Q&A Hero

Q: In general, business alliances are not intended to become permanent arrangements. All of the following are common reasons for terminating such arrangements except for a. Diverging objectives of the partners b. Successful operations resulting in merger of the partners c. Completion of the project d. Unexpectedly favorable financial performance e. Antitrust considerations

Q: During the boom years of the 1920s, bank failures were quite A) uncommon, averaging less than 30 per year. B) uncommon, averaging less than 100 per year. C) common, averaging about 600 per year. D) common, averaging about 2,000 per year.

Q: Antitrust regulatory authorities tend to look most favorably on which type of alliances? a. Equity partnerships b. Marketing alliances among competitors c. Global alliances d. Project oriented ventures involving collaborative research e. None of the above

Q: Methods of dividing ownership and control in business alliances may take which of the following forms. a. Majority-minority framework b. Equal division of power framework c. Majority rules framework d. Multiple party framework e. All of the above

Q: How can we change the way the credit-rating system works to avoid the problems encountered with ratings prior to the 2007-2009 financial crisis?

Q: Describe 2 of the 5 different categories of regulation found in the Dodd-Frank legislation of 2010.

Q: JV and alliance agreements often limit how and to whom parties to the agreement can transfer their interests. These limitations include which of the following mechanisms? a. Tag-along provisions b. Drag-along provisions c. Put provisions d. A, B, and C e. A and B only

Q: Why is international financial regulation becoming more important in recent years?

Q: Business alliances typically use which of the following ways to finance ongoing capital requirements? a. Request participants to make a capital contribution b. Issuing additional equity or partnership interests c. Borrowing without partner guarantees d. A and B only e. A, B, and C

Q: Discuss the role of NINJA loans in the 2007-2009 financial crisis.

Q: Which of the following is not a typical question that must be addressed in defining how ownership interests will be transferred? a. What are the restrictions on transfer b. How will new alliance participants be treated c. Will there be a right of first refusal d. How is the alliance to be managed e. Will there by drag along, tag along, or put provisions

Q: Discuss the role of mark-to-market accounting during the 2007-2009 financial crisis. Did it help or hurt credit markets and bank lending?

Q: Which of the following is not a typical question that must be addressed in defining scope? a. Which products are included b. Which products are excluded c. How are profits are losses to be allocated d. Who receives rights to distribute, manufacture, acquire, or license or purchase future products developed by the alliance e. Which partner will sell which products in which markets

Q: Discuss some of the problems of Basel 2 that the 2007-2009 financial crisis revealed.

Q: Which one of the following is not a characteristic of a corporate legal structure? a. Unlimited liability b. Double taxation c. Continuity of ownership d. Managerial autonomy e. Ease of raising money

Q: Why does the safety net created by deposit insurance increase the adverse selection and moral hazard problems in banking? How do bank regulations attempt to overcome these problems?

Q: Which of the following is not a motivation for establishing an alliance? a. Risk sharing b. Gaining access to new markets c. Gaining access to a new technology d. Achieving maximum control e. Entering into a foreign market

Q: Explain how a capital crunch can lead to a credit crunch in our economy.

Q: Which of the following is not a typical characteristic of a licensing arrangement? a. Obtaining the rights to use a particular type of technology. b. Obtaining a controlling interest in another firm c. Obtaining patent rights d. Paying royalties in direct proportion to revenues generated by the agreement e. Utilizing another firms trademark to market your product

Q: Which of the following are examples of business alliances? a. Mergers b. Acquisitions c. Joint ventures d. Equity partnerships e. C and D

Q: How did liability management change during the 1960s?

Q: An alliance whose purpose is to commercialize products developed by the partners generally should be broadly defined in specifying what products or services are to be offered, to whom, in what geographic areas, and for what time period. True or False

Q: What costs do banks hope to avoid by holding excess reserves?

Q: Distinguish between a bank's reserves, required reserves, excess reserves, and secondary reserves.

Q: The formation of a successful alliance requires that a series of issues be resolved before signing an alliance agreement. True or False

Q: What are a bank's major sources and uses of funds?

Q: Equity partnerships commonly are used in purchasersupplier relationships, technology development, marketing alliances, and in situations in which a larger firm makes an investment in a smaller firm to ensure its continued financial viability. This is important because it ensures one partner has dominant control over the partnership. True or False

Q: Discuss the recent trends in bank performance measures.

Q: The life of the LLC is determined by the owners and is generally set for a fixed number of years in contrast to the typical unlimited life for a corporation. True or False

Q: Explain the off-balance-sheet activities banks engage in, the risks they face from undertaking these activities, and the controls they put in place to restrict bank employees from taking on too much risk.

Q: Unlike limited partnerships, LLC organization agreements do not require that they be dissolved in case of the death or retirement or resignation of any member. True or False

Q: What is the major focus of each of the following bank management concerns: asset management, liability management, liquidity management, and capital adequacy management?

Q: Unlike a limited partnership, the LLC is taxed on all profits before they are paid out to its members. True or False

Q: Owners cannot write checks on nontransaction deposits, but the interest rate paid on these deposits are usually higher than those on checkable deposits.

Q: Because the limited liability company offers its owners the significant advantage of greater flexibility in allocating profits and losses and because the LLC is not subject to the many restrictions of the S-Corporation, the popularity of the S-corporation has increased. True or False

Q: Nontransaction deposits are the primary source of bank funds.

