Solution Manual For
Bank Management & and Financial Services 9th Edition by Rose, Peter
Chapter 1-20 conce current business trends. Case studies from leading businesses can be helpful, as they illustrate how business concepts are applied
in real-world scenarios. Group discussions and practicing sample case studies can aid in refining analytical skills.__________pts are applied in real-world
scenarios. Group discussions and practicing sample case studies can aid in refining analytical skills.________________________________________2. Law Exams2.
CHAPTER 1
AN OVERVIEW OF THE CHANGING FINANCIAL-SERVICES SECTOR
Goal of This Chapter: In this chapter you will learn about the many roles financial service-
providers play in the economy today. You will examine how and why the banking industry and
the financial services marketplace as a whole is rapidly changing, becoming new and different as
we move forward into the future. You will also learn about new and old services offered to the
public.
Key Topics in This Chapter
Powerful Forces Reshaping the Industry
What Is a Bank?
The Financial System and Competing Financial-Service Institutions
Old and New Services Offered to the Public
Key Trends Affecting All Financial-Service Firms
Appendix: Career Opportunities in Banking and Financial Services
Chapter Outline
I.Introduction: Powerful Forces Reshaping the Industry
II. What Is a Bank?
A. Defined by the Functions:
B. Banks and their Principal Competitors
C. Many Kinds of Banks
D. Money-Centered Banks vs. Community Banks
E. The Legal Basis for Banking
III. The Financial System and Competing Financial-Service Institutions
A. Roles of the Financial System
B. The Competitive Challenge for Banks
C. Leading Competitors with Banks
1. Savings Associations
2. Credit Unions
3. Fringe Banks
4. Money Market Funds
5. Mutual Funds
6. Hedge Funds
7. Security Brokers and Dealers
8. Investment Banks
1-1
, 9. Finance Companies
10. Financial Holding Companies
11. Life and Property/Casualty Insurance Companies
IV. Services Banks and Many of Their Closest Competitors Offer the Public
A. Services Banks Have Offered for Centuries
1. Carrying Out Currency Exchanges
2. Discounting Commercial Notes and Making Business Loans
3. Offering Savings Deposits
4. Safekeeping of Valuables and Certification of Value
5. Supporting Government Activities with Credit
6. Offering Checking Accounts (Demand Deposits)
7. Offering Trust Services
B. Services Banks and Many of Their Financial-Service Competitors Began Offering in
the Past Century
1. Granting Consumer Loans
2. Financial Advising
3. Managing Cash
4. Offering Equipment Leasing
5. Making Venture Capital Loans
6. Selling Insurance Policies
7. Selling and Managing Retirement Plans
8. Dealing in Securities: Offering Security Brokerage and Investment Banking
Services
9. Offering Mutual Funds, Annuities, and Other Investment Products
10. Offering Merchant Banking Services
11. Offering Risk Management and Hedging Services
C. Convenience: The Sum Total of All Banking and Financial Services
concepts are applied in real-world scenarios. Group discussions and practicing sample case studies can aid in refining analytical skills._____________________ current business
trends. Case studies from leading businesses can be helpful, as they illustrate how business concepts are applied in real-world scenarios. Group discussions and practicing sample
case studies can aid in refining analytical skills._____________________________2. Law Exams2.
V. Key Trends Affecting All Financial-Service Firms—Crises, Reform, and Change
1. Service Proliferation
2. Rising Competition
3. Government Deregulation and then Reregulation
4. Crisis, Reform, and Change in Banking and Financial Services
5. An Increasingly Interest-Sensitive Mix of Funds
6. Technological Change and Automation
7. Consolidation and Geographic Expansion
8. Convergence
9. Globalization
VI. The Plan of This Book
VII. Summary
1-2
, Concept Checks
1-1. What is a bank? How does a bank differ from most other financial-service providers?
A bank can be defined by what economic function it performs, what services it offers its
customers, or the legal basis for its existence. Historically, banks have been offering a great
range of financial services such as checking and debit accounts, credit cards, and savings plans.
