Q&A Hero

Q: Describe how over-the-counter markets work.

Q: Environmental laws in the European Union are generally more restrictive than in the U.S. True or False

Q: Why are financial intermediaries so important to an economy?

Q: Antitakeover laws do not exist at the state level. True or False

Q: Transactions involving firms in different countries are complicated by having to deal with multiple regulatory jurisdictions in specific countries or regions. True or False

Q: Why is it so important for an economy to have fully developed financial markets?

Q: U.S. and European Union antitrust law are virtually identical. True or False

Q: Distinguish between money markets and capital markets.

Q: The requirements to be listed on most major public exchanges far exceed the auditor independence requirements of the Sarbanes-Oxley Act. True or False

Q: Distinguish between primary markets and secondary markets.

Q: The Sherman Act makes illegal all contracts, combinations, and conspiracies that unreasonably restrain trade. True or False

Q: Distinguish between direct financing and indirect financing.

Q: Horizontal mergers are rarely rejected by antitrust regulators. True or False

Q: Corporations that issue new securities to raise capital now conduct more of this business in financial markets in Europe and Asia than in the U.S.

Q: The Herfindahl-Hirschman Index is a measure of industry concentration used by U.S. antitrust regulators in determining whether to accept or reject a proposed merger. True or False

Q: Many common stocks are traded at organized exchanges, although a majority of the largest corporations have their shares traded over the counter.

Q: Many common stocks are traded over the counter, although a majority of the largest corporations have their shares traded at organized stock exchanges.

Q: Efficiencies rarely are considered by antitrust regulators in determining whether to accept or reject a proposed merger. True or False

Q: Antitrust regulators take into account the likelihood that a firm would fail and exit a market if it is not allowed to merger with another firm. True or False

Q: The government agency that insures each depositor at a commercial bank, savings and loan association, or mutual savings bank up to a loss of $100,000 per account ($250,000 for individual retirement accounts) is the Securities and Exchange Commission (SEC).

Q: The primary shortcoming of industry concentration ratios is the frequent inability of antitrust regulators to define accurately what constitutes an industry, the failure to reflect ease of entry or exit, foreign competition, and the distribution of firm size. True or false

Q: American investors pay attention to only the Dow Jones Industrial Average.

Q: Unlike the European Economic Union, a decision by U.S. antitrust regulators to block a transaction may be appealed in the courts. True or False

Q: The capital market is a financial market in which only short-term debt instruments (generally those with an original maturity of less than one year) are traded.

Q: Employee benefit plans seldom create significant liabilities for buyers. True or False

Q: Adverse selection refers to those with high credit risks, being most aggressive in their search for funds.

Q: Equity represents an ownership interest in a firm and entitles the holder to the residual cash flows.

Q: Federal securities and antitrust laws are the only laws affecting corporate takeovers. Other laws usually have little impact. True or False

Q: Under federal law, states have the right to sue to block mergers they believe are anti-competitive, even if the FTC or SEC does not challenge them. True or False

Q: A pension fund is not a contractual savings institution.

Q: A mutual fund is not a depository institution.

Q: State antitrust laws are usually quite similar to federal laws. True or False

Q: Some state anti-takeover laws contain so-called fair price provisions requiring that all target shareholders of a successful tender offer receive the same price as those who actually tendered their shares. True or False

Q: The process of financial intermediation is also known as direct finance.

Q: States are not allowed to pass any laws that impose restrictions on interstate commerce or that conflict in any way with federal laws regulating interstate commerce. True or False

Q: A financial intermediary's risk-sharing activities are also referred to as asset transformation.

Q: There are no state statutes affecting proposed takeovers. True or False

Q: Most people's involvement with the financial system is through financial intermediaries rather than financial markets.

Q: Antitrust regulators rarely consider the impact of a proposed takeover on product and technical innovation. True or False

Q: A bond denominated in euros and issued in a country that uses the euro as its currency is an example of a Eurobond.

Q: U.S. antitrust regulators in determining if a proposed business combination is likely to be anti-competitive consider only domestic competitors or foreign competitors with domestic operations. True or False

Q: The New York Stock Exchange is an example of a primary market.

Q: Alliances and joint ventures are likely to receive more intensive scrutiny by regulators because of their tendency to be more anti-competitive than M&As. True or False

Q: An example of direct financing is if you were to lend money to your neighbor.

Q: Antitrust authorities may approve a proposed takeover even if the resulting combination will substantially increase market concentration if the target from would go bankrupt if the takeover does not occur. True or False

Q: Every financial market allows loans to be made.

Q: In addition to market share, antitrust regulators consider barriers to entry, the number of product substitutes, and the degree of product differentiation. True or False

Q: The largest depository institution (value of assets) at the end of 2009 was A) commercial banks. B) pension funds. C) credit unions. D) mutual funds.

