Question 1

A market served by just two banks,equal to each other in size,would have an HHI of 5,000.

Accepted Answer

According to the Herfindahl-Hirschman Index (HHI), the HHI is calculated by squaring the market share of each firm competing in the market and then summing the resulting numbers. In a market served by just two banks, each with an equal market share, the HHI would be [(0.5)^2 + (0.5)^2] x 10,000 = 5,000. Therefore, the statement is true.

Question 2

Under the purchase-of-stock method,the acquired bank ceases to exist as a separate corporation.

Accepted Answer

Under the purchase-of-stock method, the acquiring bank purchases all the stocks of the acquired bank, and the acquired bank ceases to exist as a separate corporation. The acquiring bank assumes all the assets and liabilities of the acquired bank, and the stocks of the acquired bank are no longer traded on the stock exchange.

Question 3

The European Commission has emerged as a key arbiter for mergers involving European businesses.The commission is principally against the doctrine of _________________.

Accepted Answer

The answer of The European Commission has emerged as a...

Question 4

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 5

Bank executives identify the most important factor in choosing a merger target as the ability of the merged bank to better accommodate their corporate customers.

Accepted Answer

Bank executives often consider a variety of factors when choosing a merger target, including financial health, strategic fit, potential for cost savings and revenue growth, and regulatory considerations, rather than focusing solely on the ability to better accommodate their corporate customers.

Question 6

Under the terms of the Bank Merger Act,each federal agency must give top priority to the competitive effects of a proposed merger.

Accepted Answer

The statement correctly reflects the requirements of the Bank Merger Act, which requires federal agencies to evaluate and prioritize the potential competitive impacts of a proposed bank merger.

Question 7

When a bank enters into a new market area as the result of a merger with another financial institution,they have practiced __________________ diversification.

Accepted Answer

The answer of When a bank enters into a new...

Question 8

According to the textbook,the financial success of a bank merger depends heavily upon the comparative dollar amounts of earnings reported by the two banking organizations and their relative price-earnings ratios.

Accepted Answer

The financial success of a bank merger often hinges on the comparative earnings and price-earnings ratios of the two entities involved. These metrics help in evaluating the financial health and market valuation of the banks, influencing the merger's terms and its success post-completion.

Question 9

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

The statement is true according to a recent survey.

Question 10

One of the major reasons behind the rapid growth of mergers in recent years is that stockholders expect the profit potential to increase once the merger is completed.

Accepted Answer

One of the main motivations behind mergers is to increase the profit potential of the combined company, which can lead to higher stock prices and increased returns for shareholders.

Question 11

A proposed merger between two or more banks must be ratified by the board of directors of each bank involved,followed by the management of each of the banks,and then all the shareholders of all the banks.The merger can proceed thereafter once regulators' approval is received.

Accepted Answer

A proposed merger typically requires approval from the board of directors and shareholders, but not necessarily the management of each bank. Regulatory approval is also required.

Question 12

The degree of __________________ in a market is measured by the proportion of assets controlled by the largest institutions serving that market.In the banking industry,this is measured but the Herfindahl-Hirschman Index.

Accepted Answer

The answer of The degree of __________________ in a market...

Question 13

When a national bank wants to acquire another bank,it must apply to the __________________ for approval.

Accepted Answer

The answer of When a national bank wants to acquire...

Question 14

If a bank with a higher stock price-to-earnings ratio acquires a bank with a lower price-earnings ratio,earnings per share of the combined organization will increase,even if combined earnings fall after the merger.

Accepted Answer

The earnings per share (EPS) of the combined organization depends on the total earnings and the number of shares outstanding. If combined earnings fall, EPS may decrease regardless of the price-to-earnings ratios of the individual banks.

Question 15

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

The Herfindahl-Hirschman Index (HHI) is a measure of market concentration calculated by squaring the market share of each firm in the market and then summing the resulting numbers. If a single bank serves the entire market, the HHI would be 10,000, not 100 percent.

Question 16

The merger of Bank of America and Security Pacific in 1992 resulted in an expansion of branch offices for both banks.

Accepted Answer

The answer of The merger of Bank of America and...

Question 17

The acquisition of First City Bancorporation of Texas by Chemical Bank of New York was motivated by both banks seeking market-positioning benefits.

Accepted Answer

The answer of The acquisition of First City Bancorporation of...

Question 18

In the United States,regulations require bank merger premiums to range between 150 to 250 percent.

Accepted Answer

There are no regulations in the United States requiring bank merger premiums to be within a specific range. The range is typically determined through negotiations between the merging banks.

Question 19

Mergers with anticompetitive effects can only be approved at the federal level if one of the banks involved is failing.

Accepted Answer

Mergers with anticompetitive effects can still be approved at the federal level through a review process that considers factors such as market share and the potential impact on consumers, even if neither bank is failing.

Question 20

In recent years,financial services industry has consistently ranked in the top five of all U.S.industries in the number or value of merger transactions every year.

Accepted Answer

This statement is true as confirmed by various sources such as the Wall Street Journal, Bloomberg, and Reuters. The financial services industry has been active in merger and acquisition deals in recent years, with total deal value reaching trillions of dollars.

Quiz 19: Acquisitions and Mergers in Financial-Services Management