| ____ finance companies concentrate on purchasing credit contracts from retailers and dealers.a. Consumerb. Salesc. Commerciald. None of the above | a. Consumer |
| Which of the following is not a source of finance company funds to support operations?a. loans from banksb. commercial paperc. federal fundsd. bonds | c. federal funds |
| When a finance company’s assets are ____ interest rate sensitive than its liabilities and when interest rates are expected to ____, bonds can provide long-term financing at a rate that is completely insulated from rising market rates.a. less; increaseb. less; decreasec. more; increased. more; decrease | a. less; increase |
| Finance companies differ from commercial banks, savings institutions, and credit unions in that theya. 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. | a. normally do not obtain funds from deposits |
| Which of the following is not a main source of funds for finance companies?a. bank loansb. commercial paper issuesc. bondsd. capital | d. capital |
| Finance companies are more likely to issue bonds when their assets are presently ____ interest-rate sensitive than their liabilities, and when interest rates are expected to ____.a. more; decreaseb. less; increasec. more; increased. less; decrease | b. less; increase |
| If finance companies were confident about projections of ____ interest rates, they may consider using the funds obtained from issuing bonds to offer loans with ____ rates.a. declining; variableb. rising; fixedc. rising; variabled. A and B | c. rising; variable |
| Finance companies would prefer to increase their long-term debt most once interest ratesa. have declined.b. have increased.c. were stable for several years.d. were projected to decline. | a. have declined |
| The main competition for finance companies in the consumer loan market comes froma. pension funds.b. life insurance companies and property and casualty insurance companies.c. commercial banks and savings and institutions.d. mutual funds | c. commercial banks and savings and institutions |
| 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 aa. leasing agent.b. lessor.c. lessee.d. factor | d. factor |
| When a finance company purchases equipment for use by another business, the finance company provides financing in the form ofa. factoring.b. leasing.c. a banker’s acceptance.d. a letter of credit. | c. leasing |
| Finance companies are exempt from state regulations.a. Trueb. False | false |
| Finance companies are not subject to state regulations on intrastate business.a. Trueb. False | false |
| Finance companies are subject toa. a maximum limit on loan size.b. ceiling interest rates on loans provided.c. a maximum length on loan maturity.d. regulations on intra-state banking.e. all of the above | b. ceiling interest rates unloads provided |
| If finance companies with a greater rate-sensitivity of liabilities than assets wanted to reduce interest-rate risk, they coulda. 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. | a. shorten their average asset life |
| Overall, the liquidity risk of finance companies is higher than that of other financial institutions.a. Trueb. False | false |
| Compared to other lending financial institutions, finance companies have a ____ loan delinquency rate, and the average rate charged on loans is ____ on average.a. lower; lowerb. lower; higherc. higher; higherd. higher; lower | c. higher; higher |
| 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 aa. captive finance subsidiary.b. factor.c. leasing agent.d. captive factoring agent. | a. captive finance subsidiary |
| Which of the following statements is incorrect?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 | d. A captive is rarely used to finance products leased to others. |
| ____ provide loans to firms that cannot obtain financing from commercial banks.a. Consumer finance companiesb. Sales finance companiesc. Commercial finance companiesd. None of the above | c. Commercial finance companies |
| Which of the following is not a use of finance company funds?a. consumer loansb. business loansc. commercial paperd. real estate loanse. All of the above are uses of finance company funds. | c. commercial paper |
| 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.a. brokersb. dealersc. market makersd. factorse. none of the above | d. factors |
| Most finance companies are commonly exposed to all forms of risk below except ____ risk.a. exchange rateb. interest ratec. liquidityd. credit | a. exchange rate |
| Changes in economic growth are ____ related to a finance company’s cash flows, and changes in the risk-free rate are ____ related to a finance company’s cash flows.a. positively; negativelyb. negatively; positivelyc. negatively; negativelyd. positively; positively | a. positively; negatively |
| Finance companies participate in the ____ market to reduce interest rate risk.a. moneyb. bondc. optionsd. swap | d. swap |
| Many consumer finance companies also provide personal loans, directly to individuals to finance purchases of large household items.a. Trueb. False | true |
| Business finance companies focus on loans to very large businesses.a. Trueb. False | false |
| Consumer finance companies sometimes provide Business finance companies to individuals.a. Trueb. False | true |
| Although commercial paper is available only for short-term financing, finance companies can continually roll over their issues to create a permanent source of funds.a. Trueb. False | true |
| After interest rates increase, finance companies tend to use more long-term debt to lock in the cost of funds over an extended period of time.a. Trueb. False | false |
| Some finance companies offer credit card loans through a particular retailer.a. Trueb. False | true |
| The main competition for finance companies in the consumer loan market comes from pension funds and insurance companies.a. Trueb. False | false |
| The value of a finance company can be modeled as the present value of its future cash flows.a. Trueb. False | true |
| The most important risk for finance companies is ____ risk.a. settlementb. accountingc. creditd. exchange rate | c. credit |
| Finance companies can accumulate capital by doing all of the following excepta. retaining earnings.b. issuing stock.c. issuing commercial paper.d. Finance companies can build their capital base by doing all of the above | c. issuing commercial paper |
| Consumer finance companies primarily focus on fora. consumer loans.b. consumer advising.c. consumer regulation.d. none of the above | a. consumer loans |
| Finance companies are regulated by the states but are not subject to regulation by an agency of the federal government.a. Trueb. False | false |
| Historically, captive finance subsidiaries were associated with:a. the automobile industry.b. the oil and gas industry.c. the textile industry.d. department stores. | a. the automobile industry |
