Question 1

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

Accepted Answer

Finance companies face various types of

Question 2

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 3

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 4

Finance companies are ________ market intermediaries.

Accepted Answer

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

Question 5

Consumer finance companies make loans to borrowers who would not qualify for bank loans due to low income or poor credit.

Accepted Answer

A) True 
 B)False

Question 6

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 7

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 8

Consumer finance companies typically make loans to consumers who

Accepted Answer

A) prefer to avoid the regulatory environment at a bank. 
B) cannot obtain credit otherwise due to low income or poor credit. 
C) Both A and B of the above are correct. 
D) Neither A nor B of the above are correct. 
A) prefer to avoid the regulatory environment at a bank. 
B) cannot obtain credit otherwise due to low income or poor credit. 
C) Both A and B of the above are correct. 
D) Neither A nor B of the above are correct.

Question 9

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 10

In which industry is a floor plan common practice?

Accepted Answer

A) automobile 
B) tech services 
C) entertainment 
D) apparel 
A) automobile 
B) tech services 
C) entertainment 
D) apparel

Question 11

Factoring refers to purchasing a firm's accounts receivables at a premium.

Accepted Answer

A) True 
 B)False

Question 12

Although finance companies are largely unregulated, they do face some regulations aimed primarily at

Accepted Answer

A) protecting unsophisticated customers. 
B) the government deposit insurance. 
C) large corporate customers. 
D) protecting the finance companies from failure. 
A) protecting unsophisticated customers. 
B) the government deposit insurance. 
C) large corporate customers. 
D) protecting the finance companies from failure.

Question 13

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

Accepted Answer

A) True 
 B)False

Question 14

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.

Question 15

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

Accepted Answer

A) True 
 B)False

Question 16

Finance companies essentially sell commercial paper and use the proceeds to make loans.

Accepted Answer

A) True 
 B)False

Question 17

What factors explain the existence of finance companies, given that banks already provide loans, credit, and so forth?

Accepted Answer

Finance companies, also known as non-ban

Question 18

In factoring, a finance company makes a loan and

Accepted Answer

A) purchases the firm's accounts receivables at a premium. 
B) purchases the firm's accounts payables at a premium. 
C) purchases the firm's accounts receivables at a discount. 
D) purchases the firm's accounts payables at a discount. 
A) purchases the firm's accounts receivables at a premium. 
B) purchases the firm's accounts payables at a premium. 
C) purchases the firm's accounts receivables at a discount. 
D) purchases the firm's accounts payables at a discount.

Question 19

The earliest examples of finance companies date back to the beginning of the ________ when retailers offered installment credit to customers.

Accepted Answer

A) 1800s 
B) 1900s 
C) 1950s 
D) 1980s 
A) 1800s 
B) 1900s 
C) 1950s 
D) 1980s

Question 20

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

Exam 26: Finance Companies

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?

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.

Finance companies are ________ market intermediaries.

Consumer finance companies make loans to borrowers who would not qualify for bank loans due to low income or poor credit.

Sales finance companies make loans to consumers to purchase items

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

Consumer finance companies typically make loans to consumers who

In which industry is factoring a common practice?

In which industry is a floor plan common practice?

Factoring refers to purchasing a firm's accounts receivables at a premium.

Although finance companies are largely unregulated, they do face some regulations aimed primarily at

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

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

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

Finance companies essentially sell commercial paper and use the proceeds to make loans.

What factors explain the existence of finance companies, given that banks already provide loans, credit, and so forth?

In factoring, a finance company makes a loan and

The earliest examples of finance companies date back to the beginning of the ________ when retailers offered installment credit to customers.

In which industry is factoring a common practice?

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