However, banks today are rapidly expanding their service offerings to include investment
banking (security underwriting), insurance protection, financial planning, advisory service for
merging companies, risk-management services, and numerous other innovative financial
products. Other financial service providers offer some of the similar financial services offered by
a bank but not all of them within one institution. Although, many financial-service institutions
are trying to be as similar to banks as possible in the services they offer. Not only financial
service industries but several industrial companies have stepped forward in recent decades to
control a bank or a banklike firms. concep current business trends. Case studies from leading businesses can be helpful, as they illustrate how business concepts
are applied in real-world scenarios. Group discussions and practicing sample case studies can aid in refining analytical skills.__________ts are applied in real-world scenarios. Group discussions
and practicing sample case studies can aid in refining analytical skills.________________________________________2. Law Exams2.
1-2. Under U.S. law what must a corporation do to qualify and be regulated as a commercial
bank?
Under U.S. law, commercial banks must offer two essential services to qualify as banks for
purposes of regulation and taxation, demand (checkable) deposits and grant commercial loans.
More recently, Congress defined a bank as any institution that could qualify for deposit
insurance administered by the Federal Deposit Insurance Corporation.
1-3. Why are some banks reaching out to become one-stop financial-service conglomerates? Is
this a good idea, in your opinion?
Banks and various financial institutions are converging in terms of the services they offer and
embracing each other’s innovations. There are two reasons that banks are increasingly becoming
one-stop financial service conglomerates. The first reason is the increased competition from
other types of financial institutions and the second reason is the erosion of the bank’s market
share for providing traditional services. Due to these reasons, the banks demanded for a relief
from traditional rules and lobbying for an expanded authority to reach new markets around
globe. This has led the United States Congress to pass the Financial Services Modernization Act
which has allowed banks to expand their role to be full service providers. It is a beneficial step as
it has led the U.S. banks to stay in the competition and increase the market share by entering into
various new industries like the securities and insurance industries.
1-4. Which businesses are banking’s closest and toughest competitors? What services do they
offer that compete directly with banks’ services?
Among a bank’s closest competitors are savings associations, credit unions, fringe banks, money
market funds, mutual funds, hedge funds, security brokers and dealers, investment banks, finance
1-3
, companies, financial holding companies, and life and property/casualty insurance companies. All
of these financial service providers are converging and embracing each other’s innovations. The
Financial Services Modernization Act has allowed many of these financial service providers to
offer the public one-stop shopping for financial services.
1-5. What is happening to banking’s share of the financial marketplace and why? What kind of
banking and financial system do you foresee for the future if present trends continue?
The Financial Services Modernization Act of 1999 allowed many of the banks’ closest
competitors to offer a wide array of financial services thereby taking away market share from
“traditional” banks.
concepts are applied in real-world scenarios. Group discussions and practicing sample case studies can aid in refining analytical skills.________________________________________2. Law
Exams2.
Because of the relatively liberal government regulations, banks with quality management and
adequate capital can become conglomerate financial-service providers. The same will become
true for security firms, insurers, and other financially oriented companies that wish to acquire
bank affiliates.
Hence, the banks and their closest competitors are converging into one-stop shopping for
financial services and this trend should continue in the future.
1-6. What different kinds of services do banks offer the public today? What services do their
closest competitors offer? current business trends. Case studies from leading businesses can be helpful, as they illustrate how business concepts are applied in real-world
scenarios. Group discussions and practicing sample case studies can aid in refining analytical skills.__________
Banks offer the widest range of services of any financial institution. They offer thrift deposits to
encourage saving and checkable (demand) deposits to provide a means of payment for purchases
of goods and services. They also provide credit through direct loans, by discounting the notes
that business customers hold, and by issuing credit guarantees. Additionally, they make loans to
consumers for purchases of durable goods, such as automobiles, and for home improvements,
etc. Banks also manage the property of customers under trust agreements and manage the cash
positions of their business customers. They purchase and lease equipment to customers as an
alternative to direct loans. Many banks also assist their customers with selling insurance policies
and also buying and selling securities through security brokerage services, the acquisition and
sale of foreign currencies, the supplying of venture capital to start new businesses, and the
purchase of annuities to supply future funding at retirement or for other long-term savings plans
like annuities or mutual funds. They also offer merchant banking services to large corporations
and risk management and hedging services to help their customers combat risk exposure. All of
these services are also offered by their financial-service competitors. Banks and their closest
competitors are converging and becoming the financial department stores of the modern era.
1-7. What is a financial department store? A universal bank? Why do you think these
institutions have become so important in the modern financial system?