Q: Under a C corporate structure, ownership can be easily transferred, which facilitates raising money. True or False

Q: A loan commitment is an agreement to provide a loan up to a certain dollar amount if a customer requests the loan during a specific time period.

Q: Unlike other legal forms, the C corporate structure has an indefinite life as it does not have to be dissolved as a result of the death of the owners or if one of the owners wishes to liquidate their ownership position. True or False

Q: Since a bank's assets exceed its equity capital, the return on assets always exceeds the return on equity.

Q: Efforts to insist on a detailed written agreement or contractual relationship may be viewed as offensive in some cultures. True or False

Q: The share of bank operating income earned from off-balance-sheet activities has increased over the past two decades.

Q: The choice of legal structure should be made before the parties to the business alliance are comfortable with the ventures objectives, potential synergy, and preliminary financial analysis of projected returns and risk. True or False

Q: The value-at-risk method for estimating a bank's risk exposure measures the losses a bank could incur under a worst-case scenario.

Q: Top management of the parents of a business alliance should not involve themselves aggressively and publicly, as this may tend to stifle alliance managements risk taking and creativity. True or False

Q: The length of time an alliance agreement remains in force depends on the partners objectives, the availability of resources needed to achieve these objectives, and the accuracy of the assumptions on which the alliances business plans are based. True or False

Q: Off-balance-sheet activities consist of trading financial instruments and generating income from fees and loan sales, all of which affect bank profits but are not visible on bank balance sheets.

Q: Successful alliances generally do not hold managers directly accountable for their actions, since that would tend to stifle risk taking. True or False

Q: Loan loss reserves are an asset on a bank's balance sheet.

Q: Successful alliances are often those in which the partners contribute money, which is generally more important than a specific skill or resource. True or False

Q: Given a bank's return on assets, the higher the bank capital, the higher the return for the owners of the bank.

Q: Successful alliances are usually characterized by partners who have attributes that either complement existing strengths or significant weaknesses. True or False

Q: A bank maintains bank capital to lessen the chance that it will become insolvent.

Q: Project-oriented JVs often are viewed unfavorably by regulators. True or False

Q: Required reserves are insurance against the costs associated with deposit outflows. The higher the costs associated with deposit outflows, the more required reserves banks will want to hold.

Q: The automotive industry rarely uses alliances to provide additional production capacity, distribution outlets, technology development, and parts supply. True or False

Q: To keep enough cash on hand to meet depositors' demand for withdrawals, banks must engage in liquidity management.

Q: The written contract is the simplest legal structure and most often is used in strategic alliances. True or False

Q: When a bank receives additional deposits, it gains an equal amount of reserves; when it loses deposits, it loses an equal amount of reserves.

Q: Business alliances may assume a variety of legal structures. True or False

Q: Deposits that banks keep in accounts at the Federal Reserve less vault cash is called reserves.

Q: Business alliances may represent attractive alternatives to merges and acquisitions. True or False

Q: Since their introduction in 1961, negotiable CDs have become an important source of bank funds.

Q: Business alliances generally do not exhibit a higher success rate than mergers and acquisitions. True or False

Q: In recent years, the interest paid on checkable and time deposits has accounted for around ________ of total bank operating expenses, while the costs involved in running the bank have been approximately ________ of total operating expenses. A) 50%; 50% B) 50%; 25% C) 30%; 50% D) 25%; 75%

Q: Control of business alliances is most often accomplished through a steering committee. True or False

Q: In the late 1960s, A) money market banks no longer needed to depend on checkable deposits as the primary source of bank funds. B) banks aggressively set target goals for their asset growth. C) the new management of liabilities created more flexibility. D) all of the above.

Q: Joint venture and alliance agreements often limit how and to whom parties to the agreements can transfer their interests. True or False

Q: With large banks beginning to explore ways in which the liabilities on their balance sheets could provide them with reserves and liquidity, this led to A) the expansion of overnight loan markets. B) the development of negotiable CDs. C) the ability of money center banks to acquire funds quickly. D) all of the above occurring.

Q: In general, business alliances are not intended to become permanent arrangements. True or False

Q: Before the 1960s, A) over half of the sources of bank funds were obtained through checkable deposits that by law could not pay any interest. B) banks mostly borrowed from other banks to meet their reserve needs. C) both A and B occurred. D) neither A nor B occurred.

Q: With respect to joint ventures, so-called distribution issues relate to dividend policies and how profits and losses are allocated among the owners. True or False

Q: Bank capital A) is raised by selling new equity. B) is a cushion against a drop in the value of its assets. C) comes from retained earnings. D) is all of the above.

Q: Joint ventures sometimes represent good alternatives to an outright merger. True or False

Q: Discount loans are also known as ________. A) interest-free loans B) advances C) credits D) market loans

Q: Business alliances often receive favorable antitrust regulatory treatment. True or False

Q: ________ were once the most common type of nontransaction deposit. A) Checking accounts B) Time deposits C) Savings accounts D) none of the above

Q: Business alliances usually exist for decades. True or False

Q: A bank A) obtains funds by borrowing and by issuing liabilities. B) makes profits by charging an interest rate on their asset holdings of securities and loans that is lower than the interest and other expenses on their liabilities. C) does both A and B of the above. D) does neither A nor B of the above.

Q: The desire to share risk is a common motive for a business alliance. True or False.