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Indicate whether TRUE or FALSE on the following statements.
- Bank holding companies can issue common stock to raise equity capital?
True or False
- Between 1/2008 and 12/2009 the monetary base of the Federal Reserve System increased from $1 trillion US. dollars to $3 trillion US dollars.
True or False
- If the Federal Reserve does not approve the quantitative or qualitative capital plans of a bank holding company that bank holding company’s ability to distribute capital to shareholders is constrained
True or False
- The ratio of common equity to risk weighted assets of Bank Holding Companies has declined since 2009
True or False
- The Federal Reserve considers bank capital essential to a bank holding company’s ability to absorb losses and continue operations and to lend to businesses and consumers
True or False
- Liquidity is the ability to meet cash flow needs on a timely basis at a reasonable cost
True or False
- In its 2014 Comprehensive Capital Analysis Review (released March 2014) the Board of Governors objected to the capital plans of Citigroup Inc.; HSBC North America Holdings Inc.; RBS Citizens Financial Group, Inc.; and Santander Holdings USA, Inc. based on a failure of each banks capital position to be adequate after the stress tests were run
True or False
- In its 2014 Comprehensive Capital Analysis Review (released March 2014) the Board of Governors of the Federal Reserve objected to the capital plan of Zions Bancorporation because the firm lacked liquid assets
True or False
-The Board of Governors of Federal Reserve objected to Citigroup’s capital plan in its 2014 Comprehensive Capital Analysis Review because Cititgroup had excessive exposure to the debt of Greece and other European countries that were in fiscal difficulty
True Or False
-When considering an institution's capital plan, the Federal Reserve considers only quantitative factors. The only factor that matters is a firm's capital ratios under severe economic and financial market stress. After the Federal Reserve objects to a capital plan, the institution may only make capital distributions that are equal to the distributions made in the previous year
True or False
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- 1. An advantage to a corporation of issuing bonds rather than issuing stock or borrowing from a bank include(s) a. All of the below are true b. Interest on bonds is tax deductible, but dividends are notc. Bondholders have no voting rights or ownership of the corporationd. Bank lenders often demand a huge amount of annual information and place onerous restrictions on the businessarrow_forwardHow does the WACC DCF methodology mechanically incorporate interest tax shields (select the best answer)? Group of answer choices By estimating free cash flows that incorporate the tax benefits of debt. By adding the tax benefits of interest payments to the value of the firm. By adding the PV of the interest tax shields to the value of the firm. By estimating a discount rate that incorporates the tax benefits of debt.arrow_forwardThe following statements relate to long-term financing. Which is true?a. The risk on any type of external financing is greater than internal financing.b. An initial public offering will come first before a rights offering and a private placement.c. The Philippine Stock Exchange is the entity that is in charge of initial public offerings.d. The reissuance of shares that became treasury will have a cost of financing at market prices.arrow_forward
- For firms that have debt on their balance sheets, interest expense is commonly seen as an expense on the firm's income statement. In capital budgeting, however, we ignore interest expense. Why? Group of answer choices A) Because the cost of debt is already included in the WACC, and including interest expense in the calculation of cash flows would then be "double counting" it. B) Capital budgeting is done from the perspective of the common stockholders, so it ignores interest expense (Wrong Choice) C) Like depreciation, interest expense is a "non-cash" expense D) Because firms ignore the pleas of banks and bondholders to pay their interest. This is why Silicon Valley Bank failed.arrow_forwardProvide Answerarrow_forward1. Why do short-term debt securities issued by private companies generally offer higher yields than treasury bills issued by central governments?arrow_forward
- Capital markets trade securities that: mature in more than one year. has relatively higher risk of capital loss. must be guaranteed by the federal government. 1 only. 2 only. 1 and 2 only 1 and 3 onlyarrow_forwardIn the United States and most other countries, the source of capital on which firms most heavily rely is OA. new common stock B. retained earnings OC. long-term debt OD. preferred stock.arrow_forwardWhich of the following is (are) correct statement(s) To increase reserves in the banking system on temporary basis, the Bank of Canada engages in a repurchase agreement (Repos or SPRAs) The upper limit of the operating band is called Bank rate The Bank of Canada uses SPRAs to lower the overnight rate and SRAs to raise the overnight rate. all of the above Only a and b above The monetary policy tools used by the Bank of Canada include are open market operations Shifting of government deposits to Chartered banks Changing the reserve requirements all of the above Only a and c above The Monetary Base of the Bank of Canada includes government securities and discount loans currency in circulation and reserves of the chartered banks government securities and reserves currency in circulation and discount loansarrow_forward
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