term deposits.
A) short; long
B) long; short
C) short; short
D) long; long
Q:
Which of the following is not true of a split-off?
a. A split-off is a variation of a spin-off
b. Parent company shareholders receive shares in a subsidiary in return for surrendering their parent company shares
c. Split-offs are best suited for disposing of a less than 100 percent investment stake in a subsidiary,
d. A split-off reduces the parent firms earnings per share.
e. The split-off reduces the pressure on the spun-off firms share price
Q:
Which of the following is a common problem associated with tracking stocks?
a. Tracking stocks often de-motivate managers of the business for which the stock is created
b. Such stocks are too complicated for investors to understand
c. Tracking stocks may create internal operating conflicts among the parents business units
d. Such stocks often create huge tax liabilities for the parent
e. None of the above
Q:
Bank failures and mergers have caused the number of commercial banks in the U.S. to decline from around ________ in the 1970s to below ________ today.
A) 25,000; 10,000
B) 15,000; 10,000
C) 25,000; 20,000
D) 15,000; 5,000
Q:
Since the late 1970s, thrift institutions' importance as a source of funds for borrowers has shrunk markedly, from above ________ percent of total credit advanced to below ________ percent today.
A) 30; 20
B) 30; 15
C) 40; 5
D) 20; 10
Q:
An equity carve-out by a parent of one of its subsidiaries is often a precursor to a
a. Complete divestiture or spin-off of the subsidiary
b. An acquisition
c. A merger
d. Joint venture
e. The creation of a tracking stock
Q:
Thrift institutions' importance as a source of funds for borrowers
A) has shrunk from around 40 percent of total credit advanced in the late 1970s to below 30 percent today.
B) has shrunk from over 20 percent of total credit advanced in the late 1970s to below 10 percent today.
C) has expanded dramatically, from around 15 percent of total credit advanced in the late 1970s to above 25 percent today.
D) has expanded dramatically, from around 15 percent of total credit advanced in the late 1970s to above 30 percent today.
Q:
Which of the following is generally not considered a common motive for exiting businesses?
a. Changing strategy or focus
b. Desire to achieve economies of scale
c. Lack of fit with the parents other businesses
d. Discarding unwanted businesses from prior acquisitions
e. All of the above
Q:
Since 1974, commercial banks' importance as a source of funds for borrowers has shrunk dramatically, from around ________ percent of total credit advanced to near ________ percent by 2009.
A) 60; 30
B) 40; 25
C) 25; 20
D) 30; 15
Q:
Which of the following is true about a voluntary bust-up?
a. Parent ceases to exist
b. Cash infusion to the parent
c. Parent stock is exchanged for subsidiary stock
d. New shares issued to the public
e. Parent remains in control
Q:
The growing use and proliferation of ATMs has been stimulated by
A) lower transaction costs.
B) greater customer convenience.
C) declining cost of the ATM equipment.
D) all of the above.
Q:
It now appears that the predominant delivery system for banking services in the future will be
A) Internet-only banks.
B) traditional banks.
C) traditional banks supplemented with online services.
D) none of the above.
Q:
Which of the following is not true of an equity carve-out?
a. Creates cash infusion for the parent
b. Change in equity ownership of the unit involved in the carve-out
c. New shares issued to the public
d. Taxable if proceeds returned to shareholders through a dividend or stock buyback
e. Parent ceases to exist
Q:
Which of the following is not true of a spin-off?
a. Creates cash infusion for parent
b. Change in equity ownership of the spin-off
c. New legal entity created
d. New shares issued to the public
e. A, B, and D