FIN 350 Week 11 Quiz – Strayer


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Quiz 10 Chapter 22 and 23

Finance Company Operations

     1.   ____ finance companies concentrate on purchasing credit contracts from retailers and dealers.
a.
Consumer
b.
Sales
c.
Commercial
d.
None of the above


                                          
          
          

     2.   Which of the following is not a source of finance company funds to support operations?
a.
loans from banks
b.
commercial paper
c.
federal funds
d.
bonds


                                          
          


     3.   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; increase
b.
less; decrease
c.
more; increase
d.
more; decrease


                                          
          


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


                                          
          


     5.   Which of the following is not a main source of funds for finance companies?
a.
bank loans
b.
commercial paper issues
c.
bonds
d.
capital


                                          
          
          

     6.   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; decrease
b.
less; increase
c.
more; increase
d.
less; decrease


                                          
          


     7.   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; variable
b.
rising; fixed
c.
rising; variable
d.
A and B


                                          
          
          

     8.   Finance companies would prefer to increase their long-term debt most once interest rates
a.
have declined.
b.
have increased.
c.
were stable for several years.
d.
were projected to decline.


                                          
          
          

     9.   The main competition for finance companies in the consumer loan market comes from
a.
pension funds.
b.
life insurance companies and property and casualty insurance companies.
c.
commercial banks and savings and institutions.
d.
mutual funds.


                                          
          


   10.   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
a.
leasing agent.
b.
lessor.
c.
lessee.
d.
factor.


                                          
          
          

   11.   When a finance company purchases equipment for use by another business, the finance company provides financing in the form of
a.
factoring.
b.
leasing.
c.
a banker's acceptance.
d.
a letter of credit.


                                          
          
          

   12.   Finance companies are exempt from state regulations.
a. True
b. False

                                          
          
          

   13.   Finance companies are not subject to state regulations on intrastate business.
a. True
b. False

                                          
          
          

   14.   Finance companies are subject to
a.
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


                                          
          
          

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


                                          
          


   16.   Overall, the liquidity risk of finance companies is higher than that of other financial institutions.
a. True
b. False

                                          
          
          

   17.   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; lower
b.
lower; higher
c.
higher; higher
d.
higher; lower


                                          
          


   18.   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
a.
captive finance subsidiary.
b.
factor.
c.
leasing agent.
d.
captive factoring agent.


                                          
          


   19.   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.


                                          
          


   20.   ____ provide loans to firms that cannot obtain financing from commercial banks.
a.
Consumer finance companies
b.
Sales finance companies
c.
Commercial finance companies
d.
None of the above


                                          
          
          

   21.   Which of the following is not a use of finance company funds?
a.
consumer loans
b.
business loans
c.
commercial paper
d.
real estate loans
e.
All of the above are uses of finance company funds.


                                          
          
          

   22.   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.
brokers
b.
dealers
c.
market makers
d.
factors
e.
none of the above


                                          
          


   23.   Most finance companies are commonly exposed to all forms of risk below except ____ risk.
a.
exchange rate
b.
interest rate
c.
liquidity
d.
credit


                                          
          
          

   24.   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; negatively
b.
negatively; positively
c.
negatively; negatively
d.
positively; positively


                                          
          


   25.   Finance companies participate in the ____ market to reduce interest rate risk.
a.
money
b.
bond
c.
options
d.
swap


                                          
          
          

   26.   Many consumer finance companies also provide personal loans, directly to individuals to finance purchases of large household items.
a. True
b. False

                                          
          


   27.   Business finance companies focus on loans to very large businesses.
a. True
b. False

                                          
          
          

   28.   Consumer finance companies sometimes provide Business finance companies to individuals.
a. True
b. False


                                          
          

           

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