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:
Management may sell assets to fund diversification opportunities? True or False
Q:
The Federal Reserve Act of 1913 required that
A) state banks be subject to the same regulations as national banks.
B) national banks establish branches in the cities containing Federal Reserve banks.
C) national banks join the Federal Reserve System.
D) all of the above be done.
Q:
The divestiture of a business always results in the parent receiving cash from the buyer? True or False
Q:
Today the United States has a dual banking system in which banks supervised by the ________ and by the ________ operate side by side.
A) federal government; municipalities
B) state governments; municipalities
C) federal government; states
D) municipalities; states
Q:
A parent firm rarely chooses to divest an undervalued business and return the cash to shareholders either through a liquidating dividend or share repurchase. True or False
Q:
The regulatory system that has evolved in the United States whereby banks are regulated at the state level, the national level, or both, is known as a
A) bilateral regulatory system.
B) tiered regulatory system.
C) two-tiered regulatory system.
D) dual banking system.
Q:
A parent firms decision to sell or to retain a subsidiary is often made by comparing the after-tax equity value of the subsidiary with the pre-tax and interest sale value of the business. True or False
Q:
The National Banking Act of 1863, and subsequent amendments to it,
A) created a banking system of federally chartered banks.
B) established the Office of the Comptroller of the Currency.
C) broadened the regulatory powers of the Federal Reserve.
D) did all of the above.
E) did only A and B of the above.
Q:
In a private solicitation, the parent firm may hire an investment banker or undertake on its own to identify potential buyers to be contacted. True or False
Q:
The divesting firm is required to recognize a gain or loss for financial reporting purposes equal to the difference between the book value of the consideration received for the divested operation and its fair value. True or False
Q:
To eliminate the abuses of the state-chartered banks, the ________ created a new banking system of federally chartered banks, supervised by the ________.
A) National Banking Act of 1863; Office of the Comptroller of the Currency
B) Federal Reserve Act of 1863; Office of the Comptroller of the Currency
C) National Banking Act of 1863; Office of Thrift Supervision
D) Federal Reserve Act of 1863; Office of Thrift Supervision
Q:
The belief that bank failures were regularly caused by fraud or the lack of sufficient bank capital explains, in part, the passage of
A) the National Bank Charter Amendments of 1918.
B) the Glass-St. Germain Act of 1982.
C) the National Bank Act of 1863.
D) none of the above.
Q:
Equity carve-outs are similar to divestitures and spin-offs in that they provide a cash infusion to the parent. True or False
Q:
Although federal banking legislation in the 1860s attempted to eliminate state-chartered banks by imposing a prohibitive tax on banknotes, these banks have been able to stay in business by
A) issuing credit cards.
B) ignoring the regulations.
C) issuing deposits.
D) branching into other states.
Q:
When a firm is unable to pay its liabilities as they come due, it is said to be in bankruptcy. True or False
Q:
Before 1863,
A) the Federal Reserve System regulated only federally chartered banks.
B) the Comptroller of the Currency regulated both state and federally chartered banks.
C) the number of federally chartered banks grew at a much faster rate than at any other time since the end of the Civil War.
D) none of the above occurred.
Q:
In general, a voluntary bust-up or liquidation has the advantage over mergers of deferring the recognition of a gain by the stockholders of the selling company until they eventually sell the stock. True or False
Q:
Before 1863,
A) federally chartered banks had regulatory advantages not granted to state-chartered banks.
B) the number of federally chartered banks grew at a much faster rate than at any other time since the end of the Civil War.
C) banks acquired funds by issuing banknotes.
D) the Federal Reserve System regulated only federally chartered banks.
E) the Comptroller of the Currency regulated both state and federally chartered banks.
Q:
Voluntary bust-ups or liquidations by the parent firm reflect managements judgment that the sale of individual parts of the firm could realize greater value than the value created by a continuation of the combined corporation. True or False
Q:
The Second Bank of the United States was denied a new charter by
A) President Andrew Jackson.
B) Vice President John Calhoun.
C) President Benjamin Harrison.
D) President John Q. Adams.
