Question 1

Consumer finance companies primarily focus on

Accepted Answer

A)  consumer loans. 
B)  consumer advising. 
C)  consumer regulation. 
D)  none of the above 
A)  consumer loans. 
B)  consumer advising. 
C)  consumer regulation. 
D)  none of the above A

Question 2

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 C

Question 3

When a finance company purchases a firm's receivables at a discount and becomes responsible for processing and collecting the balances of these accounts, it acts as a

Accepted Answer

A)  leasing agent. 
B)  lessor. 
C)  lessee. 
D)  factor. 
A)  leasing agent. 
B)  lessor. 
C)  lessee. 
D)  factor. D

Question 4

A finance company's cash flows are _____ related to changes in economic growth and may be ____ related to changes in the risk-free rate.

Accepted Answer

A)  positively; inversely 
B)  inversely; positively 
C)  inversely; inversely 
D)  positively; positively 
A)  positively; inversely 
B)  inversely; positively 
C)  inversely; inversely 
D)  positively; positively

Question 5

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 6

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 7

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

Accepted Answer

A) True 
 B)False

Question 8

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.

Question 9

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 10

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 11

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

Question 12

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

Accepted Answer

A) True 
 B)False

Question 13

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 14

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 15

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 16

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

Accepted Answer

A) True 
 B)False

Question 17

Business finance companies focus on loans to very large businesses.

Accepted Answer

A) True 
 B)False

Question 18

Which of the following is not a use of finance company funds?

Accepted Answer

A)  consumer loans 
B)  business loans 
C)  commercial paper 
D)  real estate loans 
E)  All of the above are uses of finance company funds. 
A)  consumer loans 
B)  business loans 
C)  commercial paper 
D)  real estate loans 
E)  All of the above are uses of finance company funds.

Question 19

Finance companies are subject to

Accepted Answer

A)  disclosure requirements and truth in lending rules. 
B)  ceiling interest rates on loans provided. 
C)  a maximum length on loan maturity. 
D)  regulations on intrastate business. 
E)  all of the above 
A)  disclosure requirements and truth in lending rules. 
B)  ceiling interest rates on loans provided. 
C)  a maximum length on loan maturity. 
D)  regulations on intrastate business. 
E)  all of the above

Question 20

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

Accepted Answer

A) True 
 B)False

Exam 22: Finance Company Operations

Consumer finance companies primarily focus on

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

When a finance company purchases a firm's receivables at a discount and becomes responsible for processing and collecting the balances of these accounts, it acts as a

A finance company's cash flows are _____ related to changes in economic growth and may be ____ related to changes in the risk-free rate.

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

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 not subject to state regulations on intrastate business.

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

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

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

The most important risk for finance companies is ____ risk.

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

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

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

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

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

Business finance companies focus on loans to very large businesses.

Which of the following is not a use of finance company funds?

Finance companies are subject to

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

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 Operations

Pension Fund Operations

Filters

A finance company's cash flows are _ related to changes in economic growth and may be related to changes in the risk-free rate.