Question 1

Which of the following is NOT an advantage of a finance company over a commercial bank in providing services to small business customers?

Accepted Answer

A) Finance companies are less willing to accept risky customers than are banks. 
B) Finance companies are not subject to regulations that restrict the type of products and services they can offer. 
C) Finance companies often have substantial industry and product expertise. 
D) Finance companies generally have lower overhead than banks. 
E) Finance companies do not accept deposits and therefore are not subject to bank-type regulatory restrictions. 
A) Finance companies are less willing to accept risky customers than are banks. 
B) Finance companies are not subject to regulations that restrict the type of products and services they can offer. 
C) Finance companies often have substantial industry and product expertise. 
D) Finance companies generally have lower overhead than banks. 
E) Finance companies do not accept deposits and therefore are not subject to bank-type regulatory restrictions.

Question 2

As of March 2012, the payday loan industry was regulated at the federal level.

Accepted Answer

A) True 
 B)False

Question 3

Finance companies have had no significant downturns in economic performance over the last two decades.

Accepted Answer

A) True 
 B)False

Question 4

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 5

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 6

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

Accepted Answer

A) True 
 B)False

Question 7

Finance companies generally have higher overhead than do commercial banks.

Accepted Answer

A) True 
 B)False

Question 8

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

Accepted Answer

A) True 
 B)False

Question 9

General Electric Capital Corporation is considered a captive finance company.

Accepted Answer

A) True 
 B)False

Question 10

Which of the following might lead a consumer to seek a loan from a subprime lender?

Accepted Answer

A) Inability to document their income. 
B) Have previously filed for bankruptcy. 
C) Has never had a loan before. 
D) Lack of savings for a down payment. 
E) All of the above. 
A) Inability to document their income. 
B) Have previously filed for bankruptcy. 
C) Has never had a loan before. 
D) Lack of savings for a down payment. 
E) All of the above.

Question 11

The largest 20 firms in the nondepository finance company industry account for more than 65 percent of industry assets.

Accepted Answer

A) True 
 B)False

Question 12

Prior to the financial crisis that began in 2007, finance companies

Accepted Answer

A) had experienced slow asset growth because of the upcoming economic slowdown. 
B) had found subprime lending to be a risk-free method to achieve growth. 
C) had experienced strong profit and loan growth, especially those companies that lend to less risky customers. 
D) had experienced strong success in the area of electronic lending. 
E) had avoided takeover attempts by other financial institutions. 
A) had experienced slow asset growth because of the upcoming economic slowdown. 
B) had found subprime lending to be a risk-free method to achieve growth. 
C) had experienced strong profit and loan growth, especially those companies that lend to less risky customers. 
D) had experienced strong success in the area of electronic lending. 
E) had avoided takeover attempts by other financial institutions.

Question 13

Wholesale and retail motor vehicle loans and leases constitute the largest subcategory of business loans.

Accepted Answer

A) True 
 B)False

Question 14

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

Question 15

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 16

It is impossible for an individual to be approved for a finance company loan with a bankruptcy on their record.

Accepted Answer

A) True 
 B)False

Question 17

As of 2012, which of the following is true concerning payday lending?

Accepted Answer

A) The typical borrower earns less than $25,000. 
B) Payday lending has been effectively banned in 18 states. 
C) Interest rate on payday loans were capped at an annual interest rate of 30% by federal legislation. 
D) Less than $30 billion of payday loans were generated by the industry. 
E) Payday lenders were banned from forming relationships with nationally chartered banks. 
A) The typical borrower earns less than $25,000. 
B) Payday lending has been effectively banned in 18 states. 
C) Interest rate on payday loans were capped at an annual interest rate of 30% by federal legislation. 
D) Less than $30 billion of payday loans were generated by the industry. 
E) Payday lenders were banned from forming relationships with nationally chartered banks.

Question 18

Business loans represent 60% of the loan portfolio of finance companies.

Accepted Answer

A) True 
 B)False

Question 19

Compared to commercial 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 the above. 
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 the above.

Question 20

Which of the following is NOT a type of consumer loan?

Accepted Answer

A) Personal cash loan. 
B) Mobile home loan. 
C) Private-label credit card loan. 
D) Equipment loan. 
E) Motor vehicle loan. 
A) Personal cash loan. 
B) Mobile home loan. 
C) Private-label credit card loan. 
D) Equipment loan. 
E) Motor vehicle loan.

Exam 3: Financial Services: Finance Companies

Which of the following is NOT an advantage of a finance company over a commercial bank in providing services to small business customers?

As of March 2012, the payday loan industry was regulated at the federal level.

Finance companies have had no significant downturns in economic performance over the last two decades.

Which of the following is NOT true?

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

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

Finance companies generally have higher overhead than do commercial banks.

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

General Electric Capital Corporation is considered a captive finance company.

Which of the following might lead a consumer to seek a loan from a subprime lender?

The largest 20 firms in the nondepository finance company industry account for more than 65 percent of industry assets.

Prior to the financial crisis that began in 2007, finance companies

Wholesale and retail motor vehicle loans and leases constitute the largest subcategory of business loans.

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

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

It is impossible for an individual to be approved for a finance company loan with a bankruptcy on their record.

As of 2012, which of the following is true concerning payday lending?

Business loans represent 60% of the loan portfolio of finance companies.

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

Which of the following is NOT a type of consumer loan?

Why Are Financial Institutions Special

Financial Services: Depository Institutions

Financial Services: Securities Brokerage and Investment Banking

Financial Services: Mutual Funds and Hedge Funds

Financial Services: Insurance

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