Q:
Tracking stocks may create internal operating conflicts among the parents business units in terms of how the consolidated firms cash is allocated among its business units. True or False
Q:
Tracking stocks are often created to give investors a pure play investment opportunity in one of the parents subsidiaries. True or False
Q:
Because of the abuses by state banks and the clear need for a central bank to help the federal government raise funds during the War of 1812, Congress created the
A) First Bank of the United States in 1812.
B) Bank of North America in 1814.
C) Second Bank of the United States in 1816.
D) Federal Reserve System in 1813.
Q:
When a parent creates a tracking stock for a subsidiary, it is giving up all control of that subsidiary. True or False
Q:
The government institution that has responsibility for the amount of money and credit supplied in the economy as a whole is the
A) central bank.
B) commercial bank.
C) bank of settlement.
D) Treasury Department.
Q:
In an equity carve-out, the cash raised by the subsidiary in this manner may be transferred to the parent as a dividend or as an inter-company loan. True or False
Q:
A major controversy involving the U.S. banking industry in its early years was
A) whether banks should both accept deposits and make loans or whether these functions should be separated into different institutions.
B) whether the federal government or the states should charter banks.
C) what percent of deposits banks should hold as fractional reserves.
D) whether banks should be allowed to issue their own bank notes.
Q:
Although the parent often retains control in an equity carve-out, the shareholder base of the subsidiary may be different that that of the parent. True or False
Q:
The modern commercial banking system began in America when the
A) Bank of the United States was chartered in New York in 1801.
B) Bank of North America was chartered in Philadelphia in 1782.
C) Bank of the United States was chartered in Philadelphia in 1801.
D) Bank of North America was chartered in New York in 1782.
Q:
Describe the CAMELS rating system used by bank examiners.
Q:
An equity carve-out is often a prelude to a complete divestiture of a business by the parent. True or False
Q:
How have bank capital requirements changed since the banking crisis of the 1980s? Explain.
Q:
The parent firm generally retains control of the business involved in an equity carve-out. True or False
Q:
How has bank regulation in the United States changed since the late 1980s? What accounts for these changes?
Q:
Equity carve-outs have some of the characteristics of both divestitures and spin-offs. True or False
Q:
Why did the United States experience a banking crisis in the 1980s?
Q:
Both a divestiture and a spin-off generally generate a cash infusion for the parent. True or False
Q:
Spin-offs are generally immediately taxable to shareholders. True or False
Q:
What is the asymmetric information problem and how does it contribute to our understanding of the structure of bank regulation in the United States and other countries?
Q:
A split-up involves the creation of a new class of stock for each of the parents operating subsidiaries, paying current shareholders a dividend of each new class of stock, and then dissolving the remaining corporate shell. True or False
Q:
What do we learn about the causes of banking crises by comparing crises throughout the world to those that have occurred in the United States?
Q:
In a spin-off, the board of directors is the same as the board of directors of the parent firm. True or False
Q:
Prior to the 2007-2009 financial crisis, inaccurate ratings provided by credit rating agencies helped promote risk taking throughout the financial system.
Q:
In a spin-off, the proportional ownership of shares in the new legal subsidiary is the same as the stockholders proportional ownership of shares in the parent firm. True or False
Q:
The Dodd-Frank legislation of 2010 finally resolved the status of GSEs such as Freddie Mac.
Q:
A spin-off is a transaction in which a parent creates a new legal subsidiary and distributes shares it owns in the subsidiary to its current shareholders as a stock dividend. True or False
Q:
In the years just prior to the 2007-2009 financial crisis, mortgage loans were issued to borrowers with no income or employment.
Q:
A spin-off is a transaction involving a separate legal entity whose shares are sold to the parent firms shareholders. True or False
Q:
When the payoff method is used to resolve a failed bank, both large and small depositors are protected from suffering losses.
Q:
The timing of a divestiture is important. If the business to be sold is highly cyclical, the sale should be timed to coincide with the firms peak year earnings. True or False
Q:
A better capitalized bank has more to lose when it fails and is less likely to take less risk.
Q:
In deciding to sell a business, a parent firm should compare the business after-tax value in sale with its pre-tax value to the parent as part of the parent.
True or False
Q:
The "too-big-to-fail" policy reduces the adverse selection problem in bank regulation.
Q:
Antitrust regulatory agencies may make their approval of a merger contingent on the willingness of the merger partners to divest certain businesses. True or False
Q:
According to some economists, Congress made a mistake when it passed the FDICIA of not requiring the FDIC to assess risk-based insurance premiums.
