Chapter 22 Finance Company Operations- Final

____ 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

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