Question 1

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 2

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 3

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

Accepted Answer

A) True 
 B)False

Question 4

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%

Question 5

Finance companies face much stricter regulations than commercial banks.

Accepted Answer

A) True 
 B)False

Question 6

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 7

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 8

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 9

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

Accepted Answer

Finance companies and commercial banks o

Question 10

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

Accepted Answer

Finance companies face various types of

Question 11

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 12

A balloon loan requires periodic payments of principle and interest.

Accepted Answer

A) True 
 B)False

Question 13

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 14

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

Accepted Answer

A) True 
 B)False

Question 15

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 16

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 17

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 18

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 19

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

Accepted Answer

A) True 
 B)False

Question 20

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

Exam 26: Finance Companies

What are the three main types of finance companies?

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

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

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

Finance companies face much stricter regulations than commercial banks.

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

Sales finance companies make loans to consumers to purchase items

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

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

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

What is liquidity risk?

A balloon loan requires periodic payments of principle and interest.

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

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

In factoring, a finance company makes a loan and

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.

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

Two growth areas for consumer finance companies are

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

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

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

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