A financial department store is an institution where banking, insurance, and security brokerage
services are unified under one roof. This recent trend to unify banking, insurance, and security
1-4
Bank Management & and Financial Services 9th Edition by Rose, Peter
Chapter 1-20 conce current business trends. Case studies from leading businesses can be helpful, as they illustrate how business concepts are applied
in real-world scenarios. Group discussions and practicing sample case studies can aid in refining analytical skills.__________pts are applied in real-world
scenarios. Group discussions and practicing sample case studies can aid in refining analytical skills.________________________________________2. Law Exams2.
CHAPTER 1
AN OVERVIEW OF THE CHANGING FINANCIAL-SERVICES SECTOR
Goal of This Chapter: In this chapter you will learn about the many roles financial service-
providers play in the economy today. You will examine how and why the banking industry and
the financial services marketplace as a whole is rapidly changing, becoming new and different as
we move forward into the future. You will also learn about new and old services offered to the
public.
Key Topics in This Chapter
Powerful Forces Reshaping the Industry
What Is a Bank?
The Financial System and Competing Financial-Service Institutions
Old and New Services Offered to the Public
Key Trends Affecting All Financial-Service Firms
Appendix: Career Opportunities in Banking and Financial Services
Chapter Outline
I.Introduction: Powerful Forces Reshaping the Industry
II. What Is a Bank?
A. Defined by the Functions:
B. Banks and their Principal Competitors
C. Many Kinds of Banks
D. Money-Centered Banks vs. Community Banks
E. The Legal Basis for Banking
III. The Financial System and Competing Financial-Service Institutions
A. Roles of the Financial System
B. The Competitive Challenge for Banks
C. Leading Competitors with Banks
1. Savings Associations
2. Credit Unions
3. Fringe Banks
4. Money Market Funds
5. Mutual Funds
6. Hedge Funds
7. Security Brokers and Dealers
8. Investment Banks
1-1
, 9. Finance Companies
10. Financial Holding Companies
11. Life and Property/Casualty Insurance Companies
IV. Services Banks and Many of Their Closest Competitors Offer the Public
A. Services Banks Have Offered for Centuries
1. Carrying Out Currency Exchanges
2. Discounting Commercial Notes and Making Business Loans
3. Offering Savings Deposits
4. Safekeeping of Valuables and Certification of Value
5. Supporting Government Activities with Credit
6. Offering Checking Accounts (Demand Deposits)
7. Offering Trust Services
B. Services Banks and Many of Their Financial-Service Competitors Began Offering in
the Past Century
1. Granting Consumer Loans
2. Financial Advising
3. Managing Cash
4. Offering Equipment Leasing
5. Making Venture Capital Loans
6. Selling Insurance Policies
7. Selling and Managing Retirement Plans
8. Dealing in Securities: Offering Security Brokerage and Investment Banking
Services
9. Offering Mutual Funds, Annuities, and Other Investment Products
10. Offering Merchant Banking Services
11. Offering Risk Management and Hedging Services
C. Convenience: The Sum Total of All Banking and Financial Services
concepts are applied in real-world scenarios. Group discussions and practicing sample case studies can aid in refining analytical skills._____________________ current business
trends. Case studies from leading businesses can be helpful, as they illustrate how business concepts are applied in real-world scenarios. Group discussions and practicing sample
case studies can aid in refining analytical skills._____________________________2. Law Exams2.
V. Key Trends Affecting All Financial-Service Firms—Crises, Reform, and Change
1. Service Proliferation
2. Rising Competition
3. Government Deregulation and then Reregulation
4. Crisis, Reform, and Change in Banking and Financial Services
5. An Increasingly Interest-Sensitive Mix of Funds
6. Technological Change and Automation
7. Consolidation and Geographic Expansion
8. Convergence
9. Globalization
VI. The Plan of This Book
VII. Summary
1-2
, Concept Checks
1-1. What is a bank? How does a bank differ from most other financial-service providers?
A bank can be defined by what economic function it performs, what services it offers its
customers, or the legal basis for its existence. Historically, banks have been offering a great
range of financial services such as checking and debit accounts, credit cards, and savings plans.
