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Banking
Q:
Financial crises
A) are major disruptions in financial markets that are characterized by sharp declines in asset prices and the failures of many financial and nonfinancial firms.
B) occur when adverse selection and moral hazard problems in financial markets become more significant.
C) frequently lead to sharp contractions in economic activity.
D) are all of the above.
E) are only A and B of the above.
Q:
Of the sources of external funds for nonfinancial businesses in the United States, stocks account for approximately ________ of the total.
A) 10%
B) 20%
C) 30%
D) 40%
Q:
What are the major challenges the management of the combined companies are likely to face? How would you recommend resolving these issues?
Q:
Of the sources of external funds for nonfinancial businesses in the United States, bonds account for approximately ________ of the total.
A) 10%
B) 20%
C) 30%
D) 50%
Q:
Explain the logic behind combining the two companies. Be specific.
Q:
Of the following sources of external finance for American nonfinancial businesses, the most important is
A) loans from banks.
B) stocks.
C) bonds and commercial paper.
D) nonbank loans.
Q:
When corporate cultures are substantially different, it may be appropriate to
a. Integrate the businesses as rapidly as possible
b. Leave the businesses separate indefinitely
c. Initially leave the businesses separate but integrate at a later time
d. A or B
e. B or C
Q:
Of the following sources of external finance for American nonfinancial businesses, the least important is
A) loans from banks.
B) stocks.
C) bonds and commercial paper.
D) nonbank loans.
Q:
Key management integration team responsibilities include all of the following except for
a. Building a master schedule of activities that need to be accomplished
b. Establishing work teams
c. Tracking the daily operation of the firms
d. Monitoring and expediting key decisions
e. Establishing a rigorous communications program
Q:
What issues do critics cite when discussing why Sarbanes-Oxley has led to a decline in U.S. capital markets?
Q:
Which of the following is not true about the recommendation that integration should occur rapidly?
a. All significant operations of the two firms must be integrated immediately.
b. Rapid integration helps to minimize customer attritition.
c. Rapid integration reduces unwanted employee turnover.
d. Rapid integration reduces employee anxiety.
e. None of the above
Q:
Evaluate the major provisions of Sarbanes-Oxley and the Global Legal Settlement as remedies for conflict of interest problems.
Q:
Which of the following factors affect customer attrition that normally accompanies post-merger integration?
a. Customer uncertainty about on-time delivery
b. More aggressive pricing from competitors
c. Deteriorating customer services
d. Deteriorating product quality
e. All of the above
Q:
What conflicts of interest can arise in credit-rating agencies?
Q:
Poorly executed integration often results in high employee turnover. The costs of such turnover include which of the following?
a. Declining morale among those that remain
b. Retraining costs
c. Declining productivity
d. Deteriorating customer service
e. All of the above
Q:
What conflicts of interest can arise in accounting firms?
Q:
Which of the following represent important decisions that must be made early in the integration process?
a. Identifying the appropriate organizational structure
b. Defining key reporting relationships
c. Selecting the right managers
d. Identifying and communicating key roles and responsibilities
e. All of the above
Q:
What conflicts of interest can arise in investment banking?
Q:
Successfully integrated M&As are those that demonstrate leadership by candidly and continuously communicating which of the following?
a. A clear vision
b. A set of values
c. Unambiguous priorities for each employee
d. A & B only
e. A, B, & C
Q:
Why should we be concerned about conflicts of interest in the financial services industry?
Q:
Delay in integrating the acquired business contributes to which of the following?
a. Employee anxiety
b. Customer attrition
c. Employee anxiety
d. Deteriorating employee productivity
e. All of the above
Q:
The U.S. has more lawyers per capita than any other country in the world. It is also among the richest countries in the world. Explain why these two facts may not be mere coincidence.
Q:
Which of the following activities are likely to extend beyond what is normally considered the conclusion of the post-closing integration period?
a. Developing communication plans
b. Cultural integration
c. Integration planning
d. Developing staffing plans
e. None of the above
Q:
What is the free-rider problem? Describe some situations that this problem creates.
