Question 1

How do sales finance companies differ from personal credit and business credit institutions? List an example of each.

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Question 2

Explain why low interest rates and strong mortgage markets help keep profitability high at savings institutions.

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Question 3

The American Bankers Association and others are seeking to limit growth of credit unions. What is the basis for the bankers' concern? What does the credit union industry argue? What kind of limits on credit unions are the bankers seeking?

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Question 4

What are the advantages of a finance company or a bank leasing equipment to a small business customer rather than financing the customer's purchase of the equipment?

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Question 5

What are home equity loans? What has happened to the average balance of home equity loans in recent years? Why do finance companies prefer home equity loans to unsecured debt?

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Question 6

A savings institution (SI) has funded $12 million of 30-year fixed-rate mortgages with an average interest rate of 5.75%. These assets are funded with time deposits with an average maturity of six months. The deposits are currently paying 3.5%. In six months' time, however, the Fed has raised interest rates twice and the depositors now must be paid 4.25%. What will happen to the SI's ROA and NIM? How would your answer change if the SI normally sells the mortgages every 6 months and originates additional new mortgage loans?

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Question 7

Finance companies obtain a significant portion of their short-term financing from

Accepted Answer

Finance companies obtain a significant portion of their short-term financing by issuing commercial paper. Commercial paper is an unsecured promissory note issued by a company to finance short-term cash needs, with maturities usually ranging from overnight to a few months. It is a low-cost source of funding and is generally considered safe because it is issued by financially strong companies.

Question 8

In dollars, how many subprime mortgages were originated in relation to the total mortgage market in 2006? How has the subprime crisis affected the profitability of finance companies? Are all finance companies equally affected? Explain.

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Question 9

What are the advantages finance companies (FCs) have over banks in the area of business lending? What disadvantages do they have?

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Question 10

Has the importance of foreign non-bank financial lending been increasing or decreasing in recent years? Provide some examples to back up your answer.

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Question 11

Which one of the following institutions is the least regulated?

Accepted Answer

Finance companies are typically the least regulated of these institutions as they do not accept deposits from the public and are not subject to the same level of regulation as banks, credit unions, savings associations, and savings banks.

Question 12

Why have postal savings institutions flourished in many foreign countries? What unique advantages do they have and what services do many offer?

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Question 13

Why have larger credit unions experienced greater profitability than smaller credit unions? Do you expect this to continue? Why or why not?

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Question 14

How do the primary risks of credit unions differ from banks? From savings institutions (SIs)? From finance companies?

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Question 15

What are the major disadvantages that credit unions face versus banks?

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Question 16

What are the major advantages that credit unions enjoy over banks?

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Quiz 14: Other Lending Institutions: Savings Institutions, Credit Unions, and Finance Companies