Question 1

Which of the following might lead a consumer to seek a loan from a subprime lender?

Accepted Answer

A) Inability to document their income. 
B) Have previously filed for bankruptcy. 
C) Has never had a loan before. 
D) Lack of savings for a down payment. 
E) All of the options. 
A) Inability to document their income. 
B) Have previously filed for bankruptcy. 
C) Has never had a loan before. 
D) Lack of savings for a down payment. 
E) All of the options.

Question 2

Subprime lenders that charge unfairly exorbitant rates to desperate subprime borrowers are called loan sharks.

Accepted Answer

A) True 
 B)False

Question 3

Personal credit institutions specialize in making equipment leases to consumers.

Accepted Answer

A) True 
 B)False

Question 4

In financing their asset growth, finance companies

Accepted Answer

A) have relied more on bank loans over time. 
B) rely heavily on short-term commercial paper. 
C) use less equity capital than commercial banks. 
D) do not issue demand deposits, but can issue time deposits. 
E) use very small amounts of long-term debt and bonds. 
A) have relied more on bank loans over time. 
B) rely heavily on short-term commercial paper. 
C) use less equity capital than commercial banks. 
D) do not issue demand deposits, but can issue time deposits. 
E) use very small amounts of long-term debt and bonds.

Question 5

Which of the following is NOT an advantage of a finance company over a commercial bank in providing services to small business customers?

Accepted Answer

A) Finance companies are less willing to accept risky customers than are banks. 
B) Finance companies are not subject to regulations that restrict the type of products and services they can offer. 
C) Finance companies often have substantial industry and product expertise. 
D) Finance companies generally have lower overhead than banks. 
E) Finance companies do not accept deposits and therefore are not subject to bank-type regulatory restrictions. 
A) Finance companies are less willing to accept risky customers than are banks. 
B) Finance companies are not subject to regulations that restrict the type of products and services they can offer. 
C) Finance companies often have substantial industry and product expertise. 
D) Finance companies generally have lower overhead than banks. 
E) Finance companies do not accept deposits and therefore are not subject to bank-type regulatory restrictions.

Question 6

Home equity loans have

Accepted Answer

A) become less profitable for finance companies. 
B) seen reduced demand since the Tax Reform Act of 1986 was passed. 
C) interest charges that are not tax deductible. 
D) a higher bad debt expense than those on other finance company loans. 
E) allows customers to borrow on a line of credit secured with a second mortgage on their home. 
A) become less profitable for finance companies. 
B) seen reduced demand since the Tax Reform Act of 1986 was passed. 
C) interest charges that are not tax deductible. 
D) a higher bad debt expense than those on other finance company loans. 
E) allows customers to borrow on a line of credit secured with a second mortgage on their home.

Question 7

Finance companies have been among the slowest growing FI groups in recent years.

Accepted Answer

A) True 
 B)False

Question 8

Factoring is the process of purchasing accounts receivable from corporations usually with no recourse to the seller if the receivables go bad.

Accepted Answer

A) True 
 B)False

Question 9

Factoring involves

Accepted Answer

A) making loans to customers that depository institutions find too risky to lend. 
B) providing financing for the purchase of products manufactured by the parent company. 
C) approving of collateral that depository institutions do not find acceptable. 
D) providing financing through equipment leasing. 
E) purchasing of accounts receivable by finance company from corporate customers. 
A) making loans to customers that depository institutions find too risky to lend. 
B) providing financing for the purchase of products manufactured by the parent company. 
C) approving of collateral that depository institutions do not find acceptable. 
D) providing financing through equipment leasing. 
E) purchasing of accounts receivable by finance company from corporate customers.

Question 10

As the economic expansion continued through the 1990s, the demand for finance company loans increased.

Accepted Answer

A) True 
 B)False

Question 11

A company that specializes in making loans to the customers of a particular retailer or manufacturer would best be categorized as a

Accepted Answer

A) sales finance institution. 
B) personal credit institution. 
C) business credit institution. 
D) lease finance company. 
E) factoring company. 
A) sales finance institution. 
B) personal credit institution. 
C) business credit institution. 
D) lease finance company. 
E) factoring company.

Question 12

Because finance companies do not accept deposits, they do not have bank regulators providing oversight of their activities.

Accepted Answer

A) True 
 B)False

Question 13

Wholesale loans are loan agreements between corporations and their customers at reduced interest rates.

Accepted Answer

A) True 
 B)False

Question 14

Major finance companies did not suffer as much from the recent financial crisis as depository institutions primarily because they are forbidden from creating home mortgages.

