Question 1

Business credit institutions specialize in making business loans, especially through equipment leasing and factoring.

Accepted Answer

A) True 
 B)False

Question 2

Finance companies have traditionally been subject to state-imposed usury ceilings on the maximum loan rate charged to any individual customers.

Accepted Answer

A) True 
 B)False

Question 3

Finance companies differ from banks in that they do not accept deposits.

Accepted Answer

A) True 
 B)False

Question 4

Personal credit institutions may be willing to approve collateral that depository institutions do not find acceptable.

Accepted Answer

A) True 
 B)False

Question 5

A person with a history of bad credit and an inconsistent record of payments on other debt is most likely to find a short-term loan through a

Accepted Answer

A) commercial bank. 
B) personal credit institution. 
C) savings bank. 
D) sales finance institution. 
E) payday lender. 
A) commercial bank. 
B) personal credit institution. 
C) savings bank. 
D) sales finance institution. 
E) payday lender.

Question 6

The largest 20 firms in the nondepository finance company industry account for more than 65 percent of industry assets.

Accepted Answer

A) True 
 B)False

Question 7

During the period from 1977 to 2015,

Accepted Answer

A) total assets in finance companies grew over 1,300%. 
B) commercial paper became a less important source of funds for finance companies. 
C) assets in finance companies became less diversified. 
D) mortgage lending declined in importance to finance companies. 
E) in finance companies, consumer lending increased as a percent of total assets. 
A) total assets in finance companies grew over 1,300%. 
B) commercial paper became a less important source of funds for finance companies. 
C) assets in finance companies became less diversified. 
D) mortgage lending declined in importance to finance companies. 
E) in finance companies, consumer lending increased as a percent of total assets.

Question 8

In contrast to earlier periods in the finance company industry, during the middle 2000s,

Accepted Answer

A) regulatory reform led to decreasing profits. 
B) mortgages originated were generally not securitized. 
C) new car loan rates charged by finance companies were been lower than those of commercial banks. 
D) mortgage lending become less important to the industry. 
E) finance companies were required to offer time deposit products to their customers. 
A) regulatory reform led to decreasing profits. 
B) mortgages originated were generally not securitized. 
C) new car loan rates charged by finance companies were been lower than those of commercial banks. 
D) mortgage lending become less important to the industry. 
E) finance companies were required to offer time deposit products to their customers.

Question 9

This type of finance company competes directly with depository institutions for consumer loans because they can frequently process loans faster and more conveniently.

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 10

Which of the following is NOT true?

Accepted Answer

A) The finance company industry tends to be very concentrated. 
B) Twenty of the largest finance companies account for more than 65% of the industry assets. 
C) Many of the largest finance companies tend to be wholly owned or are captive subsidiaries of major manufacturing firms. 
D) Finance companies specialize only in consumer loans and do not make business loans. 
E) Finance companies often provide captive financing for the purchase of products manufactured by their parent company. 
A) The finance company industry tends to be very concentrated. 
B) Twenty of the largest finance companies account for more than 65% of the industry assets. 
C) Many of the largest finance companies tend to be wholly owned or are captive subsidiaries of major manufacturing firms. 
D) Finance companies specialize only in consumer loans and do not make business loans. 
E) Finance companies often provide captive financing for the purchase of products manufactured by their parent company.

Question 11

The FDIC allows its member banks to participate in payday lending.

Accepted Answer

A) True 
 B)False

Question 12

Finance companies are subject to regulations that restrict the types of products and services they can offer to small business customers.

Accepted Answer

A) True 
 B)False

Question 13

When a finance company pools mortgages with similar characteristics and securitizes the pool, the loans are removed from the balance sheet of the finance company.

Accepted Answer

A) True 
 B)False

Question 14

As a percent of assets, finance companies currently rely more heavily on commercial paper as a source of financing than in 1977.

Accepted Answer

A) True 
 B)False

Question 15

Payday lenders are a subset of subprime lenders.

Accepted Answer

A) True 
 B)False

Question 16

General Electric Capital Corporation is considered a captive finance company.

Accepted Answer

A) True 
 B)False

Question 17

Sales finance companies do not directly compete with depository institutions for consumer loans.

Accepted Answer

A) True 
 B)False

Question 18

A finance company that lends money to high risk customers is known as a subprime lender.

Accepted Answer

A) True 
 B)False

Question 19

During 2006, originations of new subprime mortgages totaled approximately __________, which was ________ of new mortgages originated that year.

Accepted Answer

A) $600 billion; one-fifth 
B) $400 billion; one-tenth 
C) $100 billion; one-half 
D) $400 billion; one-third 
E) $600 billion; one-half 
A) $600 billion; one-fifth 
B) $400 billion; one-tenth 
C) $100 billion; one-half 
D) $400 billion; one-third 
E) $600 billion; one-half

Question 20

Which of the following is NOT true?

Accepted Answer

A) The fastest growing area of finance companies in recent years has been in the area of leasing and business loans. 
B) Consumer loans represent the largest portion of the loan portfolio of finance companies. 
C) Finance companies rely on short-term commercial paper and customer deposits to finance their assets. 
D) Finance companies rely on short-term commercial paper and long-term debt to finance their assets. 
E) Finance companies are now the largest issuers of commercial paper in the U.S. 
A) The fastest growing area of finance companies in recent years has been in the area of leasing and business loans. 
B) Consumer loans represent the largest portion of the loan portfolio of finance companies. 
C) Finance companies rely on short-term commercial paper and customer deposits to finance their assets. 
D) Finance companies rely on short-term commercial paper and long-term debt to finance their assets. 
E) Finance companies are now the largest issuers of commercial paper in the U.S.

Exam 3: Financial Services: Finance Companies

Business credit institutions specialize in making business loans, especially through equipment leasing and factoring.

Finance companies have traditionally been subject to state-imposed usury ceilings on the maximum loan rate charged to any individual customers.

Finance companies differ from banks in that they do not accept deposits.

Personal credit institutions may be willing to approve collateral that depository institutions do not find acceptable.

A person with a history of bad credit and an inconsistent record of payments on other debt is most likely to find a short-term loan through a

The largest 20 firms in the nondepository finance company industry account for more than 65 percent of industry assets.

During the period from 1977 to 2015,

In contrast to earlier periods in the finance company industry, during the middle 2000s,

This type of finance company competes directly with depository institutions for consumer loans because they can frequently process loans faster and more conveniently.

Which of the following is NOT true?

The FDIC allows its member banks to participate in payday lending.

Finance companies are subject to regulations that restrict the types of products and services they can offer to small business customers.

When a finance company pools mortgages with similar characteristics and securitizes the pool, the loans are removed from the balance sheet of the finance company.

As a percent of assets, finance companies currently rely more heavily on commercial paper as a source of financing than in 1977.

Payday lenders are a subset of subprime lenders.

General Electric Capital Corporation is considered a captive finance company.

Sales finance companies do not directly compete with depository institutions for consumer loans.

A finance company that lends money to high risk customers is known as a subprime lender.

During 2006, originations of new subprime mortgages totaled approximately __________, which was ________ of new mortgages originated that year.

Which of the following is NOT true?

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

During 2006, originations of new subprime mortgages totaled approximately __, which was of new mortgages originated that year.