Q:
The post-closing integration process consists of all of the following activities except for
a. Integration planning
b. Developing communication plans
c. Creating a new organization
d. Developing staffing plans
e. Identifying the acquisition vehicle
Q:
What is the principal-agent problem?
Q:
The acquirers sales force sells very complex software solutions to its customers. The target firm manufactures commodity hardware products. Customers of the two firms sometimes buy both products. The benefits of integrating the sales force of both the acquirer and target firms includes all of the following except for
a. Generates significant cost savings by eliminating duplicate sales representatives
b. Eliminates related sales support expenses
c. Minimizes potential customer confusion by enabling customers to deal with a single sales representative
d. Facilitates communication of a consistent brand image
e. Makes product cross-selling more effective
Q:
What factors usually cause an increase in moral hazard and adverse selection?
Q:
Post-closing integration may be viewed in terms of a process consisting of the following activities
a. Integration planning
b. Developing communication plans
c. Creating a new organization
d. Developing staffing plans
e. All of the above
Q:
What facts about financial structure can be explained by moral hazard?
Q:
Successfully integrated mergers and acquisitions are frequently those which
a. Communicate candidly and continuously
b. Appoint an integration manager and team with clearly defined goals and responsibilities
c. Establish well defined lines of authority
d. Focus on issues that have the greatest near-term impact
e. All of the above
Q:
Which of the following is not true about integrating business alliances?
a. Teamwork is the underpinning that makes alliances work.
b. Control is best exerted through coordination
c. Decisions are made at the top of the organization
d. Decisions are based on the premise that all participants to the alliance have had an opportunity to express their opinions.
e. The failure of one party to meet commitments will erode trust
Q:
What facts about financial structure can be explained by adverse selection?
Q:
Distinguish between adverse selection and moral hazard.
Q:
Which of the following represent commonly used techniques for integrating corporate cultures?
a. Employees are encouraged to share the same overall goals
b. Best practices in one department are employed in other departments
c. Multiple businesses share the same service such as the legal department
d. Employees are co-located
e. All of the above
Q:
Explain how the "lemons" problem could cause financial markets to fail.
Q:
All of the following are true about the challenges of integrating firms with different corporate cultures except for
a. Cultural issues can run the gamut from dress codes to compensation
b. The acquired firms overarching culture is generally rapidly accepted by the target firms employees
c. Small companies are usually highly unstructured and informal
d. There are often differences in culture even between firms in the same industry
e. Integration may be inappropriate if acquirer and acquired firms cultures are extremely different.
Q:
Developing staffing plans requires which of the following?
a. Identifying personnel requirements
b. Determining the availability of skilled employees to fill these requirements
c. Developing compensation plans
d. A and B only
e. A, B, and C
Q:
What are economies of scale in financial transactions? How can financial intermediaries achieve these economies?
Q:
Due to criticisms of rating agencies following the default of many subprime products, the SEC prohibited credit rating agencies from structuring the same products that they rate.
Q:
All of the following are generally true about creating new organizations except for
a. Learn from prior organizational strengths and weaknesses
b. Business needs should drive structure and not the reverse
c. Centralized organizations facilitate the pace of the integration
d. The structure employed during the integration must be the one used in the long-run
e. Senior managers should be given responsibility for selecting their own subordinates
Q:
The Sarbanes-Oxley Act of 2002 established a Public Company Accounting Oversight Board (PCAOB), overseen by the SEC, to supervise accounting firms and ensure that audits are independent and controlled for quality.
Q:
All of the following are generally considered stakeholders in the integration process except for
a. Suppliers
b. Employees
c. Competitors
d. Regulators
e. Customers
Q:
The Global Legal Settlement of 2002 arose out of a lawsuit brought by New York Attorney General Eliot Spitzer against the ten largest investment banks.
Q:
Customer attrition following an acquisition is commonly related to uncertainty abouta. On time product deliveryb. Product qualityc. Pricing and payment termsd. A and B onlye. A, B, and C
Q:
Which of the following is not true about the primary responsibilities of the management integration team (MIT)?
a. The MIT should direct the daily operations of the individual work teams set up to implement certain activities.
b. Focus the organization on meeting ongoing business commitments and operational performance targets
c. The creation of an early warning system to determine when performance targets are likely to be missed.
d. Establish a rigorous communication program
e. Establishing a master schedule of what should be done by whom and by what date.
