Chapter 5 Test Banks with answers PDF

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5 Student: ___________________________________________________________________________

1. When did installment credit explode on the North American scene?

A. Just after World War II B. with the advent of television in the late 1940s C. with the advent of the automobile in the early 1900s D. during the recession of the 1950s E. during the inflation of the 1970s 2. The 25-to 44-age group currently represents about 30 percent of the population but holds nearly ____________ percent of the debt outstanding.

A. 80 B. 70 C. 60 D. 50 E. 40 3. Although credit permits more immediate satisfaction of needs and desires, it

A. does increase total purchasing power. B. is always best to avoid credit purchases. C. does not diminish your ability to buy more goods and services on credit. D. has no opportunity costs attached to it. E. does not increase total purchasing power 4. By paying cash for a purchase, you

A. forgo the opportunity to keep the cash in an interest-bearing account. B. always get a cash discount. C. can build a better credit rating. D. get better personal service from store employees. E. have a better selection of goods than if you use credit.

5. Another name for credit when loans are made on a continuous basis and borrower is billed periodically for at least partial payment is known as:

A. a line of credit. B. convenience credit. C. revolving credit. D. installment credit. E. bank card credit. 6. Which of the following is not an example of a consumer loan?

A. home mortgage B. automobile loan C. revolving credit D. debt consolidation loan E. demand loan 7. A common example of a consumer loan is:

A. a credit card issued by a department store. B. a credit card issued by VISA or MasterCard. C. using overdraft protection at a bank. D. using a cashier's check to pay for a purchase. E. a mortgage loan. 8. Which of the following is not an example of revolving credit?

A. a line of credit. B. a credit card loan. C. overdraft protection. D. charge cards. E. automobile loans. 9. The maximum amount of credit you are allowed by a creditor is called a(n)

A. revolving credit. B. installment cash credit. C. convenience credit. D. line of credit. E. single lump-sum credit.

10. An installment loan is a

A. direct loan of money for personal purposes. B. direct loan of money for home improvement. C. loan that allows you to receive merchandise such as a refrigerator or furniture. D. direct loan for vacation purposes. E. synonym for a single lump-sum credit. 11. A good example of an open-end credit is

A. the use of a bank credit card to make a purchase. B. the mortgage loan from a savings and loan institution. C. automobile loan from a credit union. D. installment loan from a furniture store. E. installment loan for purchasing a major appliance. 12. A credit arrangement that has no extra costs and no specific repayment plan is called

A. installment sales credit. B. incidental credit. C. line of credit. D. single lump-sum credit. E. revolving check credit. 13. A personal line of credit is a

A. credit arrangement that has no extra costs. B. prearranged loan for a specified amount that you can use by writing a special check. C. credit arrangement that has no specific repayment plan. D. synonym for installment cash credit. E. synonym for single lump-sum credit. 14. Which of these is not a true statement? To avoid online fraud, you should __________.

A. keep your personal information private. B. review your monthly bank and credit card statements. C. give your password only to your internet service provider. D. use a secure browser. E. give payment information only to know known businesses.

15. Which of these is not a characteristic of Paypal?

A. Facilitates online auction payments. B. Offers password protected accounts. C. Allows use of credit cards. D. Transfers funds in U.S. dollars. E. No annual fees. 16. Which of these is not a financing option for the purchase of a car?

A. factory financing B. line of credit C. conditional sales contract D. installment loan E. cash 17. In determining your credit capacity, you first provide for basic necessities, such as

A. furniture. B. home furnishings. C. mortgage or rent. D. automobile. E. durable goods. 18. Experts suggest that you spend no more than ____________ percent of your net income on credit purchases.

A. 10 B. 20 C. 30 D. 40 E. 50 19. If you cosign a loan,

A. you are not being asked to guarantee the debt. B. it is not your legal responsibility to pay the debt. C. you'll have to pay up to the full amount of the debt if the borrower does not pay. D. the creditor must first try to collect from the borrower. E. the creditor cannot garnish your wages.

