1. You recently graduated from college with a business degree and accepted a position at a major corporation earning more than you could have ever dreamed. You want to (1) open a checking account for transaction purposes, (2) open a saving account for emergencies, (3) invest in an equity mutual for that far-off future retirement, (4) see if you can find more affordable auto insurance, and (5) borrow funds to buy a condo, helped along by your uncle who said he was so proud of your grades that he wanted to give you $20,000 towards a down payment (Is Life good or what) Make five lists of the financial service firms that could provide you each of these services.
1. For each of the actions described, explain which government agency or agencies a financial manager must deal with and what laws are involved:
a. Chartering a new bank
b. Establishing new bank branch offices.
c. Forming a bank holding company (BHC) or financial holding company (FHC)
d. Completing a bank merger
e. Making holding company acquisitions of nonbank businesses.
2. See if you can develop a good case for and against the regulation of financial institutions in the following areas.
a. Restrictions on the number of new financial-service institutions allowed to enter the industry each year.
b. Restrictions on which depository institutions are eligible for government-sponsored deposit insurance.
c. Restrictions on the ability of financial firms to underwrite debt and equity securities issued by their business customers.
d. Restrictions on the geographic expansion of banks and other financial firms, such as limits on branching and holding company acquisitions across state and international borders.
e. Regulations on the failure process, defining when banks and other financial firms are to be allowed to fail and how their assets are to be liquidated.
2. Of the business activities listed here, which activities can be conducted through U.S. regulated holding companies today?
a. Data processing companies
b. Office furniture sales
c. Auto and truck leasing companies
d. General life insurance and property-casualty insurance sales
e. Savings and loan associations
f. Mortgage companies
g. General insurance underwriting activities
h. Professional advertising services
i. Underwriting of new common stock issues by nonfinancial corporations
j. Real estate development companies
k. Merchant banks
l. Hedge funds
3. Forever Savings Bank estimates that building a new branch office in the newly developed Washington township will yield an annual expected return of 12 percent with an estimated standard deviation of 10 percent. The bank's marketing department estimates that cash flows from the proposed Washington branch will be mildly positively correlated (with a correlation coefficient of + 0.15) with the bank's other sources of cash flow. The expected annual return from the bank's existing facilities and other assets is 10 percent with standard deviation of 5 percent. The branch will represent just 20 percent of Lifetime's total assets. Will the proposed branch increase Forever's overall rate of return? Its overall risk?