The Use of the Herfindahl-Hirschman Index (HHI)to Measure Bank Concentration

question 145

Multiple Choice

The use of the Herfindahl-Hirschman Index (HHI) to measure bank concentration has been criticized because

• A)ascertaining whether the relevant geographic scope of the market should be regional,national,or city is becoming increasingly difficult to determine.
• B)the index was originally designed for nonfinancial competition.
• C)separating financial markets into banks,thrifts,and insurance companies is becoming increasingly difficult to justify.
• D)All of the options.

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Definitions:

Unprofitable Segment

A division or part of a company that does not generate profit and may result in a financial loss for the company.

Cost of Capital

The required return necessary to make a capital budgeting project, such as building a new factory or investing in new equipment, worthwhile.

Equity Funds

Investment funds that primarily invest in stocks, aiming to provide investors with growth or income through dividends and capital gains.

Borrowed Funds

Money that an entity obtains from another party with the promise to return the principal amount along with interest.