Accounting
Anthropology
Archaeology
Art History
Banking
Biology & Life Science
Business
Business Communication
Business Development
Business Ethics
Business Law
Chemistry
Communication
Computer Science
Counseling
Criminal Law
Curriculum & Instruction
Design
Earth Science
Economic
Education
Engineering
Finance
History & Theory
Humanities
Human Resource
International Business
Investments & Securities
Journalism
Law
Management
Marketing
Medicine
Medicine & Health Science
Nursing
Philosophy
Physic
Psychology
Real Estate
Science
Social Science
Sociology
Special Education
Speech
Visual Arts
Banking
Q:
Which of the following is not a reason for the disappointing revenue growth and profits of Internet-only banks?
A) high cost per transaction
B) security concerns
C) customer preferences
D) technical problems
Q:
When disintermediation occurs, the banking system ________ deposits and bank lending ________.
A) gains; increases
B) gains; decreases
C) loses; increases
D) loses; decreases
Q:
Which of the following is not true of a divestiture?
a. May create cash infusion for the parent firm
b. Parent ceases to exist
c. Proceeds of sale taxable if returned to shareholders through a dividend or stock buyback
d. A new legal subsidiary may be created
e. B and C
Q:
For a spin-off to be tax-free to the shareholder it must satisfy which of the following:
a. The parent firm must have a controlling interest in the subsidiary before it is spun off.
b. After the spin-off, both the parent and the subsidiary must remain in the same line of business in which each was involved for at least 5 years before the spin-off.
c. The spin-off cannot have been used as a means of avoiding dividend taxation by converting ordinary income into capital gains.
d. The parents shareholders must maintain significant ownership in both the parent and the subsidiary following the transactions.
e. All of the above
Q:
The Federal Reserve's Regulation Q
A) set maximum interest rates banks could pay on deposits.
B) set minimum interest rates banks could pay on deposits.
C) set maximum interest rates banks could charge on loans.
D) discouraged disintermediation.
Q:
Which one of the following is generally not a reason for issuing tracking stocks?
a. To give investors a pure play in a specific business owned by the parent
b. To create a currency for the business to acquire other firms
c. To enhance the likelihood that the business will be acquired
d. To create an incentive for management receiving the stock
e. To raise capital for the parent or for the business for which the tracking stock is created
Q:
Burdensome regulations, along with inflation and rising interest rates, help to explain
A) the rapid pace of financial innovations in banking in the 1960s and 1970s.
B) the low rate of bank failures in the 1980s.
C) both A and B of the above.
D) neither A nor B of the above.
Q:
An equity carve-out differs from a spin-off for all but which one of the following reasons?
a. Generates a cash infusion into the parent
b. Is undertaken when the unit has very little synergy with the parent
c. The proceeds often are taxable to the parent
d. Continues to be influenced by the parents management and board
e. The carve-outs shareholders may differ from those of the parents shareholders
Q:
Checking accounts that earn interest (such as NOW accounts) were not available until ________.
A) 1962
B) 1972
C) 1982
D) 1992
Q:
A spin-off may create shareholder wealth for all of the following reasons except for
a. Spin-offs are generally not taxable if properly structured
b. The spin-offs management and board is independent of the former parent
c. Investors will be better able to value the spin-off
d. The cost of capital of the spin-off is generally higher than when it was part of the parent
e. The spin-off may be subsequently acquired by another firm
Q:
Bank managers look on reserve requirements as a
A) tax on deposits.
B) subsidy on deposits.
C) subsidy on loans.
D) tax on loans.
Q:
Which of the following is not a characteristic of a spin-off?
a. The parent creates a new legal subsidiary for the business to be spun-off
b. The shares of the new subsidiary are sold to the public
c. The ownership of shares in the new legal subsidiary is the same as the stockholders proportional ownership of shares in the parent firm
d. The new business once spun-off has its own management and board
e. Spin-offs are generally not taxable to the parents shareholders if properly structured
Q:
In the usual GNMA pass-through security, the ________ has direct ownership of a pro-rata share of the portfolio of mortgage loans.
A) seller
B) buyer
C) financial institution issuing the mortgage loan
D) financial institution securitizing the mortgage loan
Q:
To decide if a business is worth more to the shareholder if sold, the parent firm generally considers all of the following factors except for
a. The after-tax cash flows of the business to be sold
b. The after-tax sale value of the business to be sold
c. The parents cost of capital
d. A and B
e. A, B, and C
Q:
The bundling of mortgages into a saleable security (usually for large institutional investors) is called ________.
