Question 1

When a finance company pools mortgages with similar characteristics and securitizes the pool,the loans are removed from the balance sheet of the finance company.

Accepted Answer

A) True 
 B)False

Question 2

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 3

Which of the following is NOT a type of finance company?

Accepted Answer

A) Sales finance institutions. 
B) Personal credit institutions. 
C) Business credit institutions. 
D) Captive finance company. 
E) All of the options are types of finance companies.

Question 4

During 2006,originations of new subprime mortgages totaled approximately __________,which was ________ of new mortgages originated that year.

Accepted Answer

A) $600 billion;one-fifth 
B) $400 billion;one-tenth 
C) $100 billion;one-half 
D) $400 billion;one-third

Question 5

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.

Question 6

The largest 20 firms in the nondepository finance company industry account for more than 65 percent of industry assets.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following is traditionally the major type of consumer loans for finance companies?

Accepted Answer

A) Revolving loans. 
B) Motor vehicle loans and leases. 
C) Wholesale loans. 
D) Equipment leases.

Question 8

Which of the following is NOT a type of consumer loan?

Accepted Answer

A) Personal cash loan. 
B) Mobile home loan. 
C) Private-label credit card loan. 
D) Equipment loan.

Question 9

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.

Question 10

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.

Question 11

General Electric Capital Corporation is considered a captive finance company.

Accepted Answer

A) True 
 B)False

Question 12

Factoring involves

Accepted Answer

A) making loans to customers that depository institutions find too risky to lend. 
B) providing financing for the purchase of products manufactured by the parent company. 
C) approving of collateral that depository institutions do not find acceptable. 
D) providing financing through equipment leasing. 
E) purchasing of accounts receivable by finance company from corporate customers.

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.

Question 14

Finance companies have traditionally been subject to state-imposed usury ceilings on the maximum loan rate charged to any individual customers.

Accepted Answer

A) True 
 B)False

Question 15

The first major consumer finance company which was created during the Great Depression on the 1930's was

Accepted Answer

A) General Motors Acceptance Corporation (GMA
C) . 
B) American Express Corporation. 
C) General Electric Capital Corporation (GEC
C) . 
D) Household Finance International.

Question 16

Finance companies have been among the slowest growing FI groups in recent years.

Accepted Answer

A) True 
 B)False

Question 17

As an industry,finance companies have escaped the merger and consolidation activity that has affected nearly every other sector of the financial services industry.

Accepted Answer

A) True 
 B)False

Question 18

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

Accepted Answer

A) True 
 B)False

Question 19

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.

Question 20

Compared to commercial banks,why do finance companies often have substantial industry and product expertise?

Accepted Answer

A) Because they have no bank-type regulators looking directly over their shoulders. 
B) Because they are specialized in market research and analysis. 
C) Because they are often subsidiaries of corporate-sector holding companies. 
D) Because they are more often willing to accept risky customers.

Exam 3: Financial Services: Finance Companies

When a finance company pools mortgages with similar characteristics and securitizes the pool,the loans are removed from the balance sheet of the finance company.

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.

Which of the following is NOT a type of finance company?

During 2006,originations of new subprime mortgages totaled approximately __,which was of new mortgages originated that year.

Which of the following observations concerning mortgages is NOT valid?

The largest 20 firms in the nondepository finance company industry account for more than 65 percent of industry assets.

Which of the following is traditionally the major type of consumer loans for finance companies?

Which of the following is NOT a type of consumer loan?

Finance companies have enjoyed very high rates of growth because they

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?

General Electric Capital Corporation is considered a captive finance company.

Factoring involves

What is the primary function of finance companies?

Finance companies have traditionally been subject to state-imposed usury ceilings on the maximum loan rate charged to any individual customers.

The first major consumer finance company which was created during the Great Depression on the 1930's was

Finance companies have been among the slowest growing FI groups in recent years.

As an industry,finance companies have escaped the merger and consolidation activity that has affected nearly every other sector of the financial services industry.

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

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

Compared to commercial banks,why do finance companies often have substantial industry and product expertise?