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Exam 14: Investment Banking, insurance, and Other Sources of Fee Income

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Question 1

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The prohibition against combining investment banking and commercial banking activity during the Depression-era,centered on possibly forcing customers seeking loans to buy securities that the IB was trying to sell and increasing the risk exposure of commercial banking firms.

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Question 2

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A financial holding company may include all of the following services except:

A) corporate liquidation.
B) consumer lending.
C) trust services.
D) investment banking.
E) insurance.

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Question 3

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A bank's nondeposit investment products include IRAs,Keoghs,and MMDAs.

If the correlation between revenues from traditional banking and nontraditional services offered by a bank rises,potential diversification benefits:

When a bank is expecting to be able to employ the same managers,employees,and physical resources to offer multiple products and generate costs savings they are expecting which of the following effects?

A(n)_________________________ gives the bank the right to manage the estate of a living person without a court order.This can be amended by the customer as desired.

Traditionally,the most profitable and best-known investment banking activity is providing client advice.

Which of the following activities of investment banking often leads to large speculative gains or losses during the first few hours of the sale of offering new shares of stock?

_________________________ is the bringing together of two or more firms from different industries in order to offer multiple services.

A(n)__________________ fund,is a type of mutual fund offered through a bank's affiliated company.The bank acts as a transfer agent,custodian,and offers investment advice in this type of mutual fund.

A bank is considering adding security underwriting services to the services it offers.It has estimated that the expected return and standard deviation of its traditional service are 8% and 10% respectively.It has estimated that the expected return and standard deviation of its new securities underwriting services are 16% and 20% respectively.The correlation between these services has been estimated to be -0.3 and the bank estimates that 80% of its business will be from traditional services and 20% from the new services.What is the expected return of the new combined firm?

__________________ are one of the earliest services provided by banks and involves the management of customer's property and other assets.

While the trust department performs a variety of roles,their activities center on establishing a fiduciary relationship with the customer.

A bank is considering adding life insurance underwriting to the services it offers.It has estimated that the expected return and standard deviation of its traditional services are 12 percent and 6 percent respectively.It has also estimated that the expected return and standard deviation of its new underwriting services are 18 percent and 10 percent respectively.The correlation between these services has been estimated to be +0.10 and the bank estimates that 90 percent of its business will be from traditional services and 10 percent from the new underwriting services.If the bank is expecting that the overall risk of the bank will be reduced by adding the life insurance underwriting to the bank,what type of effect are they expecting?

A bank is considering adding security underwriting services to the services it offers.It has estimated that the expected return and standard deviation of its traditional service are 8% and 10% respectively.It has estimated that the expected return and standard deviation of its new securities underwriting services are 16% and 20% respectively.The correlation between these services has been estimated to be -0.3 and the bank estimates that 80% of its business will be from traditional services and 20% from the new services.What is the standard deviation of the new combined firm?

State Street Bank in Boston is a good example of a fee-focused banking company.

________________ is the value of a share in a mutual fund.It is the value of the assets held by the mutual fund less any liabilities,divided by the number of mutual fund shares outstanding.

Trust department activities usually center upon establishing a ____________ relationship with a customer.

Passage of the __________________ of 1999 granted banks,securities firms,and insurance companies the right to apply to the Federal Reserve Board to become financial holding companies (FHCs).

The most rapidly growing source of income for banks is ________ income.