Question 1

Some finance companies offer credit card loans through a particular retailer.

Accepted Answer

A) True 
 B)False

Question 2

Finance companies commonly act as ____ for accounts receivable; that is, they purchase a firm's receivables at a discount and are responsible for processing and collecting the balances of these accounts.

Accepted Answer

A)  brokers
B)  dealers
C)  market makers
D)  factors
E)  none of the above

Question 3

____ provide loans to firms that cannot obtain financing from commercial banks.

Accepted Answer

A)  Consumer finance companies
B)  Sales finance companies
C)  Commercial finance companies
D)  None of the above

Question 4

If finance companies with a greater rate-sensitivity of liabilities than assets wanted to reduce interest-rate risk, they could

Accepted Answer

A)  shorten their average asset life.
B)  lengthen their average asset life.
C)  shorten the maturity of debt that they issue.
D)  make greater use of fixed-rate loans.

Question 5

Finance companies participate in the ____ market to reduce interest rate risk.

Accepted Answer

A)  money
B)  bond
C)  options
D)  swap D

Question 6

Which of the following is not a use of finance company funds?

Accepted Answer

A)  consumer loans
B)  business loans
C)  commercial paper
D)  real estate loans
E)  All of the above are uses of finance company funds.

Question 7

Which of the following is not a source of finance company funds to support operations?

Accepted Answer

A)  loans from banks
B)  commercial paper
C)  federal funds
D)  bonds

Question 8

Finance companies are exempt from state regulations.

Accepted Answer

A) True 
 B)False

Question 9

When a finance company purchases equipment for use by another business, the finance company provides financing in the form of

Accepted Answer

A)  factoring.
B)  leasing.
C)  a banker's acceptance.
D)  a letter of credit.

Question 10

The value of a finance company can be modeled as the present value of its future cash flows.

Accepted Answer

A) True 
 B)False

Question 11

Consumer finance companies sometimes provide Business finance companies to individuals.

Accepted Answer

A) True 
 B)False

Question 12

The most important risk for finance companies is ____ risk.

Accepted Answer

A)  settlement
B)  accounting
C)  credit
D)  exchange rate

Question 13

Which of the following statements is incorrect?

Accepted Answer

A)  A captive finance subsidiary's purpose is to finance sales of the parent company's products and services.
B)  An operating agreement between the parent and the captive specifies the type of receivables that qualify for same and specific services provided by the parent.
C)  A captive can be used to finance distributor or dealer inventories until a sale occurs.
D)  A captive is rarely used to finance products leased to others.

Question 14

A wholly owned subsidiary whose primary purpose is to finance sales of the parent company's products and services, provide wholesale financing to distributors of the parent company's products, and purchase receivables of the parent company is a

Accepted Answer

A)  captive finance subsidiary.
B)  factor.
C)  leasing agent.
D)  captive factoring agent. A

Question 15

Finance companies differ from commercial banks, savings institutions, and credit unions in that they

Accepted Answer

A)  normally do not obtain funds from deposits.
B)  focus on financing acquisitions by companies.
C)  focus on providing residential mortgages.
D)  use most of their funds to purchase stocks.

Question 16

Which of the following is not a main source of funds for finance companies?

Accepted Answer

A)  bank loans
B)  commercial paper issues
C)  bonds
D)  capital

Question 17

Business finance companies focus on loans to very large businesses.

Accepted Answer

A) True 
 B)False

Question 18

Consumer finance companies primarily focus on for

Accepted Answer

A)  consumer loans.
B)  consumer advising.
C)  consumer regulation.
D)  none of the above

Question 19

Overall, the liquidity risk of finance companies is higher than that of other financial institutions.

Accepted Answer

A) True 
 B)False  False

Question 20

When finance companies purchase a firm's receivables at a discount, and are responsible for processing and collecting the balances of these accounts, they act as a

Accepted Answer

A)  leasing agent.
B)  lessor.
C)  lessee.
D)  factor.

Exam 22: Finance Company Operations

Some finance companies offer credit card loans through a particular retailer.

Correct AnswerverifiedShow Answer

Finance companies commonly act as ____ for accounts receivable; that is, they purchase a firm's receivables at a discount and are responsible for processing and collecting the balances of these accounts.

Correct AnswerverifiedShow Answer

____ provide loans to firms that cannot obtain financing from commercial banks.

Correct AnswerverifiedShow Answer

If finance companies with a greater rate-sensitivity of liabilities than assets wanted to reduce interest-rate risk, they could

Correct AnswerverifiedShow Answer

Finance companies participate in the ____ market to reduce interest rate risk.

Correct AnswerverifiedD

Which of the following is not a use of finance company funds?

Correct AnswerverifiedShow Answer

Which of the following is not a source of finance company funds to support operations?

Correct AnswerverifiedShow Answer

Finance companies are exempt from state regulations.

Correct AnswerverifiedShow Answer

When a finance company purchases equipment for use by another business, the finance company provides financing in the form of

Correct AnswerverifiedShow Answer

The value of a finance company can be modeled as the present value of its future cash flows.

Correct AnswerverifiedShow Answer

Consumer finance companies sometimes provide Business finance companies to individuals.

Correct AnswerverifiedShow Answer

The most important risk for finance companies is ____ risk.

Correct AnswerverifiedShow Answer

Which of the following statements is incorrect?

Correct AnswerverifiedShow Answer

A wholly owned subsidiary whose primary purpose is to finance sales of the parent company's products and services, provide wholesale financing to distributors of the parent company's products, and purchase receivables of the parent company is a

Correct AnswerverifiedA

Finance companies differ from commercial banks, savings institutions, and credit unions in that they

Correct AnswerverifiedShow Answer

Which of the following is not a main source of funds for finance companies?

Correct AnswerverifiedShow Answer

Business finance companies focus on loans to very large businesses.

Correct AnswerverifiedShow Answer

Consumer finance companies primarily focus on for

Correct AnswerverifiedShow Answer

Overall, the liquidity risk of finance companies is higher than that of other financial institutions.

Correct AnswerverifiedFalse

When finance companies purchase a firm's receivables at a discount, and are responsible for processing and collecting the balances of these accounts, they act as a

Correct AnswerverifiedShow Answer

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