Question 1

Finance companies have relied primarily on short-term commercial paper and other debt sources to finance asset growth.

Accepted Answer

A) True 
 B)False

Question 2

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. 
E) finance companies were required to offer time deposit products to their customers. 
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. 
E) finance companies were required to offer time deposit products to their customers.

Question 3

A company that provides financing to corporations, especially through equipment leasing and factoring would best be categorized as a

Accepted Answer

A) sales finance institution. 
B) personal credit institution. 
C) subprime lender. 
D) loan shark. 
E) business credit institution. 
A) sales finance institution. 
B) personal credit institution. 
C) subprime lender. 
D) loan shark. 
E) business credit institution.

Question 4

As the economic expansion continued through the 1990s, the demand for finance company loans increased.

Accepted Answer

A) True 
 B)False

Question 5

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 6

A person with a history of bad credit and an inconsistent record of payments on other debt is most likely to find a short-term loan through a

Accepted Answer

A) commercial bank. 
B) personal credit institution. 
C) savings bank. 
D) sales finance institution. 
E) payday lender. 
A) commercial bank. 
B) personal credit institution. 
C) savings bank. 
D) sales finance institution. 
E) payday lender.

Question 7

Finance companies differ from banks in that they do not accept deposits.

Accepted Answer

A) True 
 B)False

Question 8

During the period from 1977 to 2012,

Accepted Answer

A) total assets in finance companies grew over 1,000%. 
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. 
E) in finance companies, consumer lending increased as a percent of total assets. 
A) total assets in finance companies grew over 1,000%. 
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. 
E) in finance companies, consumer lending increased as a percent of total assets.

Question 9

In financing their asset growth, finance companies

Accepted Answer

A) have relied more on bank loans over time. 
B) rely heavily on short-term commercial paper. 
C) use less equity capital than commercial banks. 
D) do not issue demand deposits, but can issue time deposits. 
E) use very small amounts of long-term debt and bonds. 
A) have relied more on bank loans over time. 
B) rely heavily on short-term commercial paper. 
C) use less equity capital than commercial banks. 
D) do not issue demand deposits, but can issue time deposits. 
E) use very small amounts of long-term debt and bonds.

Question 10

Sales finance institutions provide financing to customers of specific retailers.

Accepted Answer

A) True 
 B)False

Question 11

Finance companies have enjoyed very high rates of growth because they

Accepted Answer

A) are willing to lend to riskier customers than commercial banks. 
B) charge higher rates on lower risk loans. 
C) do not have ties or affiliations with manufacturing firms. 
D) face very high levels of regulation, which assures their success. 
E) do not sell the loans that they originate. 
A) are willing to lend to riskier customers than commercial banks. 
B) charge higher rates on lower risk loans. 
C) do not have ties or affiliations with manufacturing firms. 
D) face very high levels of regulation, which assures their success. 
E) do not sell the loans that they originate.

Question 12

Which of the following observations concerning mortgages is NOT valid?

Accepted Answer

A) They may refer to loans secured by lien on residential houses. 
B) They are a minor component in finance company portfolios. 
C) Mortgage-backed securities are created by securitization. 
D) Home equity loans are examples of second mortgages. 
E) The interest on a mortgage loan secured by a primary residence is not tax deductible to the homeowner. 
A) They may refer to loans secured by lien on residential houses. 
B) They are a minor component in finance company portfolios. 
C) Mortgage-backed securities are created by securitization. 
D) Home equity loans are examples of second mortgages. 
E) The interest on a mortgage loan secured by a primary residence is not tax deductible to the homeowner.

Question 13

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 14

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) originated from check cashing outlets in the early 1990s. 
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) originated from check cashing outlets in the early 1990s. 
E) is wholly owned by a parent corporation.

Question 15

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

Accepted Answer

A) True 
 B)False

Exam 3: Financial Services: Finance Companies

Finance companies have relied primarily on short-term commercial paper and other debt sources to finance asset growth.

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

A company that provides financing to corporations, especially through equipment leasing and factoring would best be categorized as a

As the economic expansion continued through the 1990s, the demand for finance company loans increased.

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.

A person with a history of bad credit and an inconsistent record of payments on other debt is most likely to find a short-term loan through a

Finance companies differ from banks in that they do not accept deposits.

During the period from 1977 to 2012,

In financing their asset growth, finance companies

Sales finance institutions provide financing to customers of specific retailers.

Finance companies have enjoyed very high rates of growth because they

Which of the following observations concerning mortgages is NOT valid?

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

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

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

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