Question 1

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 2

Payday lenders are a subset of subprime lenders.

Accepted Answer

A) True 
 B)False

Question 3

Securitized mortgage assets are used as collateral backing secondary market securities.

Accepted Answer

A) True 
 B)False

Question 4

Many large finance companies offer all the following types of loan EXCEPT

Accepted Answer

A) home equity lines of credit. 
B) credit card loans. 
C) inventory loans to businesses. 
D) accounts receivable loans to businesses (factoring). 
E) None of the options 
A) home equity lines of credit. 
B) credit card loans. 
C) inventory loans to businesses. 
D) accounts receivable loans to businesses (factoring). 
E) None of the options

Question 5

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 6

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

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. 
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.

Question 8

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. 
A) Sales finance institution. 
B) Personal credit institution. 
C) Business credit institution. 
D) Lease finance company.

Question 9

A company that specializes in making installment loans to consumers would best be categorized as a

Accepted Answer

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

Question 10

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

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

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

Accepted Answer

A) True 
 B)False

Question 14

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

Accepted Answer

A) True 
 B)False

Question 15

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. 
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.

Question 16

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

Accepted Answer

A) True 
 B)False

Question 17

Which of the following observations concerning payday lenders is NOT true?

Accepted Answer

A) They provide short-term cash advances. 
B) Their advances are due when borrowers receive their next paycheck. 
C) The industry originated from check cashing outlets. 
D) The payday loan industry is regulated at the state level. 
E) The demand for short-term loans has decreased considerably. 
A) They provide short-term cash advances. 
B) Their advances are due when borrowers receive their next paycheck. 
C) The industry originated from check cashing outlets. 
D) The payday loan industry is regulated at the state level. 
E) The demand for short-term loans has decreased considerably.

Question 18

A major role of the captive finance company is to provide financing for the purchase of products manufactured or sold by the parent company.

Accepted Answer

A) True 
 B)False

Question 19

Factoring is the process where accounts are purchased by a nonfinancial company at a discount from their face value in exchange for the responsibility of collection.

Accepted Answer

A) True 
 B)False

Question 20

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. 
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.

Exam 3: Financial Services: Finance Companies

Home equity loans have

Payday lenders are a subset of subprime lenders.

Securitized mortgage assets are used as collateral backing secondary market securities.

Many large finance companies offer all the following types of loan EXCEPT

Finance companies charge different rates than do commercial banks which

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

During the period from 1977 to 2015,

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

A company that specializes in making installment loans to consumers would best be categorized as a

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

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

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

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

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

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

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

Which of the following observations concerning payday lenders is NOT true?

A major role of the captive finance company is to provide financing for the purchase of products manufactured or sold by the parent company.

Factoring is the process where accounts are purchased by a nonfinancial company at a discount from their face value in exchange for the responsibility of collection.

Which of the following is NOT true?

Why Are Financial Institutions Special

Financial Services: Depository Institutions

Financial Services: Securities Firms and Investment Banks

Financial Services: Mutual Fund and Hedge Fund Companies

Financial Services: Insurance Companies

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

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