Question 1

Two growth areas for consumer finance companies are

Accepted Answer

A)  first mortgages and vacation financing. 
B)  marine vessel loans and auto loans. 
C)  home equity loans and educational loans. 
D)  home equity loans and "private label" retail credit cards. 
A)  first mortgages and vacation financing. 
B)  marine vessel loans and auto loans. 
C)  home equity loans and educational loans. 
D)  home equity loans and "private label" retail credit cards. D

Question 2

Finance companies are ________ market intermediaries.

Accepted Answer

A)  stock 
B)  bond 
C)  FX 
D)  money 
A)  stock 
B)  bond 
C)  FX 
D)  money D

Question 3

How do consumer loans differ between those issued by finance companies and those issued by banks?

Accepted Answer

A)  Loans made by finance companies are often riskier than those issued by banks. 
B)  Consumer finance companies are typically owned by the manufacturer whose products are being financed. 
C)  Both A and B of the above are correct. 
D)  None of the above are correct. 
A)  Loans made by finance companies are often riskier than those issued by banks. 
B)  Consumer finance companies are typically owned by the manufacturer whose products are being financed. 
C)  Both A and B of the above are correct. 
D)  None of the above are correct. C

Question 4

In which industry is factoring a common practice?

Accepted Answer

A)  Automobile 
B)  Tech services 
C)  Entertainment 
D)  Apparel 
A)  Automobile 
B)  Tech services 
C)  Entertainment 
D)  Apparel

Question 5

Sales finance companies make loans to consumers to purchase items

Accepted Answer

A)  on the Internet. 
B)  from any retailer. 
C)  from a particular retailer. 
D)  for a specific use. 
A)  on the Internet. 
B)  from any retailer. 
C)  from a particular retailer. 
D)  for a specific use.

Question 6

A sales finance company differs from a captive finance company primarily in regulations and other restrictions.

Accepted Answer

A) True 
 B)False

Question 7

Like the consumer finance market,finance companies face many regulations in the business loan market.

Accepted Answer

A) True 
 B)False

Question 8

Discuss the regulatory environment for finance companies relative to commercial banks.

Accepted Answer

Finance companies and commercial banks o

Question 9

Commercial paper is an important source of funding for finance companies.As presented in the Consolidated Finance Company Balance Sheet,commercial paper represents about ________ of their liabilities.

Accepted Answer

A)  3.9% 
B)  5.8% 
C)  12.5% 
D)  20.0% 
A)  3.9% 
B)  5.8% 
C)  12.5% 
D)  20.0%

Question 10

Much like banking institutions,interest-rate risk is a big concern for finance companies.

Accepted Answer

A) True 
 B)False

Question 11

Finance companies face much stricter regulations than commercial banks.

Accepted Answer

A) True 
 B)False

Question 12

Usury statutes limit the level of interest rates that finance companies can charge their customers.

Accepted Answer

A) True 
 B)False

Question 13

What are the three main types of finance companies?

Accepted Answer

A)  Sales, lease, and buyback 
B)  Business, sales, and consumer 
C)  Factor, lease, and floor plan 
D)  None of the above are correct. 
A)  Sales, lease, and buyback 
B)  Business, sales, and consumer 
C)  Factor, lease, and floor plan 
D)  None of the above are correct.

Question 14

By the beginning of 2013,banks held $1,191 billion in consumer loans.Finance companies held about ________ of that figure.

Accepted Answer

A)  42% 
B)  68% 
C)  90% 
D)  117% 
A)  42% 
B)  68% 
C)  90% 
D)  117%

Question 15

Discuss the types of risk faced by finance companies.Are these risks similar to banks?

Accepted Answer

Finance companies face various types of

Question 16

Describe how floor plans work in the automobile industry.Why can finance companies offer these arrangements at a lower cost than banks?

Accepted Answer

Floor plans in the automobile industry w

Question 17

In the early 1900s,banks did not offer loans to purchase automobiles.This is because

Accepted Answer

A)  banks could not make a profit on car loans. 
B)  only finance companies were permitted to offer car loans. 
C)  banks could not repossess a car if the loan defaulted. 
D)  banks did not view a car as a productive asset. 
A)  banks could not make a profit on car loans. 
B)  only finance companies were permitted to offer car loans. 
C)  banks could not repossess a car if the loan defaulted. 
D)  banks did not view a car as a productive asset.

Question 18

Describe the process of factoring? When and why is it used?

Accepted Answer

Factoring is the process of finding the

Question 19

In a lease financing arrangement,a finance company will purchase equipment,which it then leases to a company for a set period.

Accepted Answer

A) True 
 B)False

Question 20

A balloon loan requires

Accepted Answer

A)  multiple payments at odd, random intervals. 
B)  periodic payments of principle and interest. 
C)  a single large payment at the loan's maturity to retire the debt. 
D)  a steadily increasing payment (floating balloon) to retire the debt. 
A)  multiple payments at odd, random intervals. 
B)  periodic payments of principle and interest. 
C)  a single large payment at the loan's maturity to retire the debt. 
D)  a steadily increasing payment (floating balloon) to retire the debt.

Exam 27: Finance Companies

Two growth areas for consumer finance companies are

Finance companies are ________ market intermediaries.

How do consumer loans differ between those issued by finance companies and those issued by banks?

In which industry is factoring a common practice?

Sales finance companies make loans to consumers to purchase items

A sales finance company differs from a captive finance company primarily in regulations and other restrictions.

Like the consumer finance market,finance companies face many regulations in the business loan market.

Discuss the regulatory environment for finance companies relative to commercial banks.

Commercial paper is an important source of funding for finance companies.As presented in the Consolidated Finance Company Balance Sheet,commercial paper represents about ________ of their liabilities.

Much like banking institutions,interest-rate risk is a big concern for finance companies.

Finance companies face much stricter regulations than commercial banks.

Usury statutes limit the level of interest rates that finance companies can charge their customers.

What are the three main types of finance companies?

By the beginning of 2013,banks held $1,191 billion in consumer loans.Finance companies held about ________ of that figure.

Discuss the types of risk faced by finance companies.Are these risks similar to banks?

Describe how floor plans work in the automobile industry.Why can finance companies offer these arrangements at a lower cost than banks?

In the early 1900s,banks did not offer loans to purchase automobiles.This is because

Describe the process of factoring? When and why is it used?

In a lease financing arrangement,a finance company will purchase equipment,which it then leases to a company for a set period.

A balloon loan requires

Why Study Financial Markets and Institutions?

Overview of the Financial System

What Do Interest Rates Mean and What Is Their Role in Valuation?

Why Do Interest Rates Change?

How Do Risk and Term Structure Affect Interest Rates?

Are Financial Markets Efficient?

Why Do Financial Institutions Exist?

Why Do Financial Crises Occur and

Central Banks and the Federal Reserve System

Conduct of Monetary Policy: Tools, Goals, Strategy, and Tactics

The Money Markets

The Bond Market

The Stock Market

The Mortgage Markets

The Foreign Exchange Market

The International Financial System

Banking and the Management of Financial Institutions

Financial Regulation

Banking Industry: Structure and Competition

The Mutual Fund Industry

Insurance Companies and Pension Funds

Investment Banks, Security Brokers and Dealers, and Venture Capital Firms

Risk Management in Financial Institutions

Hedging with Financial Derivatives

Financial Crises In Emerging Market Economies

Savings Associations and Credit Unions

Filters