A) disintermediation
B) quasi-intermediation
C) futures bundling
D) hedge optioning
E) securitization
Q:
Which of the following is generally considered a motive for exiting businesses?
a. Changing corporate strategy or focus
b. Underperforming businesses
c. Regulatory concerns
d. Lack of fit
e. All of the above
Q:
The driving force behind the securitization of mortgages and automobile loans has been
A) the rising regulatory constraints on substitute financial instruments.
B) the desire of mortgage and auto lenders to exit this field of lending.
C) the improvement in computer technology.
D) the relaxation of regulatory restrictions on credit card operations.
Q:
The practice of creating marketable debt instruments that are backed by otherwise illiquid assets is known as ________.
A) standardization
B) homogenization
C) securitization
D) adverse selection
Q:
Divestitures are always taxable to the selling firm? True or False
Q:
In 1977, ________ pioneered the concept of selling new public issues of junk bonds for companies that had not yet achieved investment-grade status.
A) Michael Milken
B) Roger Milliken
C) Ivan Boesky
D) Carl Ichan
Q:
Parent firms often exit businesses that consistently fail to meet or exceed the parents hurdle rate requirements. True or False
Q:
High-yield bonds rated below investment grade by the bond-rating agencies are frequently referred to as ________.
A) municipal bonds
B) Yankee bonds
C) "fallen angels"
D) junk bonds
Q:
Restructuring actions may provide tax benefits that cannot be realized without undertaking a restructuring of the business. True or False
Q:
A spin-off is tax free to the shareholders if it is properly structured. In contrast, the cash proceeds from an outright sale may be taxable to the parent to the extent a gain is realized. True or False
Q:
So-called fallen angels differ from junk bonds in that
A) junk bonds refer to newly issued bonds with low credit ratings, whereas fallen angels refer to previously issued bonds which have had their credit ratings fall below Baa.
B) junk bonds refer to previously issued bonds which have had their credit ratings fall below Baa, whereas fallen angels refer to newly issued bonds with low credit ratings.
C) junk bonds have ratings below Baa, whereas fallen angels have ratings below C.
D) fallen angels have ratings below Baa, whereas junk bonds have ratings below C.
Q:
The reasons for selecting a divestiture, carve-out, or spin-off strategy are basically the same. True or False
Q:
So-called fallen angels differ from junk bonds in that
A) junk bonds refer to previously issued bonds which have had their credit ratings fall below Baa.
B) fallen angels refer to newly issued bonds with low credit ratings.
C) junk bonds refer to newly issued bonds with low credit ratings.
D) they are both A and B of the above.
Q:
Equity ownership changes in spin-offs, but it does not change in split-ups. True or False
Q:
"Stripping" a Treasury bond
A) means selling each of its future payments as a separate zero-coupon bond.
B) decreases the total present discounted value of future payments.
C) both A and B.
D) none of the above.
Q:
A disadvantage of a split-off is that they tend to increase the pressure on the spun-off firms share price, because shareholders who exchange their stock are more likely to sell the new stock. True or False
Q:
Which of the following is an example of a financial innovation introduced to avoid regulations?
A) securitization
B) junk bond
C) debit card
D) sweep account
Q:
Which of the following is not a financial innovation stimulated by information technology?
A) credit card
B) debit card
C) adjustable-rate mortgage
D) electronic banking
Q:
Unlike a spin-off or carve-out, the parent retains complete ownership of the business for which it has created a tracking stock. True or False
Q:
For financial reporting purposes, a distribution of tracking stock splits the parent firms equity structure into separate classes of stock without a legal split-up of the firm. True or False
Q:
A smart card is a form of
A) stored-value card.
B) credit card.
C) debit card.
D) e-cash card.
Q:
The entry of Sears, AT&T, and GM into the credit card business is an indication of
A) government's efforts to deregulate the provision of financial services.
B) the rising profitability of credit card operations.
C) the reduction in costs of credit card operations since 1990.
D) the sale of unprofitable operations by Bank of America and Citicorp.
Q:
In addition, stock-based incentive programs to attract and retain key managers can be implemented for each operation with its own tracking stock. True or False
Q:
A firm issuing credit cards earns income from
A) loans it makes to credit card holders.
B) payments made to it by stores on credit card purchases.
