Question 1

Sales finance institutions provide financing to customers of specific retailers.

Accepted Answer

A) True 
 B)False

Question 2

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 3

Personal credit institutions may be willing to approve of collateral that deposit-taking institutions do not find acceptable.

Accepted Answer

A) True 
 B)False

Question 4

A finance company may be classified as a subprime lender if it

Accepted Answer

A) charges interest rates below those charged by commercial banks. 
B) lends to low-risk customers. 
C) lends to high-risk customers. 
D) is not supervised by OSFI. 
E) is wholly owned by a parent corporation. 
A) charges interest rates below those charged by commercial banks. 
B) lends to low-risk customers. 
C) lends to high-risk customers. 
D) is not supervised by OSFI. 
E) is wholly owned by a parent corporation.

Question 5

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 6

The largest category of business loans of finance companies is securitized business assets.

Accepted Answer

A) True 
 B)False

Question 7

Personal credit institutions specialize in making equipment leases to consumers.

Accepted Answer

A) True 
 B)False

Question 8

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

Accepted Answer

A) True 
 B)False

Question 9

Over the last 30 years finance companies have replaced real estate loans and other assets with increasing amounts of consumer and business loans.

Accepted Answer

A) True 
 B)False

Question 10

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 11

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 12

Finance companies operate more like nonfinancial, nonregulated companies than any other type of financial institution.

Accepted Answer

A) True 
 B)False

Question 13

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

Accepted Answer

A) True 
 B)False

Question 14

Home equity loans have

Accepted Answer

A) become less profitable for finance companies. 
B) seen reduced demand in Canada since the financial market crisis in 2008. 
C) interest charges that are 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 by their home. 
A) become less profitable for finance companies. 
B) seen reduced demand in Canada since the financial market crisis in 2008. 
C) interest charges that are 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 by their home.

Question 15

Compared to 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 these. 
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 these.

Question 16

The growth in home equity lines of credit over the last two decades has occurred in part because of the tax deductibility of the interest payments.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following is a major source of debt capital for a captive finance company?

Accepted Answer

A) Premiums. 
B) Deposits. 
C) Equity. 
D) Bank loans. 
E) Parent company. 
A) Premiums. 
B) Deposits. 
C) Equity. 
D) Bank loans. 
E) Parent company.

Question 18

As of March 2012, the payday loan industry was regulated by OSFI.

Accepted Answer

A) True 
 B)False

Question 19

Finance companies generally attract less risky customers than do commercial banks.

Accepted Answer

A) True 
 B)False

Question 20

Traditionally, motor vehicle loans and leases are the largest category of consumer loans for finance companies.

Accepted Answer

A) True 
 B)False

Exam 3: Finance Companies

Sales finance institutions provide financing to customers of specific retailers.

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

Personal credit institutions may be willing to approve of collateral that deposit-taking institutions do not find acceptable.

A finance company may be classified as a subprime lender if it

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.

The largest category of business loans of finance companies is securitized business assets.

Personal credit institutions specialize in making equipment leases to consumers.

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

Over the last 30 years finance companies have replaced real estate loans and other assets with increasing amounts of consumer and business loans.

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

Which of the following is NOT true?

Finance companies operate more like nonfinancial, nonregulated companies than any other type of financial institution.

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

Home equity loans have

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

The growth in home equity lines of credit over the last two decades has occurred in part because of the tax deductibility of the interest payments.

Which of the following is a major source of debt capital for a captive finance company?

As of March 2012, the payday loan industry was regulated by OSFI.

Finance companies generally attract less risky customers than do commercial banks.

Traditionally, motor vehicle loans and leases are the largest category of consumer loans for finance companies.

Why Are Financial Institutions Special

Deposit-Taking Institutions

Securities, Brokerage, and Investment Banking

Mutual Funds, Hedge Funds, and Pension Funds

Insurance Companies

Risks of Financial Institutions

Interest Rate Risk I

Interest Rate Risk II

Credit Risk: Individual Loans

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

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 Index

Filters