Question 1

There are three banks in East Panhandle.First State Bank which currently has 25 percent of the deposits,Second State Bank which currently has 40 percent of the deposits and Third State Bank which has the rest.Compute the share of the Third State Bank in the market.Suppose First State Bank and Third State Bank propose to merge in order to compete with Second State Bank.According to the Department of Justice Guidelines,would this merger be allowed?

Accepted Answer

A) Very likely 
B) Likely,but with certain regulatory restrictions 
C) Highly unlikely 
D) Not enough information to make the determination 
E) None of the options is correct

Question 2

When a merger takes place,some banks have been asked by the regulators to __________________ themselves of some of their branches to avoid anticompetitive activities.Many of these are sold to third parties.

Accepted Answer

The answer of When a merger takes place,some banks have...

Question 3

When a bank expands the number of service options it offers after acquiring another financial firm,they have practiced __________________ diversification.

Accepted Answer

The answer of When a bank expands the number of...

Question 4

According to the textbook,bank mergers are often motivated by:

Accepted Answer

A) profit potential. 
B) expected reduction in the risk of fluctuations in cash flow and earnings. 
C) expected tax benefits. 
D) market-positioning strategies. 
E) All of the options are correct.

Question 5

The ratio of an acquired bank's current stock price per share plus the additional amount paid by the acquirer for each share of the acquired bank's stock,divided by the acquired bank's current stock price is the:

Accepted Answer

A) price-earnings ratio. 
B) merger premium. 
C) exchange rate (of a merger transaction). 
D) combined stock price of the merging banks. 
E) None of the options is correct.

Question 6

The agency problem described in the textbook is referred to the idea of bank managers driven primarily by their own interest to increase salaries and benefits at the expense of company stockholders.

Accepted Answer

A) True 
 B)False

Question 7

There are three banks in East Panhandle.First National Bank which currently has 40 percent of the deposits in the area,Second State Bank which currently has 30 percent of the deposits,and New State Bank and Trust which also has 30 percent of the deposits.What is the Herfindahl-Hirschman Index for East Panhandle?

Accepted Answer

A) 100 
B) 1,200 
C) 3,400 
D) 2,400 
E) None of the options is correct

Question 8

________________________ refers to the movement of two or more industries over time toward each other,resulting in different firms offering many of the same services.

Accepted Answer

A) Divergence 
B) Convergence 
C) Consortium 
D) Diversification 
E) Consolidation

Question 9

A market area served by one bank which is the only provider of financial services in that market would have an HHI of 100 percent.

Accepted Answer

A) True 
 B)False

Question 10

Dorchester County has the following five banks in its market area:
$\begin{array} { l c } 
\text { Bank } & \text { Total Assets } \
\text { First National Bank, NA } & \$ 1,500 \text { million } \
\text { Dorehester County Bank } & \$ 750 \text { million } \
\text { First State Bank } & \$ 500 \text { million } \
\text { Summerfield Bank } & \$ 250 \text { million } \
\text { Charlestown Bank } & \$ 250 \text { million } \
\text { All Banks } & \$ 3,250 \text { million }
\end{array}$
-If Summerfield and Charlestown banks merge,what would be the Herfindahl-Hirschman Index after the merger?

Accepted Answer

A) 3,017 
B) 3,136 
C) 5,000 
D) 10,000 
E) None of the options is correct

Question 11

When the existing ownership of a bank experiences a loss in their share of the company due to an increased number of shares going to new stockholders,it is known as _____________________.

Accepted Answer

The answer of When the existing ownership of a bank...

Question 12

There are three banks in East Panhandle.First State Bank which currently has 25 percent of the deposits,Second State Bank which currently has 40 percent of the deposits,and Third State Bank which has the rest.According to the Department of Justice Guidelines,this market will be identified as:

Accepted Answer

A) unconcentrated. 
B) mildly concentrated. 
C) moderately concentrated. 
D) highly concentrated. 
E) monopoly.

Question 13

According to a recent survey,many European bank mergers in the 1980s and 1990s were motivated by the desire to reduce operating costs(economies of scale).

Accepted Answer

A) True 
 B)False

Question 14

Research indicates that economies of scale (cost savings)often results in mergers of financial institutions which are relatively:

Accepted Answer

A) small in size. 
B) large in size. 
C) medium in size. 
D) undercapitalized. 
E) overcapitalized.

Question 15

Empirical evidence suggests that earnings outcomes from mergers exhibit:

Accepted Answer

A) a symmetric distribution. 
B) a positively skewed distribution. 
C) a negatively skewed distribution. 
D) a leptokurtic distribution. 
E) no fixed pattern of distribution.

Question 16

A large metropolitan or money center bank is often called a(n)______________.

Accepted Answer

The answer of A large metropolitan or money center bank...

Question 17

The ______________________ is the proportion of shares of stock the shareholders of an acquired firm receive from the acquiring firm.

Accepted Answer

The answer of The ______________________ is the proportion of shares...

Question 18

The Financial Accounting Standards Board labels ____________ as the "intangible synergies" of a combined firm resulting from a merger.

Accepted Answer

The answer of The Financial Accounting Standards Board labels ____________...

Question 19

Mergers with anticompetitive effects cannot go unchallenged by federal authorities unless the banks can show that the combined bank would have significant public benefits.

Accepted Answer

A) True 
 B)False

Question 20

The most important goal of any merger should be to increase the market value of the surviving firm.

Accepted Answer

A) True 
 B)False

Exam 19: Acquisitions and Mergers in Financial-Services Management

When a merger takes place,some banks have been asked by the regulators to __________________ themselves of some of their branches to avoid anticompetitive activities.Many of these are sold to third parties.

When a bank expands the number of service options it offers after acquiring another financial firm,they have practiced __________________ diversification.

According to the textbook,bank mergers are often motivated by:

The ratio of an acquired bank's current stock price per share plus the additional amount paid by the acquirer for each share of the acquired bank's stock,divided by the acquired bank's current stock price is the:

The agency problem described in the textbook is referred to the idea of bank managers driven primarily by their own interest to increase salaries and benefits at the expense of company stockholders.

________________________ refers to the movement of two or more industries over time toward each other,resulting in different firms offering many of the same services.

A market area served by one bank which is the only provider of financial services in that market would have an HHI of 100 percent.

When the existing ownership of a bank experiences a loss in their share of the company due to an increased number of shares going to new stockholders,it is known as _____________________.

There are three banks in East Panhandle.First State Bank which currently has 25 percent of the deposits,Second State Bank which currently has 40 percent of the deposits,and Third State Bank which has the rest.According to the Department of Justice Guidelines,this market will be identified as:

According to a recent survey,many European bank mergers in the 1980s and 1990s were motivated by the desire to reduce operating costs(economies of scale).

Research indicates that economies of scale (cost savings) often results in mergers of financial institutions which are relatively:

Empirical evidence suggests that earnings outcomes from mergers exhibit:

A large metropolitan or money center bank is often called a(n)______________.

The ______________________ is the proportion of shares of stock the shareholders of an acquired firm receive from the acquiring firm.

The Financial Accounting Standards Board labels ____________ as the "intangible synergies" of a combined firm resulting from a merger.

Mergers with anticompetitive effects cannot go unchallenged by federal authorities unless the banks can show that the combined bank would have significant public benefits.

The most important goal of any merger should be to increase the market value of the surviving firm.