C) payments made to it by manufacturers of the products sold in stores on credit card purchases.
D) all of the above.
E) only A and B of the above.
Q:
Although the parent retains control, the shareholder base of the subsidiary that has undergone an equity carve-out is unlikely to be different than that of the parent as a result of the public sale of equity. True or False
Q:
In an equity carve-out, minority shareholders are eliminated. True or False
Q:
Credit cards date back to
A) prior to World War II.
B) just after World War II.
C) the early 1950s.
D) the late 1950s.
Q:
For financial reporting purposes, the parent firm should account for the spin-off of a subsidiarys stock to its shareholders at book value with no gain or loss recognized, other than any reduction in value due to impairment. True or False
Q:
Examples of financial services that became practical realities as the result of new computer technology include
A) credit cards.
B) electronic banking facilities.
C) checking accounts.
D) all of the above.
E) only A and B of the above.
Q:
Split-ups and spin-offs generally are taxable to shareholders. True or False
Q:
The most important source of the changes in supply conditions that stimulate financial innovation has been the
A) aging of the baby-boomer generation.
B) dramatic increase in the volatility of interest rates.
C) improvement in information technology.
D) dramatic increase in competition from foreign banks.
E) deregulation of financial institutions.
Q:
Parent firms with a high tax basis in a business may choose to spin-off the unit as a tax-free distribution to shareholders rather than sell the business and incur a substantial tax liability. True or False
Q:
Adjustable-rate mortgages
A) benefit homeowners when interest rates are falling.
B) reduce financial institutions' interest-rate risk.
C) reduce households' risk of having to pay higher mortgage payments when interest rates rise.
D) do only A and B of the above.
Q:
Adjustable-rate mortgages
A) protect households against higher mortgage payments when interest rates rise.
B) keep financial institutions' earnings high even when interest rates are falling.
C) have many attractive attributes, explaining why so few households now seek fixed-rate mortgages.
D) do only A and B of the above.
E) do none of the above.
Q:
A split-up involves carving out a portion of the equity of each of the parents operating subsidiaries and selling the shares to the public. True or False
Q:
The most significant change in the economic environment that changed the demand for financial products since 1970 has been
A) the aging of the baby-boomer generation.
B) the dramatic increase in the volatility of interest rates.
C) the dramatic increase in competition from foreign banks.
D) the deregulation of financial institutions.
Q:
Like divestitures or equity carve-outs, the spin-off generally results in an infusion of cash to the parent company. True or False
Q:
In a spin-off, some shareholders receive proportionately more shares than others. True or False
Q:
In the 1950s, the interest rate on three-month Treasury bills fluctuated between 1.0% and 3.5%. In the 1980s, the three-month Treasury bill rate ranged from 5% to over 15%. From this, one could predict that in the 1980s interest-rate risk was ________ and the demand for financial innovation was ________.
A) greater; lower
B) greater; greater
C) lower; lower
D) lower; greater
Q:
Large fluctuations in interest rates lead to
A) substantial capital gains and losses to owners of securities.
B) greater uncertainty about returns on investments.
C) greater interest-rate risk.
D) all of the above.
Q:
The divesting firm is required to recognize a gain or loss for financial reporting purposes equal to the difference between the fair value of the consideration received for the divested operation and its market value. True or False
Q:
In either a public or private solicitation, interested parties are asked to sign confidentiality agreements after they are given access to proprietary information but before they are asked to make a bid. True or False
Q:
Rising interest-rate risk ________ the ________ financial innovation.
A) increased; cost of
B) increased; demand for
C) reduced; cost of
D) reduced; demand for
Q:
In a public solicitation, a firm can announce publicly that it is putting itself, a subsidiary, or a product line up for sale. Either potential buyers contact the seller or the seller actively solicits bids from potential buyers or both. True or False
Q:
New computer technology has
A) increased the cost of financial innovation.
B) increased the demand for financial innovation.
C) reduced the cost of financial innovation.
D) reduced the demand for financial innovation.
Q:
Although the sale value may exceed the equity value of the business, the parent may choose to retain the business for strategic reasons. True or False
Q:
Which of the following are important factors in determining the degree and timing of financial innovation?
A) changes in technology
B) changes in financial market conditions
C) changes in regulation
D) all of the above
E) only A and B of the above
Q:
The decision to sell or to retain the business depends on a comparison of the pre-tax value of the business to the parent with the after-tax proceeds from the sale of the business. True or False
Q:
Which of the following statements concerning bank regulation in the United States are true?
