Question 1

Finance companies operate more like nonfinancial, nonregulated companies than any other type of financial institution.

Accepted Answer

A) True 
 B)False  True

Question 2

As of 2015, real estate loans dominated the assets of finance companies.

Accepted Answer

A) True 
 B)False  False

Question 3

Which of the following observations concerning payday lenders is NOT true?

Accepted Answer

A) They provide short-term cash advances. 
B) Their advances are due when borrowers receive their next paycheck. 
C) The industry originated from check cashing outlets. 
D) The payday loan industry is regulated at the state level. 
E) The demand for short-term loans has decreased considerably. 
A) They provide short-term cash advances. 
B) Their advances are due when borrowers receive their next paycheck. 
C) The industry originated from check cashing outlets. 
D) The payday loan industry is regulated at the state level. 
E) The demand for short-term loans has decreased considerably. E

Question 4

The parent institution provides a large portion of the debt that a captive finance company will use to generate personal loans.

Accepted Answer

A) True 
 B)False

Question 5

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

Question 6

Securitized mortgage assets are used as collateral backing secondary market securities.

Accepted Answer

A) True 
 B)False

Question 7

Loans that let customers borrow on a line of credit secured with a second mortgage on their home is called a securitized mortgage asset.

Accepted Answer

A) True 
 B)False

Question 8

Business loans represent 50% of the loan portfolio of finance companies.

Accepted Answer

A) True 
 B)False

Question 9

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

Question 10

Finance companies generally have higher overhead than do commercial banks.

Accepted Answer

A) True 
 B)False

Question 11

The growth in home equity lines of credit over the last two decades has occurred in part because of the tax deductibility of the interest payments.

Accepted Answer

A) True 
 B)False

Question 12

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

Question 13

As of 2015, which of the following is true concerning payday lending?

Accepted Answer

A) The typical borrower earns less than $25,000. 
B) Payday lending has been effectively banned in 15 states. 
C) Interest rate on payday loans were capped at an annual interest rate of 30% by federal legislation. 
D) Less than $30 billion of payday loans were generated by the industry. 
E) Payday lenders were banned from forming relationships with nationally chartered banks. 
A) The typical borrower earns less than $25,000. 
B) Payday lending has been effectively banned in 15 states. 
C) Interest rate on payday loans were capped at an annual interest rate of 30% by federal legislation. 
D) Less than $30 billion of payday loans were generated by the industry. 
E) Payday lenders were banned from forming relationships with nationally chartered banks.

Question 14

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. 
E) is wholly owned by a parent corporation. 
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. 
E) is wholly owned by a parent corporation.

Question 15

A major role of the captive finance company is to provide financing for the purchase of products manufactured or sold by the parent company.

Accepted Answer

A) True 
 B)False

Question 16

Prior to the financial crisis that began in 2007, finance companies

Accepted Answer

A) had experienced slow asset growth because of the upcoming economic slowdown. 
B) had found subprime lending to be a risk-free method to achieve growth. 
C) had experienced strong profit and loan growth, especially those companies that lend to less risky customers. 
D) had experienced strong success in the area of electronic lending. 
E) had avoided takeover attempts by other financial institutions. 
A) had experienced slow asset growth because of the upcoming economic slowdown. 
B) had found subprime lending to be a risk-free method to achieve growth. 
C) had experienced strong profit and loan growth, especially those companies that lend to less risky customers. 
D) had experienced strong success in the area of electronic lending. 
E) had avoided takeover attempts by other financial institutions.

Question 17

Compared to commercial banks, finance companies usually signal solvency and safety concerns by

Accepted Answer

A) holding higher leverage ratios. 
B) holding a lower capital-asset ratio. 
C) holding less liquid long-term assets. 
D) holding a higher capital-asset ratio. 
E) holding higher leverage ratios and holding a lower capital-asset ratio. 
A) holding higher leverage ratios. 
B) holding a lower capital-asset ratio. 
C) holding less liquid long-term assets. 
D) holding a higher capital-asset ratio. 
E) holding higher leverage ratios and holding a lower capital-asset ratio.

Question 18

Sales finance institutions provide financing to customers of specific retailers.

Accepted Answer

A) True 
 B)False

Question 19

Over the last 30 years finance companies have replaced real estate loans and other assets with increasing amounts of consumer and business loans.

Accepted Answer

A) True 
 B)False

Question 20

Finance companies have had no significant downturns in economic performance over the last two decades.

Accepted Answer

A) True 
 B)False

Exam 3: Financial Services: Finance Companies

Finance companies operate more like nonfinancial, nonregulated companies than any other type of financial institution.

As of 2015, real estate loans dominated the assets of finance companies.

Which of the following observations concerning payday lenders is NOT true?

The parent institution provides a large portion of the debt that a captive finance company will use to generate personal loans.

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

Securitized mortgage assets are used as collateral backing secondary market securities.

Loans that let customers borrow on a line of credit secured with a second mortgage on their home is called a securitized mortgage asset.

Business loans represent 50% of the loan portfolio of finance companies.

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

Finance companies generally have higher overhead than do commercial banks.

The growth in home equity lines of credit over the last two decades has occurred in part because of the tax deductibility of the interest payments.

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

As of 2015, which of the following is true concerning payday lending?

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

A major role of the captive finance company is to provide financing for the purchase of products manufactured or sold by the parent company.

Prior to the financial crisis that began in 2007, finance companies

Compared to commercial banks, finance companies usually signal solvency and safety concerns by

Sales finance institutions provide financing to customers of specific retailers.

Over the last 30 years finance companies have replaced real estate loans and other assets with increasing amounts of consumer and business loans.

Finance companies have had no significant downturns in economic performance over the last two decades.

Why Are Financial Institutions Special

Financial Services: Depository Institutions

Financial Services: Securities Brokerage and Investment Banking

Financial Services: Mutual Funds and Hedge Funds

Financial Services: Insurance

Risks of Financial Institutions

Interest Rate Risk I

Interest Rate Risk II

Credit Risk: Individual Loan Risk

Credit Risk: Loan Portfolio and Concentration Risk

Liquidity Risk

Foreign Exchange Risk

Sovereign Risk

Market Risk

Off-Balance-Sheet Risk

Technology and Other Operational Risks

Fintech Risks

Liability and Liquidity Management

Deposit Insurance and Other Liability Guarantees

Capital Adequacy

Product and Geographic Expansion

Futures and Forwards

Options, Caps, Floors, and Collars

Swaps

Loan Sales

Securitization

Filters