Q: U.S. antitrust regulators may approve a horizontal transaction even if it results in the combined firms having substantial market share if it can be shown that significant cost efficiencies would result. True or False

Q: The country whose banks are the most restricted in the range of assets they may hold is A) Japan. B) Canada. C) Germany. D) the United States.

Q: Market share is usually easy to define. True or False

Q: Fire and casualty insurance companies are what type of intermediary? A) Contractual savings institution B) Depository institutions C) Investment intermediaries D) None of the above

Q: A heavily concentrated market is one in which a single or a few firms control a disproportionately large share of the total market. True or False

Q: A ________ is when one party in a financial contract has incentives to act in its own interest rather than in the interests of the other party. A) moral hazard B) risk C) conflict of interest D) financial panic

Q: The market share of the combined firms is rarely an important factor in determining whether a proposed transaction is likely to be considered anti-competitive. True or False

Q: Banks providing depositors with checking accounts that enable them to pay their bills easily is known as A) liquidity services. B) asset transformation. C) risk sharing. D) transaction costs.

Q: The U.S. antitrust regulators are likely to be most concerned about vertical mergers. True or False

Q: U.S. dollars deposited in foreign banks outside the United States or in foreign branches of U.S. are referred to as A) Eurodollars. B) Eurocurrencies. C) Eurobonds. D) foreign bonds.

Q: About 40% of all proposed M&A transactions are disallowed by the U.S. antitrust regulators, because they are believed to be anti-competitive. True or False

Q: Foreign currencies that are deposited in banks outside the home country are known as A) foreign bonds. B) Eurobond. C) Eurocurrencies. D) Eurodollars.

Q: Negotiated agreements between the buyer and seller rarely have a provision enabling the parties to back out, if the proposed transaction is challenged by the FTC or SEC. True or False

Q: Under a consent decree, the regulatory authorities agree to approve a proposed transaction if the parties involved agree to take certain actions following closing. True or False

Q: Asymmetric information can lead to widespread collapse of financial intermediaries, referred to as a A) bank holiday. B) financial panic. C) financial disintermediation. D) financial collapse.

Q: If the regulatory authorities suspect that a potential transaction may be anti-competitive, they will file a lawsuit to prevent completion of the transaction. True or False

Q: The government regulates financial markets for two main reasons: A) to ensure soundness of the financial system and to increase the information available to investors. B) to improve control of monetary policy and to increase the information available to investors. C) to ensure that financial intermediaries do not earn more than the normal rate of return and to improve control of monetary policy. D) to ensure soundness of financial intermediaries and to prevent financial intermediaries from earning less than the normal rate of return.

Q: Acquisitions involving companies of a certain size cannot be completed until certain information is supplied to the federal government and until a specific waiting period has elapsed. True or False

Q: Which of the following are investment intermediaries? A) Finance companies B) Mutual funds C) Pension funds D) All of the above E) Only A and B of the above

Q: In the U.S., the Sherman Act makes illegal all contracts, combinations and conspiracies, which unreasonably restrain trade. The Act applies to all transactions and businesses engaging in both interstate and intrastate trade. True or False

Q: Which of the following are not investment intermediaries? A) A life insurance company B) A pension fund C) A mutual fund D) Only A and B of the above

Q: In the U.S., the Federal Trade Commission has the exclusive right to approve mergers and acquisitions if they are determined to be potentially anti-competitive. True or False

Q: Which of the following is a contractual savings institution? A) A life insurance company B) A credit union C) A savings and loan association D) A mutual fund

Q: If an investor initiates a tender offer, it must make a 14(d) filing with the SEC. True or False

Q: Which of the following financial intermediaries are depository institutions? A) A savings and loan association B) A commercial bank C) A credit union D) All of the above E) Only A and C of the above

Q: Whenever an investor accumulates 5% or more of a public companys stock, it must make a so-called 13(d) filing with the SEC. True or False

Q: In financial markets, lenders typically have inferior information about potential returns and risks associated with any investment project. This difference in information is called A) comparative informational disadvantage. B) asymmetric information. C) variant information. D) caveat venditor.

Q: Whenever an investor acquires 5% or more of public company, it must disclose its intentions, the identities of all investors, their occupation, sources of financing, and the purpose of the acquisition. True or False

Q: Successful financial intermediaries have higher earnings on their investments because they are better equipped than individuals to screen out good from bad risks, thereby reducing losses due to A) moral hazard. B) adverse selection. C) bad luck. D) financial panics.

Q: The Williams Act of 1968 consists of a series of amendments to the Securities Act of 1933, and it is intended to protect target firm shareholders from lighting fast takeovers in which they would not have enough time to adequately assess the value of an acquirers offer. True or False

Q: When the least desirable credit risks are the ones most likely to seek loans, lenders are subject to the A) moral hazard problem. B) adverse selection problem. C) shirking problem. D) free-rider problem. E) principal-agent problem.

Q: Unlike the Sherman Act, which contains criminal penalties, the Clayton Act is a civil statute and allows private parties injured by the antitrust violations to sue in federal court for a multiple of their actual damages. True or False