Deck 15: Nonbank Financial Institutions

Question 1

Building societies and credit unions traditionally focus on ____________ whereas finance companies have activities in ___________.

A)consumer loans; business loans
B)business loans; consumer loans
C)consumer loans; consumer and business loans
D)government securities; corporate bonds.

Answer 1

C

Question 2

Large finance companies often use purchased funds to back up their commercial paper and obtain higher ratings on it.

Answer 2

False

Question 3

A prospective member must purchase a 'membership share' in a credit union to have access to its services.

Answer 3

True

Question 4

Which of the following financial institutions does NOT accept deposits?

A)Finance company
B)Credit union
C)Building society
D)Commercial bank

Question 5

Although subject to the same capital requirements as banks,credit unions carry levels of capital relative to their risk-weighted assets higher than banks

Question 6

Finance companies accept deposits from the public to obtain funds and are therefore supervised by the Australian Prudential Regulation Authority (APRA).

Question 7

Building societies bear interest rate risk because the maturities of their liabilities are shorter than the maturities of their assets.

Question 8

Finance companies operate private-label credit plans for retailers who can borrow up to his or her credit limit many times.

Question 9

Wholesale financing is generated when a finance company helps a commercial dealer finance the purchase of goods.

Question 10

Credit union capital accounts contain a capital account known as 'redeemed preference shares' that represents the balance of shares issued to members.

Question 11

Credit unions are cooperatives owned by their members.

Question 12

Building societies are authorised deposit-taking institutions (ADIs),approved by the Australian Prudential Regulation Authority (APRA)to accept retail deposits.

Question 13

In spite of diversification of their activities over the years,building societies are still predominantly investing in residential loans.

Question 14

Finance companies raise funds from wholesale markets and retail investors and then provide loans to households and small-to-medium-sized enterprises.

Question 15

Historically credit unions have been providing business loans financed by consumers' deposits.

Question 16

Building societies fund long-term residential mortgages with long-term consumer savings deposits.

Question 17

Building societies have no comparative advantage over banks in terms of regulation.

Question 18

Depositors in credit unions may have been attracted by the possible involvement in the management of the institution and the focus on members' interests.

Question 19

Debt consolidation companies are firms that specialise in a particular type of finance product.

Question 20

Building societies have been able to attract funding from shareholders by becoming corporations.

Question 21

Credit unions' assets primarily consist of:

A)investment securities.
B)loans to members.
C)cash and liquid assets.
D)property,plant and equipment.

Question 22

Traditionally building societies invest mainly in __________ and fund them with _______.

A)long-term residential mortgages; investment securities
B)long-term residential mortgages; short-term consumer savings deposits
C)long-term residential mortgages; commercial paper
D)short-term consumer loans; commercial paper

Question 23

Which of the following statements is NOT correct? Building societies:

A)have the opportunity to transform into banks.
B)have merged among themselves to face increased competition.
C)have decreased in number.
D)have kept the same line of products since their creation.

Question 24

Which of the following is NOT a comparative advantage of building societies over banks?

A)Perceived as more customer focused.
B)Better presence in small rural communities.
C)Subject to less regulation.
D)Well established specialisation in residential loans.

Question 25

Which of the following statements is NOT correct? Members of a credit union:

A)are members of the credit union for life.
B)can have access to the products offered by the credit union.
C)have the right to vote.
D)pay a small joining fee.

Question 26

Building societies,credit unions and finance companies _________ than banks.

A)are subject to more regulation
B)are far more numerous
C)are larger in scale
D)are growing at a higher pace

Question 27

Which of the following statements is NOT correct? The sale of mortgages to a third party by a building society is ___________ for the building society.

A)a source of liquidity
B)a source of interest income
C)an opportunity to gain noninterest income
D)an opportunity to make additional mortgage loans

Question 28

Captive sales finance companies are finance companies that:

A)obtain their funds in large amounts and lend in small amounts.
B)finance goods sold by their parent companies.
C)specialise in a particular type of finance products.
D)target individuals with excessive levels of personal debt.

Question 29

Which of the following statements is NOT correct? Credit unions

A)are co-operatives,which are owned and operated by their members.
B)are authorised deposit-taking institutions (ADIs).
C)are organised as clubs whose members pool their savings and loan them to one another.
D)mainly invest in long-term residential loans.

