Question 1

The following three FIs dominate a local market and their total assets are given below.  If Bank A acquires Bank C, what is the new Herfindahl Index (HHI)?

Accepted Answer

The answer of The following three FIs dominate a local...

Question 2

Using lending power to coerce a customer to purchase or use the products sold by an affiliate.

Accepted Answer

The answer of Using lending power to coerce a customer...

Question 3

To avoid being exposed to potential losses in a securities offering, a bank may place the securities in the accounts of customers in the trust department or other areas over which it has discretionary investment powers.

Accepted Answer

The answer of To avoid being exposed to potential losses...

Question 4

The following three FIs dominate a local market and their total assets are given below.  What are the market shares of banks A, B and C, respectively?

Accepted Answer

The answer of The following three FIs dominate a local...

Question 5

When banks have the power to sell nonbank products, employees may no longer give dispassionate, or unbiased, advice to customers.

Accepted Answer

The answer of When banks have the power to sell...

Question 6

The approval of cheap loans to an investor under the implicit condition that the loan proceeds are to be used to purchase securities underwritten by a securities affiliate.

Accepted Answer

The answer of The approval of cheap loans to an...

Question 7

The following three FIs dominate a local market and their total assets are given below.  If Bank C splits into two separate institutions at ½ its original size each, what is the new Herfindahl (HHI) Index?

Accepted Answer

First, we need to calculate the initial HHI:

HHI = (Market share of Bank A)^2 + (Market share of Bank B)^2 + (Market share of Bank C)^2

HHI = (50%)^2 + (30%)^2 + (20%)^2

HHI = 0.25 + 0.09 + 0.04

HHI = 0.38

Now, we need to calculate the new market share of Bank C after it splits into two separate institutions at ½ its original size each:

New market share of Bank C = (20% / 2) + (20% / 2) = 10%

The new HHI will be:

HHI = (Market share of Bank A)^2 + (Market share of Bank B)^2 + (New market share of Bank C)^2

HHI = (50%)^2 + (30%)^2 + (10%)^2

HHI = 0.25 + 0.09 + 0.01

HHI = 0.35

Therefore, the new HHI index is 2,538 (Option C).

Question 8

The following three FIs dominate a local market and their total assets are given below.  If Bank A acquires Bank B, what is the new Herfindahl Index?

Accepted Answer

- The initial HHI is calculated as follows:
HHI = 50^2 + 25^2 + 25^2 = 3,750
- If Bank A acquires Bank B, their total assets will be combined:
Total assets = $100 billion + $50 billion = $150 billion
- The new HHI is calculated as follows:
HHI = 75^2 + 25^2 = 5,050
- Therefore, the answer is D.

Question 9

The following three FIs dominate a local market and their total assets are given below.  What is the Herfindahl-Hirschman Index (HHI) for the local market?

Accepted Answer

To calculate HHI, we need to square the market share of each FI and then sum those values.
- FI1 market share = (400/2,000) = 0.2
- FI2 market share = (1,200/2,000) = 0.6
- FI3 market share = (400/2,000) = 0.2

HHI = (0.2^2 + 0.6^2 + 0.2^2) * 10,000 = 3,550.

Therefore, the answer is C.

Question 10

The following three FIs dominate a local market and their total assets are given below.  If Bank C agrees to be purchased by Banks A and B, what proportion of assets of Bank C should be taken by Banks A and B, respectively in order to have equal post-merger assets?

Accepted Answer

The answer of The following three FIs dominate a local...

Question 11

The use of inside information about customers or rivals that can be useful in setting securities prices or distributing securities offerings.

Accepted Answer

The answer of The use of inside information about customers...

Question 12

Which of the following is a disadvantage of international expansion?

Accepted Answer

Monitoring and information collection are more difficult and costly in international markets due to differences in legal and regulatory requirements, language barriers, cultural differences, and political risks. This can increase the likelihood of financial losses due to incorrect or incomplete information.

Question 13

Which of the following items is an advantage of international expansion for an FI?

Accepted Answer

International expansions allow an FI to maintain contact with and provide service to the needs of domestic multinational corporations, which can lead to increased revenue and profits for the FI. The other options all highlight potential disadvantages or challenges of international expansion for an FI.

Question 14

When a bank suggests the issuance of capital market debt for the purpose of reducing bank loans under conditions of deteriorating or questionable firm financial health.

Accepted Answer

The answer of When a bank suggests the issuance of...

Quiz 21: Product and Geographic Expansion

The following three FIs dominate a local market and their total assets are given below. If Bank A acquires Bank C, what is the new Herfindahl Index (HHI) ?

Using lending power to coerce a customer to purchase or use the products sold by an affiliate.

To avoid being exposed to potential losses in a securities offering, a bank may place the securities in the accounts of customers in the trust department or other areas over which it has discretionary investment powers.

The following three FIs dominate a local market and their total assets are given below. What are the market shares of banks A, B and C, respectively?

When banks have the power to sell nonbank products, employees may no longer give dispassionate, or unbiased, advice to customers.

The approval of cheap loans to an investor under the implicit condition that the loan proceeds are to be used to purchase securities underwritten by a securities affiliate.

The following three FIs dominate a local market and their total assets are given below. If Bank C splits into two separate institutions at ½ its original size each, what is the new Herfindahl (HHI) Index?

The following three FIs dominate a local market and their total assets are given below. If Bank A acquires Bank B, what is the new Herfindahl Index?

The following three FIs dominate a local market and their total assets are given below. What is the Herfindahl-Hirschman Index (HHI) for the local market?

The following three FIs dominate a local market and their total assets are given below. If Bank C agrees to be purchased by Banks A and B, what proportion of assets of Bank C should be taken by Banks A and B, respectively in order to have equal post-merger assets?

The use of inside information about customers or rivals that can be useful in setting securities prices or distributing securities offerings.

Which of the following is a disadvantage of international expansion?

Which of the following items is an advantage of international expansion for an FI?

When a bank suggests the issuance of capital market debt for the purpose of reducing bank loans under conditions of deteriorating or questionable firm financial health.