Question 1

By the beginning of 2010, banks held $1,177 billion in consumer loans. Finance companies held about ________ of that figure.

Accepted Answer

A) 40% 
B) 60% 
C) 90% 
D) 110% 
A) 40% 
B) 60% 
C) 90% 
D) 110% B

Question 2

On average, finance companies have a capital-to-total-asset ratio that is ________ than that of banks and savings and loans.

Accepted Answer

A) lower 
B) the same as 
C) higher 
D) None of the above are correct. Finance companies do not have a capital-to-total-asset ratio. 
A) lower 
B) the same as 
C) higher 
D) None of the above are correct. Finance companies do not have a capital-to-total-asset ratio. C

Question 3

As presented in the Consolidated Finance Company Balance Sheet, the largest asset of finance companies is consumer loans, representing ________ of assets.

Accepted Answer

A) 10% 
B) 22% 
C) 25% 
D) 33% 
A) 10% 
B) 22% 
C) 25% 
D) 33% D

Question 4

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 5

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

Accepted Answer

A) True 
 B)False

Question 6

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

Accepted Answer

Factoring is the process of finding the

Question 7

Lease financing is an example of a business financing need not served by most banks.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following is not an advantage of a lease financing arrangement?

Accepted Answer

A) Companies with losses can still depreciate equipment if leased from a finance company. 
B) Repossession is easier in a lease-finance arrangement because the finance company already owns the equipment. 
C) Finance companies are in a good position to sell a repossessed asset, especially if they are a subsidiary of the equipment manufacturer. 
D) The lessee often does not have to make as large of an upfront payment, relative to a straight loan. 
A) Companies with losses can still depreciate equipment if leased from a finance company. 
B) Repossession is easier in a lease-finance arrangement because the finance company already owns the equipment. 
C) Finance companies are in a good position to sell a repossessed asset, especially if they are a subsidiary of the equipment manufacturer. 
D) The lessee often does not have to make as large of an upfront payment, relative to a straight loan.

Question 9

What is default risk?

Accepted Answer

A) A problem that arises when a firm runs short of cash. 
B) The risk of asset prices rising too high. 
C) The chance that the borrower will fail to repay a loan. 
D) The risk associated with longer-term contracts. 
A) A problem that arises when a firm runs short of cash. 
B) The risk of asset prices rising too high. 
C) The chance that the borrower will fail to repay a loan. 
D) The risk associated with longer-term contracts.

Question 10

What is liquidity risk?

Accepted Answer

A) A problem that arises when a firm runs short of cash. 
B) The risk of asset prices rising too high. 
C) The chance that the borrower will fail to repay a loan. 
D) The risk associated with longer-term contracts. 
A) A problem that arises when a firm runs short of cash. 
B) The risk of asset prices rising too high. 
C) The chance that the borrower will fail to repay a loan. 
D) The risk associated with longer-term contracts.

Question 11

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

Accepted Answer

A) True 
 B)False

Question 12

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 13

Many retailers established finance companies to provide financing for their customers. Although these finance subsidiaries did increase sales, the subsidiary was typically unprofitable.

Accepted Answer

A) True 
 B)False

Question 14

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.

Question 15

In 2010, the largest portion of loans made by finance companies was ________, representing 43.3% of the loans.

Accepted Answer

A) consumer loans 
B) factoring loans 
C) business loans 
D) real estate 
A) consumer loans 
B) factoring loans 
C) business loans 
D) real estate

Question 16

Installment credit is a loan that requires the borrower to make a series of equal payments over some fixed length of time.

Accepted Answer

A) True 
 B)False

Question 17

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.

Question 18

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

Accepted Answer

Finance companies and commercial banks o

Question 19

What are the various types of finance companies?

Accepted Answer

Finance companies are organizations that

Question 20

Finance companies face much stricter regulations than commercial banks.

Accepted Answer

A) True 
 B)False

Exam 26: Finance Companies

By the beginning of 2010, banks held $1,177 billion in consumer loans. Finance companies held about ________ of that figure.

On average, finance companies have a capital-to-total-asset ratio that is ________ than that of banks and savings and loans.

As presented in the Consolidated Finance Company Balance Sheet, the largest asset of finance companies is consumer loans, representing ________ of assets.

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

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

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

Lease financing is an example of a business financing need not served by most banks.

Which of the following is not an advantage of a lease financing arrangement?

What is default risk?

What is liquidity risk?

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

What are the three main types of finance companies?

Many retailers established finance companies to provide financing for their customers. Although these finance subsidiaries did increase sales, the subsidiary was typically unprofitable.

Two growth areas for consumer finance companies are

In 2010, the largest portion of loans made by finance companies was ________, representing 43.3% of the loans.

Installment credit is a loan that requires the borrower to make a series of equal payments over some fixed length of time.

A balloon loan requires

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

What are the various types of finance companies?

Finance companies face much stricter regulations than commercial banks.

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 Why Are They so Damaging to the Economy

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

Savings Associations and Credit Unions

Filters