Deck 5: The Performance of Nontraditional Banking Companies

Question 1

When an investment bank stands willing to buy securities from participants who want to sell and to sell securities to participants who want to buy, it is:

A)underwriting.
B)market making.
C)principal investing.
D)proprietary trading.
E)organizing a market.

Answer 1

B

Question 2

Under FASB 157, Level _______ assets valuation are based on observable market prices for similar assets or liabilities.

A)1
B)2
C)3
D)4
E)5

Answer 2

B

Question 3

Which of the following investment banking services would be classified as Advisory Services?

A)Managing investments for governments.
B)Designing an initial public offering
C)Acting as a broker that facilitates security trading
D)Running a hedge fund
E)Proprietary trading

Answer 3

A

Question 4

Goldman Sachs listed all of the following key risk faced by the firm in its 2007 annual report except:

A)widening credit spreads..
B)an increase in the number of securities underwritings.
C)declines in equity values.
D)declines in the number of mergers and acquisitions.
E)an increase in market volatility.

Question 5

During the underwriting process, the investment bank receives payment for all of the following except:

A)flotation costs.
B)legal costs.
C)Federal Reserve costs.
D)accounting costs.
E)marketing costs.

Question 6

Under FASB 157, the valuation of Level 2 assets is labeled:

A)marking to market.
B)marking to matrix.
C)marking to myth.
D)marking to major.
E)marking to minor.

Question 7

The underwriting process involves all of the following except:

A)helping a firm design a security to meet all legal requirements.
B)identifying potential buyers.
C)pricing the security.
D)selling the security to the market place.
E)All of the above are part of the underwriting process.

Question 8

On Goldman Sachs' balance sheet for 2007, ___________ consist of securities that Goldman Sachs has borrowed under an agreement to resell at a later date..

A)collateralized agreements
B)financial instruments
C)collateralized financings
D)receivables
E)payables

Question 9

If a firm already has stock outstanding that is publically traded, additional offerings are called:.

A)initial public offering.
B)second time equity offering.
C)primary offering.
D)secondary offering.
E)flavored offering.

Question 10

On Goldman Sachs' balance sheet for 2007, Financial Instruments Owned consists of:

A)cash.
B)collateralized agreements.
C)derivative securities.
D)a.and b.
E)a.and c.

Question 11

______________ represent amounts owed to Goldman Sachs by brokers, the firm's customers, and counter-parties to derivative contracts.

A)collateralized agreements
B)financial instruments
C)collateralized financings
D)receivables
E)payables

Question 12

Investment banks generally engage in all of the following types of business activities except:

A)proprietary trading.
B)goodwill recovery.
C)market making.
D)securities underwriting..
E)advisory services

Question 13

Under FASB 157, Level _______ assets valuation are based on management's best judgment of what the underlying asset is worth.

A)1
B)2
C)3
D)4
E)5

Question 14

Under FASB 157, the valuation of Level 1 assets is labeled:

A)marking to market.
B)marking to matrix.
C)marking to myth.
D)marking to major.
E)marking to minor.

Question 15

Under FASB 157, Level _______ assets valuation are based on observable market prices for the identical instrument.

A)1
B)2
C)3
D)4
E)5

Question 16

On Goldman Sachs' balance sheet for 2007, ___________ consist of securities that Goldman Sachs has loaned under an agreement to repurchase at a later date.

A)collateralized agreements
B)financial instruments
C)collateralized financings
D)receivables
E)payables

Question 17

A __________ is an investment fund that is limited to a small number of sophisticated investors.

A)money market mutual fund
B)private equity fund
C)risk management fund
D)hedge fund
E)market development fund

Question 18

______________ represent amounts owed by Goldman Sachs to brokers, the firm's customers, and counter-parties to derivative contracts.

A)collateralized agreements
B)financial instruments
C)collateralized financings
D)receivables
E)payables

Question 19

If a security is a first-time placement for a firm, it is called a(n):

A)initial public offering.
B)first time equity offering.
C)primary offering.
D)secondary offering.
E)seasoned offering.

Question 20

When an investment bank commits its own funds to take a risk position in an underlying security, it is known as:

A)underwriting.
B)market making.
C)proprietary trading.
D)organizing a market.
E)brokering.

Question 21

Discuss the risks faced by Goldman Sachs.

Question 22

Which of the following is not a criticism against granting commerce companies industrial loan company charters?

A)There should be a separation between commerce and banking to protect customers from potential conflicts of interest.
B)Firms could become so large and powerful that they might dominate business in many communities.
C)Industrial loan companies are not subject to the same regulations as commercial banks.
D)All of the above are criticisms against granting commerce companies industrial loan company charters
E)a.and b.only

Question 23

Mutual of Omaha bank is charted as a:

A)commercial bank.
B)consumer bank.
C)mutual savings bank.
D)thrift.
E)credit union.

Question 24

Mortgage origination makes up the largest portion of Goldman Sachs' business.

Question 25

BMW Bank is chartered by the:

A)state of Utah.
B)FDIC.
C)Federal Reserve.
D)Office of the Comptroller of the Currency.
E)National Credit Union Administration.

Question 26

BMW bank has more financial leverage than its peers.

Question 27

Today, most industrial loan companies are located in Indiana .

Question 28

Discuss the four types of businesses that investment banks traditionally engage in.

Question 29

Net interest income made up a significant portion of Goldman Sachs' net revenue in 2007.

Question 30

Investment banks are prohibited from making a market in the stock of publically traded companies.

Question 31

Discuss the benefits to BMW North America of owning BMW Bank .

Question 32

Mutual of Omaha's business model is to combine insurance and banking activities.

Question 33

BMW Financial Services is owned by BMW Bank.

Question 34

Under FASB 157, the valuation of Level 3 assets is labeled:

A)marking to market.
B)marking to matrix.
C)marking to myth.
D)marking to major.
E)marking to minor.

Question 35

Discuss why community banks might oppose Wal-Mart from being granted a charter for an industrial loan company.

Question 36

Goldman Sachs has converted from an investment bank to a bank holding company.

Question 37

Explain how Mutual of Omaha Bank "fits into" Mutual of Omaha's business model.

Question 38

"Hot money" represents Goldman Sachs' greatest credit risk..

Question 39

When an investment bank acts as a broker, it does not take ownership of the underlying security.

Question 40

Historically, most industrial loan companies have operated to:

A)accept deposits.
B)assist their parent company in some facet of the firm's core business.
C)exclusively make commercial loans.
D)increase the safety and soundness of the parent company.
E)purchase municipal securities.