A) The Office of the Comptroller of the Currency has the primary responsibility for state banks that are members of the Federal Reserve System.
B) The Federal Reserve and the state banking authorities jointly have responsibility for state banks that are members of the Federal Reserve System.
C) The Office of the Comptroller of the Currency has sole regulatory responsibility over bank holding companies.
D) All of the above are true.
E) Only A and B of the above are true.
Q:
Which of the following statements concerning bank regulation in the United States is true?
A) The Office of the Comptroller of the Currency has the primary responsibility for national banks.
B) The Federal Reserve and the state banking authorities jointly have responsibility for state banks that are members of the Federal Reserve System.
C) The Fed has sole regulatory responsibility over bank holding companies.
D) All of the above are true.
E) Only A and B of the above are true.
Q:
Divestitures always result in the parent receiving stock or debt from the buyer. True or False
Q:
Which regulatory body charters national banks?
A) the Federal Reserve
B) the Federal Deposit Insurance Corporation
C) the Comptroller of the Currency
D) none of the above
Q:
Acquiring companies often find themselves with certain assets and operations of the acquired company that do not fit their primary strategy. Such assets may be divested to fund future investments. True of False
Q:
State banks that are not members of the Federal Reserve System are most likely to be examined by the
A) Federal Reserve System.
B) Federal Deposit Insurance Corporation.
C) Federal Home Loan Bank System.
D) Comptroller of the Currency.
Q:
Empirical studies show that exit strategies, which return cash to shareholders, tend to have a highly unfavorable impact on shareholder wealth creation. True or False
Q:
Which bank regulatory agency has the sole regulatory authority over bank holding companies?
A) the Federal Deposit Insurance Corporation
B) the Comptroller of the Currency
C) the Federal Bank Holding Company Agency
D) the Federal Reserve System
Q:
A substantial body of evidence indicates that increasing a firms degree of diversification can improve substantially financial returns to shareholders. True or False
Q:
A business that is rich in high-growth opportunities may be an excellent candidate for divestiture to a strategic buyer with significant cash resources and limited growth opportunities. True or False
Q:
The Glass-Steagall Act prohibited commercial banks from
A) issuing equity to finance bank expansion.
B) engaging in underwriting of and dealing in corporate securities.
C) selling new issues of government securities.
D) purchasing any debt securities.
Q:
Managing highly diverse and complex portfolios of businesses is both time consuming and distracting. This is particularly true when the businesses are in largely related industries. True or False
Q:
Investment banking activities of the commercial banks were blamed for many bank failures. This led to
A) the passage of the National Bank Charter Amendments Act of 1918.
B) the passage of the Garn-St. Germain Act of 1982.
C) the passage of the National Bank Act of 1863.
D) the passage of the Glass-Steagall Act of 1933.
E) the establishment of the Federal Deposit Insurance Corporation in 1933.
Q:
Divestitures, spin-offs, equity carve-outs, split-ups, split-offs, and bust-ups are commonly used strategies to exit businesses and to redeploy corporate assets by returning cash or noncash assets through a special dividend to shareholders. True or False
Q:
With the creation of the Federal Deposit Insurance Corporation,
A) member banks of the Federal Reserve System were given the option to purchase FDIC insurance for their depositors, while nonmember commercial banks were required to buy deposit insurance.
B) member banks of the Federal Reserve System were required to purchase FDIC insurance for their depositors, while nonmember commercial banks could choose to buy deposit insurance.
C) both member and nonmember banks of the Federal Reserve System were required to purchase FDIC insurance for their depositors.
D) both member and nonmember banks of the Federal Reserve System could choose, but were not required, to purchase FDIC insurance for their depositors.
Q:
With the creation of the Federal Deposit Insurance Corporation, member banks of the Federal Reserve System ________ to purchase FDIC insurance for their depositors, while nonmember commercial banks ________ to buy deposit insurance.
A) could choose; were required
B) could choose; were given the option
C) were required, could choose
D) were required; were required
Q:
Many corporations, particularly large, highly diversified organizations, constantly are reviewing ways in which they can enhance shareholder value by changing the composition of their assets, liabilities, equity, and operations. True or False
Q:
The Federal Reserve Act required all ________ banks to become members of the Federal Reserve System, while ________ banks could choose to become members of the system.
A) state; national
B) state; municipal
C) national; state
D) national; municipal