Question 1

General Electric Capital Corporation is considered a captive finance company.

Accepted Answer

A) True 
 B)False

Question 2

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

Accepted Answer

A) True 
 B)False

Question 3

Sales finance companies do not directly compete with deposit-taking institutions for consumer loans.

Accepted Answer

A) True 
 B)False

Question 4

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 5

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. 
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 6

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 paycheque. 
C) The industry originated from cheque cashing outlets. 
D) The payday loan industry is regulated at the provincial and territorial 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 paycheque. 
C) The industry originated from cheque cashing outlets. 
D) The payday loan industry is regulated at the provincial and territorial level. 
E) The demand for short-term loans has decreased considerably.

Question 7

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

Question 8

Ally Financial [formerly General Motors Acceptance Corporation (GMAC)]

Accepted Answer

A) is a wholly owned subsidiary of General Motors. 
B) only provides financing to purchasers of automobiles built by General Motors. 
C) had its Canadian assets purchase by Royal Bank of Canada in 2013. 
D) did not participate in U.S. federal bailout funds during the financial crisis because of their financial strength. 
E) is the largest finance company in the U.S. 
A) is a wholly owned subsidiary of General Motors. 
B) only provides financing to purchasers of automobiles built by General Motors. 
C) had its Canadian assets purchase by Royal Bank of Canada in 2013. 
D) did not participate in U.S. federal bailout funds during the financial crisis because of their financial strength. 
E) is the largest finance company in the U.S.

Question 9

Finance companies often prefer to lease equipment to customers because

Accepted Answer

A) repossession in the event of default is easier. 
B) a lease with little or no down payment is more attractive to business customers. 
C) the finance company receives the benefit of depreciation expense. 
D) All of these. 
E) repossession in the event of default is easier and the finance company receives the benefit of a depreciation expense. 
A) repossession in the event of default is easier. 
B) a lease with little or no down payment is more attractive to business customers. 
C) the finance company receives the benefit of depreciation expense. 
D) All of these. 
E) repossession in the event of default is easier and the finance company receives the benefit of a depreciation expense.

Question 10

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. 
A) sales finance institution. 
B) personal credit institution. 
C) subprime lender. 
D) loan shark. 
E) business credit institution.

Question 11

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. 
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 12

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

Accepted Answer

A) True 
 B)False

Question 13

Finance companies generally charge lower interest rates on consumer loans than do deposit-taking institutions.

Accepted Answer

A) True 
 B)False

Question 14

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. 
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 15

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

Accepted Answer

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

Question 16

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 17

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. 
A) sales finance institution. 
B) personal credit institution. 
C) business credit institution. 
D) lease finance company. 
E) factoring company.

Question 18

Finance companies generally have higher overhead than do commercial banks.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following is NOT an advantage of a finance company over a bank in providing services to small business customers?

Accepted Answer

A) Finance companies are less willing to accept risky customers than are banks. 
B) Finance companies are not subject to regulations that restrict the type of products and services they can offer. 
C) Finance companies often have substantial industry and product expertise. 
D) Finance companies generally have lower overhead than banks. 
E) Finance companies do not accept deposits and therefore are not subject to bank- type regulatory restrictions. 
A) Finance companies are less willing to accept risky customers than are banks. 
B) Finance companies are not subject to regulations that restrict the type of products and services they can offer. 
C) Finance companies often have substantial industry and product expertise. 
D) Finance companies generally have lower overhead than banks. 
E) Finance companies do not accept deposits and therefore are not subject to bank- type regulatory restrictions.

Question 20

Finance companies charge different rates than do commercial banks which

Accepted Answer

A) tend to be higher than bank rates. 
B) often reflect a more risky borrower. 
C) causes some finance companies to be classified as subprime lenders. 
D) must meet usury law guidelines. 
E) All of these. 
A) tend to be higher than bank rates. 
B) often reflect a more risky borrower. 
C) causes some finance companies to be classified as subprime lenders. 
D) must meet usury law guidelines. 
E) All of these.

Exam 3: Finance Companies

General Electric Capital Corporation is considered a captive finance company.

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

Sales finance companies do not directly compete with deposit-taking institutions for consumer loans.

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 observations concerning payday lenders is NOT true?

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

Ally Financial [formerly General Motors Acceptance Corporation (GMAC)]

Finance companies often prefer to lease equipment to customers because

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

Factoring involves

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

Finance companies generally charge lower interest rates on consumer loans than do deposit-taking institutions.

What is the primary function of finance companies?

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

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

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

Finance companies generally have higher overhead than do commercial banks.

Which of the following is NOT an advantage of a finance company over a bank in providing services to small business customers?

Finance companies charge different rates than do commercial banks which

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