Question 30

Which of the following statements is NOT correct?

A)Credit unions are not allowed to accept deposits from retail investors.
B)Credit unions and building societies are supervised by APRA.
C)Finance companies are not allowed to accept deposits.
D)Finance companies are supervised by ASIC.

Question 31

The CUFSS:

A)is the regulator of credit unions.
B)is an organisation that provides support to credit unions in financial distress.
C)is the association that defends the interests of the credit unions when negotiating with the government or the regulator.
D)is the registry of all members of the Australian credit unions.

Question 32

Finance companies are NOT ADIs in that:

A)they do not accept deposits from the public to obtain funds.
B)they are not supervised by APRA.
C)they make loans to consumers and businesses.
D)they carry shareholders' equity.

Question 33

Which of the following statements is NOT correct? Members of a credit union:

A)are usually from the same profession,the same association or the same residence.
B)can become directors of the credit union.
C)provide the capital required for the credit union to comply with the capital regulation.
D)have one vote each irrespective of the amount of business they have with the credit union.

Question 34

The major class of assets for building societies is:

A)investment securities.
B)cash and liquid assets.
C)retained earnings.
D)loans and advances.

Question 35

When interest rates increase the building societies record ________ in the interest costs on their short-term liabilities and ____________ in the interest income of the fixed rate long-term residential loans.

A)an increase; an increase
B)no change; an increase
C)an increase; no change
D)a decrease; no change

Question 36

Credit union capital predominantly consists of:

A)retained profits.
B)reserves.
C)ordinary shares.
D)cash and liquid assets.

Question 37

Finance companies obtain most of their funds in large amounts by:

A)collecting many small deposits.
B)issuing shares.
C)borrowing from banks or issuing securities in the markets.
D)all of the above.

Question 38

The major assets of building societies are:

A)mortgage-backed securities.
B)investment securities.
C)residential mortgages.
D)cash and liquid assets.

Question 39

Credit unions:

A)are not subject to capital regulation.
B)can issue ordinary shares to meet their required capital.
C)carry more capital relative to their risk-weighted assets than banks.
D)can include shareholders' equity in the regulatory capital.

Question 40

Which of the following statements is NOT correct?

A)Credit unions are supervised by APRA.
B)To use the services of a credit union a customer must be a member.
C)Credit unions are not subject to capital regulation.
D)Credit unions include redeemed preference shares as part of the reserves in the capital account.

Question 41

Payday lenders are finance companies that:

A)finance goods sold by their parent companies.
B)operate a credit plan under a retailer's name.
C)offer very short-term loans at very high interest rates.
D)target individuals with excessive levels of personal debt or those with several different loans.

Question 42

Factoring is the purchase by:

A)a finance company of a business firm's accounts receivable.
B)a finance company of a business firm's accounts payable.
C)a credit union of a business firm's accounts receivable.
D)a credit union of a business firm's accounts payable.

Question 43

A revolving credit secured with a second mortgage is known as:

A)private-label credit.
B)payday loan.
C)bridge loan.
D)home equity loan.

Question 44

Floor-plan financing is:

A)residential financing for building new houses.
B)financing of inventory available for sale for retailers of large-cost,low volume items.
C)residential financing for renovating existing houses.
D)financing of imported goods for sale for retailers.

Question 45

In floor-plan financing:

A)the finance company pays the manufacturer when the goods are delivered to the dealer.
B)the manufacturer holds a lien on the goods that have been financed.
C)the dealer pays the finance company when the goods are delivered by the manufacturer.
D)the dealer holds a lien on the goods that have been financed.

Question 46

The major portion of finance companies' liabilities consists of:

A)long-term debt.
B)deposits
C)short-term debt.
D)shares.

Question 47

A private-label credit plan is a credit plan operated by:

A)a finance company under a retailer's name.
B)a finance company under a bank's name.
C)a credit union under a bank's name.
D)a credit union under a retailer's name.

Question 48

Investment securities are owned by finance companies to provide:

A)income and financing.
B)liquidity and cash.
C)liquidity and income.
D)collateral and income.