Question 1

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

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

As of 2012, real estate loans dominated the assets of finance companies.

Accepted Answer

A) True 
 B)False

Question 4

Personal credit institutions specialize in making equipment leases to consumers.

Accepted Answer

A) True 
 B)False

Question 5

Sales finance institutions compete directly with depository institutions for consumer loans.

Accepted Answer

A) True 
 B)False

Question 6

Factoring involves

Accepted Answer

A) making loans to customers that depository institutions find too risky to lend. 
B) providing financing for the purchase of products manufactured by the parent company. 
C) approving of collateral that depository institutions do not find acceptable. 
D) providing financing through equipment leasing. 
E) purchasing of accounts receivable by finance company from corporate customers. 
A) making loans to customers that depository institutions find too risky to lend. 
B) providing financing for the purchase of products manufactured by the parent company. 
C) approving of collateral that depository institutions do not find acceptable. 
D) providing financing through equipment leasing. 
E) purchasing of accounts receivable by finance company from corporate customers.

Question 7

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

Accepted Answer

A) True 
 B)False

Question 8

Which of the following is the type of loan that Ford Motor Credit Corporation provides to Ford dealers to finance the cars that the dealer has for sale?

Accepted Answer

A) Inventory loan. 
B) Wholesale loan. 
C) Automobile lease. 
D) Factoring. 
E) Equipment loan. 
A) Inventory loan. 
B) Wholesale loan. 
C) Automobile lease. 
D) Factoring. 
E) Equipment loan.

Question 9

Which of the following is NOT true?

Accepted Answer

A) The fastest growing area of finance companies in recent years has been in the area of leasing and business loans. 
B) Consumer loans represent the largest portion of the loan portfolio of finance companies. 
C) Finance companies rely on short-term commercial paper and customer deposits to finance their assets. 
D) Finance companies rely on short-term commercial paper and long-term debt to finance their assets. 
E) Finance companies are now the largest issuers of commercial paper in the U.S. 
A) The fastest growing area of finance companies in recent years has been in the area of leasing and business loans. 
B) Consumer loans represent the largest portion of the loan portfolio of finance companies. 
C) Finance companies rely on short-term commercial paper and customer deposits to finance their assets. 
D) Finance companies rely on short-term commercial paper and long-term debt to finance their assets. 
E) Finance companies are now the largest issuers of commercial paper in the U.S.

Question 10

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

Accepted Answer

A) True 
 B)False

Question 11

As a percent of assets, finance companies currently rely more heavily on commercial paper as a source of financing than in 1977.

Accepted Answer

A) True 
 B)False

Question 12

Finance companies often prefer to lease equipment to customers because

Accepted Answer

A) repossession in the event of default is easier. 
B) a lease with little or no down payment is more attractive to business customers. 
C) the finance company receives the benefit of depreciation expense. 
D) All of the above. 
E) Answers A and C only. 
A) repossession in the event of default is easier. 
B) a lease with little or no down payment is more attractive to business customers. 
C) the finance company receives the benefit of depreciation expense. 
D) All of the above. 
E) Answers A and C only.

Question 13

Which of the following is NOT a type of finance company?

Accepted Answer

A) Sales finance institutions. 
B) Personal credit institutions. 
C) Business credit institutions. 
D) Captive finance company. 
E) All of the above are types of finance companies. 
A) Sales finance institutions. 
B) Personal credit institutions. 
C) Business credit institutions. 
D) Captive finance company. 
E) All of the above are types of finance companies.

Question 14

Which of the following is traditionally the major type of consumer loans for finance companies?

Accepted Answer

A) Revolving loans. 
B) Motor vehicle loans and leases. 
C) Wholesale loans. 
D) Equipment leases. 
E) Home equity loans. 
A) Revolving loans. 
B) Motor vehicle loans and leases. 
C) Wholesale loans. 
D) Equipment leases. 
E) Home equity loans.

Question 15

A finance company that lends money to high risk customers is known as a subprime lender.

Accepted Answer

A) True 
 B)False

Question 16

During 2006, originations of new subprime mortgages totaled approximately __________, which was ________ of new mortgages originated that year.

Accepted Answer

A) $600 billion; one-fifth 
B) $400 billion; one-tenth 
C) $100 billion; one-half 
D) $400 billion; one-third 
E) $600 billion; one-half 
A) $600 billion; one-fifth 
B) $400 billion; one-tenth 
C) $100 billion; one-half 
D) $400 billion; one-third 
E) $600 billion; one-half

Question 17

Finance companies have been among the slowest growing FI groups in recent years.

Accepted Answer

A) True 
 B)False

Question 18

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 19

What is the primary function of finance companies?

Accepted Answer

A) Protect individuals and corporations from adverse events. 
B) Make loans to both individuals and corporations. 
C) Extend loans to banks and other financial institutions. 
D) Pool the financial resources of individuals and companies and invest in diversified portfolios of assets. 
E) Assist in the trading of securities in the secondary markets. 
A) Protect individuals and corporations from adverse events. 
B) Make loans to both individuals and corporations. 
C) Extend loans to banks and other financial institutions. 
D) Pool the financial resources of individuals and companies and invest in diversified portfolios of assets. 
E) Assist in the trading of securities in the secondary markets.

Question 20

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

Exam 3: Financial Services: Finance Companies

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

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

As of 2012, real estate loans dominated the assets of finance companies.

Personal credit institutions specialize in making equipment leases to consumers.

Sales finance institutions compete directly with depository institutions for consumer loans.

Factoring involves

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

Which of the following is the type of loan that Ford Motor Credit Corporation provides to Ford dealers to finance the cars that the dealer has for sale?

Which of the following is NOT true?

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

As a percent of assets, finance companies currently rely more heavily on commercial paper as a source of financing than in 1977.

Finance companies often prefer to lease equipment to customers because

Which of the following is NOT a type of finance company?

Which of the following is traditionally the major type of consumer loans for finance companies?

A finance company that lends money to high risk customers is known as a subprime lender.

During 2006, originations of new subprime mortgages totaled approximately __________, which was ________ of new mortgages originated that year.

Finance companies have been among the slowest growing FI groups in recent years.

Home equity loans have

What is the primary function of finance companies?

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

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

During 2006, originations of new subprime mortgages totaled approximately __, which was of new mortgages originated that year.