Question 1

Consumer finance companies primarily focus on

Accepted Answer

A) consumer loans. 
B) consumer advising. 
C) consumer regulation. 
D) None of these are correct. 
A) consumer loans. 
B) consumer advising. 
C) consumer regulation. 
D) None of these are correct. A

Question 2

Finance companies would prefer to increase their long-term debt when interest rates

Accepted Answer

A) are relatively low and are expected to increase. 
B) have increased. 
C) have been stable for several years. 
D) are projected to decrease. 
A) are relatively low and are expected to increase. 
B) have increased. 
C) have been stable for several years. 
D) are projected to decrease. A

Question 3

The most important risk for finance companies is ____ risk.

Accepted Answer

A) settlement 
B) accounting 
C) credit 
D) exchange rate 
A) settlement 
B) accounting 
C) credit 
D) exchange rate C

Question 4

When interest rates increase, finance companies tend to use more long-term debt to lock in their cost of funds over an extended period of time.

Accepted Answer

A) True 
 B)False

Question 5

Finance companies are subject to

Accepted Answer

A) disclosure requirements and truth in lending rules. 
B) minimum specified interest rates on loans provided. 
C) a minimum length on loan maturity. 
D) regulations that require finance companies to only operate in one state. 
A) disclosure requirements and truth in lending rules. 
B) minimum specified interest rates on loans provided. 
C) a minimum length on loan maturity. 
D) regulations that require finance companies to only operate in one state.

Question 6

Finance companies can accumulate capital by doing all of the following EXCEPT

Accepted Answer

A) retaining earnings. 
B) issuing stock. 
C) issuing commercial paper. 
D) Finance companies can build their capital base by doing all of these. 
A) retaining earnings. 
B) issuing stock. 
C) issuing commercial paper. 
D) Finance companies can build their capital base by doing all of these.

Question 7

If finance companies have liabilities that are more rate sensitive than their assets and want to reduce interest rate risk, they could

Accepted Answer

A) shorten their average asset life. 
B) lengthen their average asset life. 
C) shorten the maturity of debt that they issue. 
D) make greater use of fixed-rate loans. 
A) shorten their average asset life. 
B) lengthen their average asset life. 
C) shorten the maturity of debt that they issue. 
D) make greater use of fixed-rate loans.

Question 8

Finance companies participate in the ____ market to reduce interest rate risk.

Accepted Answer

A) money 
B) bond 
C) options 
D) swap 
A) money 
B) bond 
C) options 
D) swap

Question 9

The ________ is the federal agency responsible for regulating consumer finance products and services that may be offered by finance companies.

Accepted Answer

A) Consumer Financial Safety Commission 
B) Securities and Exchange Commission 
C) Consumer Financial Protection Bureau 
D) Federal Trade Commission 
A) Consumer Financial Safety Commission 
B) Securities and Exchange Commission 
C) Consumer Financial Protection Bureau 
D) Federal Trade Commission

Question 10

Many consumer finance companies provide personal loans directly to individuals to finance purchases of large household items.

Accepted Answer

A) True 
 B)False

Question 11

The value of a finance company can be modeled as the present value of its future cash flows.

Accepted Answer

A) True 
 B)False

Question 12

Some finance companies offer credit card loans through a particular retailer.

Accepted Answer

A) True 
 B)False

Question 13

Finance companies differ from commercial banks, savings institutions, and credit unions in that they

Accepted Answer

A) do not rely heavily on deposits as a source of funds. 
B) focus on financing acquisitions by companies. 
C) focus on providing residential mortgages. 
D) use most of their funds to purchase stocks 
A) do not rely heavily on deposits as a source of funds. 
B) focus on financing acquisitions by companies. 
C) focus on providing residential mortgages. 
D) use most of their funds to purchase stocks

Question 14

Business finance companies focus on loans to very large businesses.

Accepted Answer

A) True 
 B)False

Question 15

Consumer finance companies sometimes provide mortgage loans to individuals.

Accepted Answer

A) True 
 B)False

Question 16

Unlike loans made by commercial banks, loans made by finance companies cannot be securitized (bundled together and sold as securities to investors).

Accepted Answer

A) True 
 B)False

Question 17

Overall, the liquidity risk of finance companies is higher than that of other financial institutions.

Accepted Answer

A) True 
 B)False

Question 18

A wholly owned subsidiary whose primary purpose is to finance sales of the parent company's products and services, provide wholesale financing to distributors of the parent company's products, and purchase receivables of the parent company is a

Accepted Answer

A) captive finance subsidiary. 
B) factor. 
C) leasing agent. 
D) captive factoring agent. 
A) captive finance subsidiary. 
B) factor. 
C) leasing agent. 
D) captive factoring agent.

Question 19

Which of the following is  NOT  a main source of funds for finance companies?

Accepted Answer

A) bank loans 
B) commercial paper issues 
C) bonds 
D) borrowing from the Federal Reserve 
A) bank loans 
B) commercial paper issues 
C) bonds 
D) borrowing from the Federal Reserve

Question 20

Finance companies are not subject to state regulations on intrastate business.

Accepted Answer

A) True 
 B)False

Exam 22: Finance Company Operations

Consumer finance companies primarily focus on

Finance companies would prefer to increase their long-term debt when interest rates

The most important risk for finance companies is ____ risk.

When interest rates increase, finance companies tend to use more long-term debt to lock in their cost of funds over an extended period of time.

Finance companies are subject to

Finance companies can accumulate capital by doing all of the following EXCEPT

If finance companies have liabilities that are more rate sensitive than their assets and want to reduce interest rate risk, they could

Finance companies participate in the ____ market to reduce interest rate risk.

The ________ is the federal agency responsible for regulating consumer finance products and services that may be offered by finance companies.

Many consumer finance companies provide personal loans directly to individuals to finance purchases of large household items.

The value of a finance company can be modeled as the present value of its future cash flows.

Some finance companies offer credit card loans through a particular retailer.

Finance companies differ from commercial banks, savings institutions, and credit unions in that they

Business finance companies focus on loans to very large businesses.

Consumer finance companies sometimes provide mortgage loans to individuals.

Unlike loans made by commercial banks, loans made by finance companies cannot be securitized (bundled together and sold as securities to investors).

Overall, the liquidity risk of finance companies is higher than that of other financial institutions.

A wholly owned subsidiary whose primary purpose is to finance sales of the parent company's products and services, provide wholesale financing to distributors of the parent company's products, and purchase receivables of the parent company is a

Which of the following is NOT a main source of funds for finance companies?

Finance companies are not subject to state regulations on intrastate business.

Role of Financial Markets and Institutions

Determination of Interest Rates

Structure of Interest Rates

Functions of the Fed

Monetary Policy

Money Markets

Bond Markets

Bond Valuation and Risk

Mortgage Markets

Stock Offerings and Investor Monitoring

Stock Valuation and Risk

Market Microstructure and Strategies

Financial Futures Markets

Options Markets

Swap Markets

Foreign Exchange Derivative Markets

Commercial Bank Operations

Bank Regulation

Bank Management

Bank Performance

Thrift Operations

Mutual Fund Operations

Securities Operations

Insurance and Pension Fund Operations

Pension Fund Operations

Filters