Question 1

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 2

General Electric Capital Corporation is considered a captive finance company.

Accepted Answer

A) True 
 B)False

Question 3

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

Accepted Answer

A) True 
 B)False

Question 4

Business credit institutions specialize in making business loans, especially through equipment leasing and factoring.

Accepted Answer

A) True 
 B)False

Question 5

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 been lower than those of commercial banks.
D)  mortgage lending become less important to the industry.
E)  finance companies were required to offer time deposit products to their customers.

Question 6

Which of the following is NOT true?

Accepted Answer

A)  The finance company industry tends to be very concentrated.
B)  Twenty of the largest finance companies account for more than 65% of the industry assets.
C)  Many of the largest finance companies tend to be wholly owned or are captive subsidiaries of major manufacturing firms.
D)  Finance companies specialize only in consumer loans and do not make business loans.
E)  Finance companies often provide captive financing for the purchase of products manufactured by their parent company.

Question 7

This type of finance company competes directly with depository institutions for consumer loans because they can frequently process loans faster and more conveniently.

Accepted Answer

A)  Sales finance institution.
B)  Personal credit institution.
C)  Business credit institution.
D)  Lease finance company.
E)  Factoring company.

Question 8

Personal credit institutions may be willing to approve collateral that depository institutions do not find acceptable.

Accepted Answer

A) True 
 B)False

Question 9

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

Accepted Answer

A) True 
 B)False

Question 10

Payday lenders are a subset of subprime lenders.

Accepted Answer

A) True 
 B)False

Question 11

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 12

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
E)  $600 billion; one-half

Question 13

The FDIC allows its member banks to participate in payday lending.

Accepted Answer

A) True 
 B)False

Question 14

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.

Question 15

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 16

Sales finance companies do not directly compete with depository institutions for consumer loans.

Accepted Answer

A) True 
 B)False

Question 17

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

Question 18

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 19

During the period from 1977 to 2015,

Accepted Answer

A)  total assets in finance companies grew over 1,300%.
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.

Question 20

A person with a history of bad credit and an inconsistent record of payments on other debt is most likely to find a short-term loan through a

Accepted Answer

A)  commercial bank.
B)  personal credit institution.
C)  savings bank.
D)  sales finance institution.
E)  payday lender.

Exam 3: Financial Services: Finance Companies

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

Correct AnswerverifiedShow Answer

Personal credit institutions may be willing to approve collateral that depository institutions do not find acceptable.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following is NOT true?

Correct AnswerverifiedShow Answer

Business credit institutions specialize in making business loans, especially through equipment leasing and factoring.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The FDIC allows its member banks to participate in payday lending.

Correct AnswerverifiedShow Answer

General Electric Capital Corporation is considered a captive finance company.

Correct AnswerverifiedShow Answer

During the period from 1977 to 2015,

Correct AnswerverifiedShow Answer

A person with a history of bad credit and an inconsistent record of payments on other debt is most likely to find a short-term loan through a

Correct AnswerverifiedShow Answer

Which of the following is NOT true?

Correct AnswerverifiedShow Answer

Payday lenders are a subset of subprime lenders.

Correct AnswerverifiedShow Answer

Sales finance companies do not directly compete with depository institutions for consumer loans.

Correct AnswerverifiedShow Answer

This type of finance company competes directly with depository institutions for consumer loans because they can frequently process loans faster and more conveniently.

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct Answer
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