Q:
Empirical studies show that the desire by parent firms to increase strategic focus is an important motive for exiting businesses. True or False
Q:
Probably the most important feature of FDICIA is its prompt corrective action provisions which require the FDIC to intervene earlier and more vigorously when a bank gets into trouble.
Q:
Divestitures, spin-offs, equity carve-outs, split-ups, and bust-ups are commonly used strategies to exit businesses. True or False
Q:
"Truth in lending" was mandated under the Consumer Protection Act of 1969 and requires all lenders to reveal the annual percentage rate, or APR, on loans.
Q:
Companies wishing to do business abroad often enter into an alliance with an indigenous company to facilitate entry into a foreign market. The foreign company is usually the majority owner in such relationships. True or False
Q:
Once a bank has been chartered, it is required to file periodic call reports that reveal the bank's assets and liabilities, income, ownership, and other details.
Q:
Purchaser-supplier relationships are also called logistics alliances. True or False
Q:
To be classified as a well-capitalized bank, a bank's leverage ratio must exceed 8 percent.
Q:
A cross-marketing relationship is one in which one party to the agreement agrees to sell to its customers the products or services of another firm. True or False
Q:
The failure of one bank can hasten the failure of others in what is referred to as a contagion effect.
Q:
Because asymmetric information problems in the banking industry are a fact of life throughout the world, bank regulation in other countries is similar to that in the United States.
Q:
Major motivations for business alliances include risk sharing as well as gaining access to new markets and skills. True or False
Q:
Obtaining additional investment funds from others is the primary motivation for creating various types of alliances. True or False
Q:
To understand banking regulation in the United States, it is helpful to understand the concepts of asymmetric information, adverse selection, and moral hazard.
Q:
Strategic alliances generally create separate legal entities in order to achieve their business objectives. True or False
Q:
What role did the credit-rating agencies play leading up to the start of the financial crisis in 2007?
A) Inaccurate ratings provided by credit-rating agencies helped promote risk taking throughout the financial system.
B) The credit-rating agencies were the first to see signs of trouble, and they developed more stringent standards as the housing bubble evolved.
C) Solid ratings provided by credit-rating agencies helped limit risk taking throughout the financial system.
D) The credit-rating agencies were largely uninvolved with the financial crisis.
Q:
A joint venture is rarely an independent legal entity such as a corporation or partnership.
True or False
Q:
An SIV, or structured investment vehicle, is an off-balance-sheet entity that shields a sponsoring institution from risk. What happened to some of these SIVs when they ran into financial problems?
A) The SIV sued the sponsoring institution to pay, in full, all liabilities of the SIV.
B) The SIV still remained off-balance-sheet, but investors did sue sponsoring institutions.
C) Nothing! The SIV status as off-balance-sheet remained, a nice example of a financial structure that worked during the financial crisis.
D) Troubled SIVs became an asset of the sponsoring institution -- the off-balance-sheet status was meaningless.
Q:
Business alliances may represent attractive alternatives to mergers and acquisitions. True or False
Q:
In an effort to control the use of derivatives by financial institutions, the Dodd-Frank legislation of 2010 requires ________.
A) standardized derivatives products
B) over-the-counter trading (instead of exchange trading) of derivatives products
C) an increase in counterparty risk
D) all of the above
Q:
How could Verizon Communications have protected itself from the leverage Vodafones put option provides? Explain your answer.
Q:
Which of the following categories is not part of the Dodd-Frank legislation of 2010?
A) capital requirements
B) consumer protection
C) "Volcker Rule"
D) derivatives
Q:
Give examples of how the partners objectives differ.
Q:
Just prior to the 2007 financial crisis, mortgage loans known as NINJA loans were issued to borrowers. What is a NINJA loan?
A) A loan issued by a Japanese bank, thus avoiding U.S. regulation.
B) A loan document originated by a mortgage banker named Bruce Lee.
C) A loan issued to borrowers with no income, employment, nor assets to speak of.
D) A loan issued with a "martial arts" clause.
Q:
To what extent are the problems plaguing the venture today a reflection of failure to? communicate during the negotiations to form the joint venture? What should they have done differently?