Accepted Answer

A) True 
 B)False

Question 15

Equipment leasing to customers is a function of business credit institution.

Accepted Answer

A) True 
 B)False

Question 16

Finance companies charge different rates than do commercial banks which

Accepted Answer

A) tend to be higher than bank rates. 
B) often reflect a more risky borrower. 
C) causes some finance companies to be classified as subprime lenders. 
D) must meet state usury law guidelines. 
E) All of the options. 
A) tend to be higher than bank rates. 
B) often reflect a more risky borrower. 
C) causes some finance companies to be classified as subprime lenders. 
D) must meet state usury law guidelines. 
E) All of the options.

Question 17

Compared to commercial banks, why do finance companies often have substantial industry and product expertise?

Accepted Answer

A) Because they have no bank-type regulators looking directly over their shoulders. 
B) Because they are specialized in market research and analysis. 
C) Because they are often subsidiaries of corporate-sector holding companies. 
D) Because they are more often willing to accept risky customers. 
E) All of the options. 
A) Because they have no bank-type regulators looking directly over their shoulders. 
B) Because they are specialized in market research and analysis. 
C) Because they are often subsidiaries of corporate-sector holding companies. 
D) Because they are more often willing to accept risky customers. 
E) All of the options.

Question 18

Personal finance companies will make loans to people that are unable to borrow from a depository institution.

Accepted Answer

A) True 
 B)False

Question 19

Finance companies have relied primarily on short-term commercial paper and other debt sources to finance asset growth.

Accepted Answer

A) True 
 B)False

Question 20

Ally Financial [formerly General Motors Acceptance Corporation (GMAC)]

Accepted Answer

A) is a wholly owned subsidiary of General Motors. 
B) only provides financing to purchasers of automobiles built by General Motors. 
C) was classified as a commercial bank holding company in 2008. 
D) did not participate in federal bailout funds during the financial crisis because of their financial strength. 
E) is the largest finance company in the U.S. 
A) is a wholly owned subsidiary of General Motors. 
B) only provides financing to purchasers of automobiles built by General Motors. 
C) was classified as a commercial bank holding company in 2008. 
D) did not participate in federal bailout funds during the financial crisis because of their financial strength. 
E) is the largest finance company in the U.S.

Exam 3: Financial Services: Finance Companies

Which of the following might lead a consumer to seek a loan from a subprime lender?

Subprime lenders that charge unfairly exorbitant rates to desperate subprime borrowers are called loan sharks.

Personal credit institutions specialize in making equipment leases to consumers.

In financing their asset growth, finance companies

Which of the following is NOT an advantage of a finance company over a commercial bank in providing services to small business customers?

Home equity loans have

Finance companies have been among the slowest growing FI groups in recent years.

Factoring is the process of purchasing accounts receivable from corporations usually with no recourse to the seller if the receivables go bad.

Factoring involves

As the economic expansion continued through the 1990s, the demand for finance company loans increased.

A company that specializes in making loans to the customers of a particular retailer or manufacturer would best be categorized as a

Because finance companies do not accept deposits, they do not have bank regulators providing oversight of their activities.

Wholesale loans are loan agreements between corporations and their customers at reduced interest rates.

Major finance companies did not suffer as much from the recent financial crisis as depository institutions primarily because they are forbidden from creating home mortgages.

Equipment leasing to customers is a function of business credit institution.

Finance companies charge different rates than do commercial banks which

Compared to commercial banks, why do finance companies often have substantial industry and product expertise?

Personal finance companies will make loans to people that are unable to borrow from a depository institution.

Finance companies have relied primarily on short-term commercial paper and other debt sources to finance asset growth.

Ally Financial [formerly General Motors Acceptance Corporation (GMAC)]

Why Are Financial Institutions Special

Financial Services: Depository Institutions

Financial Services: Securities Brokerage and Investment Banking

Financial Services: Mutual Funds and Hedge Funds

Financial Services: Insurance

Risks of Financial Institutions

Interest Rate Risk I

Interest Rate Risk II

Credit Risk: Individual Loan Risk

Credit Risk: Loan Portfolio and Concentration Risk

Liquidity Risk

Foreign Exchange Risk

Sovereign Risk

Market Risk

Off-Balance-Sheet Risk

Technology and Other Operational Risks

Fintech Risks

Liability and Liquidity Management

Deposit Insurance and Other Liability Guarantees

Capital Adequacy

Product and Geographic Expansion

Futures and Forwards

Options, Caps, Floors, and Collars

Swaps

Loan Sales

Securitization

Filters