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Page 3

C) <nterest-rate ris9 is a more serious pro"lem for finance companies than for 

 "an9s and thrifts.

#) All of the a"oe are true.

:) =nly ;A) and ;!) of the a"oe are true.

Ans$er% :

1/) he three types of finance companies are

A) "usiness, consumer, and retail.

!) "usiness, sales, and consumer.

C) retail, $holesale, and consumer.

#) retail, "usiness, and sales.

Ans$er% !

1) =f the types of loans made "y finance companies,

A) consumer loans account for a"out 0 percent of all loans.

!) real estate loans account for a"out /0 percent of all loans.

C) "usiness loans account for a"out  percent of all loans.

#) consumer and real estate loans account for a"out  percent of all loans.

Ans$er% C

13) (hich of the follo$ing statements a"out finance companies are true

A) *inance companies offered loans secured "y accounts receia"le "efore

commercial "an9s did.

!) *inance companies gained a reputation for "eing more innoatie than "an9s at

finding $ays to finance small "usinesses.

C) >oans secured "y motor ehicles, $hich include loans to "uy autos for 

 "usiness use and for resale, are the second most common type of finance

company loan.

#) All of the a"oe are true.

:) =nly ;A) and ;!) of the a"oe.

Ans$er% #

15) (hich of the follo$ing statements a"out finance companies are true

A) *inance companies hae gained a reputation for "eing more innoatie than

 "an9s at finding $ays to finance small "usinesses.

!) >oans secured "y automo"iles are the most common type of finance company

loan.

C) !ecause finance companies are irtually unregulated, they charge lo$er 

interest rates than do commercial "an9s.

#) All of the a"oe are true.

:) =nly ;A) and ;!) of the a"oe are true.

Ans$er% A

25/

17) !usiness finance companies proide specialized forms of credit to "usinesses "y

ma9ing loans and purchasing accounts receia"le at a discount6 this proision of 

credit is called

A) discounting.

!) factoring.

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C) refinancing

#) spar9ing.

Ans$er% !

14) *irms might sell accounts receia"le to finance companies

A) to o"tain uic9 cash.

!) to aoid the cost of funding a credit department.

C) "ecause they don?t $ant to spoil their relationships $ith customers oer "ill

collection hassles.

#) for all of the a"oe reasons.

Ans$er% #

20) !usiness finance companies specialize in leasing "ecause

A) it ma9es repossession of an asset easier.

!) the lessee is often not reuired to ma9e as large an up-front payment as is

usually reuired on a loan to purchase.

C) the finance company might capture ta8 "enefits if the firm leasing the asset

does not hae income to offset $ith depreciation.

#) of all of the a"oe.

:) of only ;A) and ;!) of the a"oe.

Ans$er% #

21) !usiness finance companies proide

A) factoring.

!) euipment that can "e leased.

C) chec9ing accounts.

#) all of the a"oe.

:) only ;A) and ;!) of the a"oe.

Ans$er% :

22) <n a _____ arrangement, the finance company pays for the car dealership?s

inentory of cars receied from the manufacturer and puts a lien on each car 

financed.

A) factoring

!) floor plan

C) roll oer leasing

Ans$er% !

25

2') Consumer finance companies

A) ma9e loans to consumers $ho cannot o"tain credit from other sources.

!) are o$ned "y separate corporations or "an9s.

C) charge high interest rates "ecause their loans are high ris9.

#) do all of the a"oe.

Ans$er% #

2/) Consumer finance companies

A) charge lo$ interest rates on consumer loans.

!) ma9e relatiely safe loans "ecause finance companies reuire high leels of 

collateral.

Page 5

C) proide small retailers $ith @priate la"el credit card serices.

#) do all of the a"oe.

:) do only ;A) and ;!) of the a"oe.

Ans$er% C

2) *inance companies that ma9e loans to purchase items from a particular retailer or 

manufacturer are called

A) retail finance companies.

!) sales finance companies.

C) consumer finance companies.

#) corporate finance companies.

Ans$er% !

23) BMAC is an e8ample of a

A) captie finance company.

!) corporate finance company.

C) floor plan finance company.

#) "usiness finance company.

Ans$er% A

25) *inance companies are far less regulated than "an9s and thrifts "ecause

A) its depositors are e8clusiely large institutional inestors.

!) there are no regulations on su"sidiaries of a "an9 holding company.

C) there are no depositors to protect.

#) there are fe$ cases of finance companies failing.

:) the capital-to-total-assets ratio of finance companies is relatiely strong

compared to that of "an9s and thrifts.

Ans$er% C

253

27) sury statutes

A) allo$ consumers to declare "an9ruptcy $hile still retaining o$nership of many

of their assets.

!) reuire finance companies to disclose the annual percentage rate charged on

loans.

C) impose restrictions on finance companies? a"ility to collect on delinuent

loans.

#) set a ceiling on interest rates that can "e charged on finance company loans.

:) only ;A) and ;!) of the a"oe.

Ans$er% #

24) *inance companies are reuired "y truth in lending regulations to disclose the

annual percentage rate charged on loans. his regulation is 9no$n as

A) Degulation E.

!) Degulation F.

C) Degulation .

#) Degulation C.

Ans$er% !

'0) Degulations designed to protect consumers in their dealings $ith finance

Page 6

companies

include

A) truth in lending legislation.

!) usury statutes.

C) "an9ruptcy statutes.

#) all of the a"oe.

:) only ;A) and ;!) of the a"oe.

Ans$er% #

'1) he primary asset of a typical finance company is its

A) commercial paper.

!) reseres for loan losses.

C) loan portfolio.

#) "an9 loans.

Ans$er% C

'2) =n aerage, finance companies hae a _____ capital-to-assets ratio.

A) 12 percent

!) 10 percent

C) 4 percent

#) 7 percent

Ans$er% A

255

'') he primary source of income for finance companies is

A) interest income from its loan portfolio.

!) income from leasing cars and truc9s.

C) interest income from commercial paper.

#) income from loan origination fees.

Ans$er% A

'/) *inance companies? total assets hae sho$n steady gro$th e8cept in the

A) early 1470s, $hen interest rates increased sharply.

!) mid 1470s, $hen defaults on consumer de"t rose sharply.

C) late 1470s, $hen legislation that supported the reial of the commercial

 "an9ing industry $as passed.

#) early 1440s, $hen a recession caused a dip in "usiness loans.

:) mid and late 1440s, $hen gro$th in the assets of commercial "an9s $as ery

strong.

Ans$er% A

') *inancial conglomerates "egan

A) $hen rudential <nsurance Company acuired !ache Gecurities.

!) $hen Merrill >ynch made a cash management account aaila"le to its

customers.

C) $hen Citicorp merged $ith the raelers Broup.

#) $hen Gears added Cold$ell !an9er Deal :state and #ean (itter to its

holdings of Allstate <nsurance Company and Allstate >ife <nsurance Company.

:) $hen raelers <nsurance merged $ith Galomon Gmith !arney.

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