However, banks today are rapidly expanding their service offerings to include investment
banking (security underwriting), insurance protection, financial planning, advisory service for
merging companies, risk-management services, and numerous other innovative financial
products. Other financial service providers offer some of the similar financial services offered by
a bank but not all of them within one institution. Although, many financial-service institutions
are trying to be as similar to banks as possible in the services they offer. Not only financial
service industries but several industrial companies have stepped forward in recent decades to
control a bank or a banklike firms. concep current business trends. Case studies from leading businesses can be helpful, as they illustrate how business concepts
are applied in real-world scenarios. Group discussions and practicing sample case studies can aid in refining analytical skills.__________ts are applied in real-world scenarios. Group discussions
and practicing sample case studies can aid in refining analytical skills.________________________________________2. Law Exams2.
1-2. Under U.S. law what must a corporation do to qualify and be regulated as a commercial
bank?
Under U.S. law, commercial banks must offer two essential services to qualify as banks for
purposes of regulation and taxation, demand (checkable) deposits and grant commercial loans.
More recently, Congress defined a bank as any institution that could qualify for deposit
insurance administered by the Federal Deposit Insurance Corporation.
1-3. Why are some banks reaching out to become one-stop financial-service conglomerates? Is
this a good idea, in your opinion?
Banks and various financial institutions are converging in terms of the services they offer and
embracing each other’s innovations. There are two reasons that banks are increasingly becoming
one-stop financial service conglomerates. The first reason is the increased competition from
other types of financial institutions and the second reason is the erosion of the bank’s market
share for providing traditional services. Due to these reasons, the banks demanded for a relief
from traditional rules and lobbying for an expanded authority to reach new markets around
globe. This has led the United States Congress to pass the Financial Services Modernization Act
which has allowed banks to expand their role to be full service providers. It is a beneficial step as
it has led the U.S. banks to stay in the competition and increase the market share by entering into
various new industries like the securities and insurance industries.
1-4. Which businesses are banking’s closest and toughest competitors? What services do they
offer that compete directly with banks’ services?
Among a bank’s closest competitors are savings associations, credit unions, fringe banks, money
market funds, mutual funds, hedge funds, security brokers and dealers, investment banks, finance
1-3
, companies, financial holding companies, and life and property/casualty insurance companies. All
of these financial service providers are converging and embracing each other’s innovations. The
Financial Services Modernization Act has allowed many of these financial service providers to
offer the public one-stop shopping for financial services.
1-5. What is happening to banking’s share of the financial marketplace and why? What kind of
banking and financial system do you foresee for the future if present trends continue?
The Financial Services Modernization Act of 1999 allowed many of the banks’ closest
competitors to offer a wide array of financial services thereby taking away market share from
“traditional” banks.
concepts are applied in real-world scenarios. Group discussions and practicing sample case studies can aid in refining analytical skills.________________________________________2. Law
Exams2.
Because of the relatively liberal government regulations, banks with quality management and
adequate capital can become conglomerate financial-service providers. The same will become
true for security firms, insurers, and other financially oriented companies that wish to acquire
bank affiliates.
Hence, the banks and their closest competitors are converging into one-stop shopping for
financial services and this trend should continue in the future.
1-6. What different kinds of services do banks offer the public today? What services do their
closest competitors offer? current business trends. Case studies from leading businesses can be helpful, as they illustrate how business concepts are applied in real-world
scenarios. Group discussions and practicing sample case studies can aid in refining analytical skills.__________
Banks offer the widest range of services of any financial institution. They offer thrift deposits to
encourage saving and checkable (demand) deposits to provide a means of payment for purchases
of goods and services. They also provide credit through direct loans, by discounting the notes
that business customers hold, and by issuing credit guarantees. Additionally, they make loans to
consumers for purchases of durable goods, such as automobiles, and for home improvements,
etc. Banks also manage the property of customers under trust agreements and manage the cash
positions of their business customers. They purchase and lease equipment to customers as an
alternative to direct loans. Many banks also assist their customers with selling insurance policies
and also buying and selling securities through security brokerage services, the acquisition and
sale of foreign currencies, the supplying of venture capital to start new businesses, and the
purchase of annuities to supply future funding at retirement or for other long-term savings plans
like annuities or mutual funds. They also offer merchant banking services to large corporations
and risk management and hedging services to help their customers combat risk exposure. All of
these services are also offered by their financial-service competitors. Banks and their closest
competitors are converging and becoming the financial department stores of the modern era.
1-7. What is a financial department store? A universal bank? Why do you think these
institutions have become so important in the modern financial system?
A financial department store is an institution where banking, insurance, and security brokerage
services are unified under one roof. This recent trend to unify banking, insurance, and security
1-4