Q:
The Sarbanes-Oxley Act of 2002 and the Global Legal Settlement of 2002 both have the potential to reduce economies of scope.
Q:
Certain post integration issues are best addressed prior to the closing. These include all of the following except for
a. Who will pay for employee severance expenses
b. How will employee payroll be managed during ownership transition
c. What will be done with checks from customers that the seller continues to receive after closing
d. How will the seller be reimbursed for monies owed to suppliers for products sold prior to closing
e. Who will pay for health care and disability claims that often arise just before a business is sold?
Q:
The Sarbanes-Oxley Act of 2002 provides for oversight of accounting firms but makes no provisions for increasing the flow of information to financial markets.
Q:
All of the following are often cited as factors critical to the ultimate success of the integration effort except for
a. Plan carefully, act quickly
b. The use of project management techniques
c. Early communication from the top of the organization
d. Salary and benefit reductions for many employees of the acquired company in order to realize cost savings
e. Making the tough decisions as early as possible
Q:
The Sarbanes-Oxley Act of 2002 was passed in response to scandals in the investment banking industry.
Q:
Rapid integration is usually important for all of the following reasons except for
a. Minimizes employee turnover
b. Improves the morale and productivity of current employees of both the acquiring and acquired firms
c. Builds confidence in current employees in the competence of management
d. Dispenses with the need for pre-integration planning
e. Reduces customer turnover
Q:
Most legal work in the U.S. involves the writing and enforcement of contracts, not ambulance chasing, criminal law, and frivolous lawsuits.
Q:
The extent to which compensation plans are integrated depends on whether the two companies are going to be managed separated or integrated. True or False
Q:
Collateralized debt is also called secured debt.
Q:
Staffing plans should be postponed to relatively late in the integration process. True or False
Q:
The financial system is one of the most heavily regulated sectors of the economy.
Q:
An effective starting point in setting up a structure is to learn from the past and to recognize that the needs of the business drive structure and not the other way around. True or False
Q:
The principal-agent problem is an example of the adverse selection problem that can result from asymmetric information.
Q:
The newly integrated firm must be able to communicate a compelling vision to investors. True or False
Q:
Agency theory focuses on how government agencies regulate financial intermediaries and markets.
Q:
When news about the integration is bad, it is critical never to share it with employees. True or False
Q:
Integration of a new business into an existing one rarely affects current operations of either business. True or False
Q:
Economies of scale means that the percentage return on a financial transaction rises as the size of the transaction rises.
Q:
One way of describing the solution that high net worth provides to the moral hazard problem is to say that it makes debt contracts incentive compatible.
Q:
Integration planning involves addressing human resource, customer, and supplier issues that overlap the change of ownership. True or False
Q:
The concept of adverse selection helps explain why collateral is an important feature of many debt contracts.
Q:
Newly merged firms frequently experience a loss of existing customers as a direct consequence of the merger. True or False
Q:
The problem of adverse selection helps to explain why direct finance is more important than indirect finance as a source of business finance.
Q:
Whenever possible, integration planning should begin before closing. True or False
Q:
The concept of adverse selection helps to explain why indirect finance is more important than direct finance as a source of business finance.
Q:
The speed with which two firms are merged is an important factor determining the long-term success of the merger. True or False
Q:
Because of the adverse selection problem, lenders may refuse loans to individuals with low net worth.
Q:
Enabling the customer to see a consistent image in advertising and promotional campaigns is often the greatest challenge facing the integration of the marketing function. True or False
Q:
Issuing marketable securities is the primary way businesses finance their operations.
Q:
The extent to which the sales forces of the two firms are combined depends on their relative size, the nature of their products and markets, and their geographic location. True or False
Q:
One reason why indirect financing is used is to minimize adverse selection problems.
Q:
Plant consolidation rarely requires the adoption of a common set of systems and standards for all manufacturing activities. True or False
Q:
American businesses use stock to finance about 10 percent of their external financing.
Q:
Benchmarking important functions such as the acquirers and the targets manufacturing and IT operations and processes is a useful starting point for determining how to integrate these activities. True or False