Question 1

Which of the following is are not true regarding finance companies and business loans.

Accepted Answer

A) Business loans represent 31.8 percent of the loan portfolio of finance companies. 
B) They are not subject to regulations that restrict the types of products and services they can offer. 
C) Finance companies rely on short-term commercial paper and customer deposits to finance their assets. 
D) Since finance companies do not accept deposits, they have no bank-type regulators looking at them. 
E) Finance companies often have substantial industry and produce expertise.

Question 2

It is impossible for an individual to be approved for a finance company loan with a bankruptcy on their record.

Accepted Answer

A) True 
 B)False

Question 3

Finance companies generally charge lower interest rates on consumer loans than do depository institutions.

Accepted Answer

A) True 
 B)False

Question 4

Finance companies generally attract less risky customers than do commercial banks.

Accepted Answer

A) True 
 B)False

Question 5

Finance companies prefer to outwardly purchase equipment and then lease it to a business rather than finance the purchase because they receive part of the lease payment in the form of a down payment from the purchaser.

Accepted Answer

A) True 
 B)False

Question 6

Finance companies that prey on desperate higher-risk customers charging unfairly exorbitant interest rates are referred to as

Accepted Answer

A) refinancing companies. 
B) captive companies. 
C) business credit companies. 
D) loan shark companies. 
E) personal credit companies.

Question 7

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.

Question 8

Wholesale and retail motor vehicle loans and leases constitute the largest subcategory of business loans.

Accepted Answer

A) True 
 B)False

Question 9

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.

Question 10

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.

Question 11

Many large finance companies offer all the following types of loan EXCEPT

Accepted Answer

A) home equity lines of credit. 
B) credit card loans. 
C) inventory loans to businesses. 
D) accounts receivable loans to businesses (factoring). 
E) None of the options

Question 12

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.

Question 13

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.

Question 14

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

Accepted Answer

A) True 
 B)False

Question 15

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 16

The typical customer of a payday lender has income of between $25,000 and $50,000 per year.

Accepted Answer

A) True 
 B)False

Question 17

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.

Question 18

Bad debt expense and administrative costs are lower on home equity loans than other typical loans of finance companies.

Accepted Answer

A) True 
 B)False

Question 19

As of March 2015, the payday loan industry was regulated at the federal level.

Accepted Answer

A) True 
 B)False

Question 20

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

Which of the following is are not true regarding finance companies and business loans.

It is impossible for an individual to be approved for a finance company loan with a bankruptcy on their record.

Finance companies generally charge lower interest rates on consumer loans than do depository institutions.

Finance companies generally attract less risky customers than do commercial banks.

Finance companies prefer to outwardly purchase equipment and then lease it to a business rather than finance the purchase because they receive part of the lease payment in the form of a down payment from the purchaser.

Finance companies that prey on desperate higher-risk customers charging unfairly exorbitant interest rates are referred to as

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

Wholesale and retail motor vehicle loans and leases constitute the largest subcategory of business loans.

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 a major source of debt capital for a captive finance company?

Many large finance companies offer all the following types of loan EXCEPT

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

What is the primary function of finance companies?

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

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.

The typical customer of a payday lender has income of between $25,000 and $50,000 per year.

Finance companies have enjoyed very high rates of growth because they

Bad debt expense and administrative costs are lower on home equity loans than other typical loans of finance companies.

As of March 2015, the payday loan industry was regulated at the federal level.

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