Question 1

As a percent of assets, finance companies currently rely more heavily on commercial paper as a source of financing than in 1977.

Accepted Answer

A) True 
 B)False  False

Question 2

The largest 20 firms in the North American nondeposit-taking finance company industry account for more than 65 percent of industry assets.

Accepted Answer

A) True 
 B)False  True

Question 3

Sales finance institutions compete directly with deposit-taking institutions for consumer loans.

Accepted Answer

A) True 
 B)False  True

Question 4

Which of the following is NOT true?

Accepted Answer

A) The fastest growing area of finance companies in recent years has been in the area of leasing and business loans. 
B) Consumer loans represent the largest portion of the loan portfolio of finance companies. 
C) Finance companies rely on short-term commercial paper and customer deposits to finance their assets. 
D) Finance companies rely on short-term commercial paper and long-term debt to finance their assets. 
E) Finance companies are now the largest issuers of commercial paper in the U.S. 
A) The fastest growing area of finance companies in recent years has been in the area of leasing and business loans. 
B) Consumer loans represent the largest portion of the loan portfolio of finance companies. 
C) Finance companies rely on short-term commercial paper and customer deposits to finance their assets. 
D) Finance companies rely on short-term commercial paper and long-term debt to finance their assets. 
E) Finance companies are now the largest issuers of commercial paper in the U.S.

Question 5

Which of the following observations concerning mortgages is NOT valid?

Accepted Answer

A) They may refer to loans secured by a 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 tax deductible to the homeowner in Canada. 
A) They may refer to loans secured by a 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 tax deductible to the homeowner in Canada.

Question 6

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

Accepted Answer

A) True 
 B)False

Question 7

Finance companies differ from banks in that they do not accept deposits.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following might lead a consumer to seek a loan from a subprime lender?

Accepted Answer

A) Inability to document their income. 
B) Have previously filed for bankruptcy. 
C) Has never had a loan before. 
D) Lack of savings for a down payment. 
E) All of these. 
A) Inability to document their income. 
B) Have previously filed for bankruptcy. 
C) Has never had a loan before. 
D) Lack of savings for a down payment. 
E) All of these.

Question 9

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 10

A finance company that lends money to high risk customers is known as a subprime lender.

Accepted Answer

A) True 
 B)False

Question 11

In financing their asset growth, finance companies

Accepted Answer

A) have relied more on bank loans over time. 
B) rely heavily on short-term commercial paper. 
C) use less equity capital than commercial banks. 
D) do not issue demand deposits, but can issue term deposits. 
E) use very small amounts of long-term debt and bonds. 
A) have relied more on bank loans over time. 
B) rely heavily on short-term commercial paper. 
C) use less equity capital than commercial banks. 
D) do not issue demand deposits, but can issue term deposits. 
E) use very small amounts of long-term debt and bonds.

Question 12

Business loans represent 60% of the loan portfolio of finance companies.

Accepted Answer

A) True 
 B)False

Question 13

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 14

Finance companies are subject to regulations that restrict the types of products and services they can offer to small business customers.

Accepted Answer

A) True 
 B)False

Question 15

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

Question 16

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 17

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. 
A) Inventory loan. 
B) Wholesale loan. 
C) Automobile lease. 
D) Factoring. 
E) Equipment loan.

Question 18

In contrast to earlier periods in the finance company industry, during the middle 2000s,

Accepted Answer

A) regulatory reform led to decreasing profits. 
B) mortgages originated were generally not securitized. 
C) new car loan rates charged by finance companies were lower than those of banks. 
D) mortgage lending become less important to the industry. 
E) finance companies were required to offer term deposit products to their customers. 
A) regulatory reform led to decreasing profits. 
B) mortgages originated were generally not securitized. 
C) new car loan rates charged by finance companies were lower than those of banks. 
D) mortgage lending become less important to the industry. 
E) finance companies were required to offer term deposit products to their customers.

Question 19

As of 2012, real estate loans dominated the assets of finance companies.

Accepted Answer

A) True 
 B)False

Question 20

During the period from 1977 to 2012,

Accepted Answer

A) total assets in finance companies grew over 1,000%. 
B) commercial paper became a less important source of funds for finance companies. 
C) assets in finance companies became less diversified. 
D) mortgage lending declined in importance to finance companies. 
E) in finance companies, consumer lending increased as a percent of total assets. 
A) total assets in finance companies grew over 1,000%. 
B) commercial paper became a less important source of funds for finance companies. 
C) assets in finance companies became less diversified. 
D) mortgage lending declined in importance to finance companies. 
E) in finance companies, consumer lending increased as a percent of total assets.

Exam 3: Finance Companies

As a percent of assets, finance companies currently rely more heavily on commercial paper as a source of financing than in 1977.

The largest 20 firms in the North American nondeposit-taking finance company industry account for more than 65 percent of industry assets.

Sales finance institutions compete directly with deposit-taking institutions for consumer loans.

Which of the following is NOT true?

Which of the following observations concerning mortgages is NOT valid?

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

Finance companies differ from banks in that they do not accept deposits.

Which of the following might lead a consumer to seek a loan from a subprime lender?

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

A finance company that lends money to high risk customers is known as a subprime lender.

In financing their asset growth, finance companies

Business loans represent 60% of the loan portfolio of finance companies.

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

Finance companies are subject to regulations that restrict the types of products and services they can offer to small business customers.

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

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 the type of loan that Ford Motor Credit Corporation provides to Ford dealers to finance the cars that the dealer has for sale?

In contrast to earlier periods in the finance company industry, during the middle 2000s,

As of 2012, real estate loans dominated the assets of finance companies.

During the period from 1977 to 2012,

Why Are Financial Institutions Special

Deposit-Taking Institutions

Securities, Brokerage, and Investment Banking

Mutual Funds, Hedge Funds, and Pension Funds

Insurance Companies

Risks of Financial Institutions

Interest Rate Risk I

Interest Rate Risk II

Credit Risk: Individual Loans

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

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 Index

Filters