20. Debt payments-to-income ratio is

A. calculated by dividing total liabilities by net worth. B. calculated by dividing monthly debt payments (not including house payments) by net monthly income. C. determined by dividing your assets into liabilities. D. a useless ratio for determining your credit capacity. E. rarely used by creditors in determining credit worthiness. 21. Debt-to-equity ratio is

A. a useless ratio for determining your credit capacity. B. calculated by dividing monthly debt payments by net monthly income. C. determined by dividing your assets by liabilities. D. calculated by dividing total liabilities by net worth. E. rarely used by creditors in determining credit worthiness. 22. Which of the following agencies can produce for a subscribing creditor, almost instantaneously, a report about your past and present credit activity?

A. The Bank of Canada B. The Canada Customs and Revenue Agency C. Your financial institution D. A debit bureau E. A credit bureau 23. If your monthly net (after-tax) income is $1,500, what should be your maximum amount spent on credit payments?

A. $200 B. $300 C. $400 D. $500 E. $600 24. What can be included in your credit report?

A. race B. nationality C. sex D. employer E. religion

25. Generally, most of the information in your credit file may be reported for only ______ years.

A. 7 B. 9 C. 11 D. 13 E. 15 26. If there is incorrect information in your credit file,

A. you should sue the credit bureau. B. you must sue the merchant who denied the credit. C. the credit bureau must reinvestigate and modify or remove inaccurate data. D. pray that the credit bureau goes bankrupt. E. you cannot dispute the derogatory information. 27. Kathy purchased a $2,000 digital TV from Young's Appliances. She will make 12 equal payments over the next year to pay for it. She is using:

A. an installment loan B. open-end credit C. revolving check credit D. a line of credit E. none of the above 28. If you are an Ontario resident and you have declared personal bankruptcy for the first time, that fact may be reported by credit bureaus for ____________ years.

A. 5 B. 7 C. 12 D. 20 E. 25 29. If you have incorrect information in your credit file,

A. you can't really do much about it. B. you have no legal remedies. C. credit bureaus are not required to change it. D. there are legal remedies available to you. E. don't worry much because you will still get the credit.

30. The best way to maintain your credit rating is to

A. use credit sparingly. B. pay cash for your purchases. C. repay your debts on time. D. declare a Chapter 7 bankruptcy. E. use as many credit cards as you can. 31. The borrower's attitude toward his or her credit obligations is called

A. capacity. B. capital. C. character. D. collateral. E. conditions. 32. The borrower's financial ability to meet credit obligations is called

A. capacity. B. character. C. capital. D. collateral. E. conditions. 33. A term that refers to the borrower's assets or net worth is called

A. capacity. B. character. C. capital. D. collateral. E. conditions. 34. A loan officer is examining your income and the amount of your existing debt payments to help in the decision to make a loan to you today. Which aspect of the Five Cs of lending is the loan officer most likely looking at?

A. Character B. Capacity C. Capital D. Collateral E. Conditions

35. A valuable asset pledged to assure loan payments and subject to seizure upon default is called

A. capacity. B. character. C. capital. D. collateral. E. conditions. 36. If you are a woman, a creditor must

A. require a spouse to cosign a loan. B. ask about your birth control practices or family plans. C. consider whether you have a telephone listing in your own home. D. refuse individual credit in your own name. E. consider income from your part-time employment. 37. In evaluating your credit application, a lender may

A. ask your age. B. want to know if you are on public assistance. C. require your marriage certificate. D. ask if you are married or divorced. E. ask your race and nationality. 38. If your credit application is denied, you

A. can sue the credit rating agency. B. can file a complaint against the merchant. C. don't have any rights provided by law. D. should ask to know specifically why. E. can reapply for credit after 30 days. 39. If you think that your bill is wrong, you should first

A. contact the local credit bureau and inform it of the billing error. B. complain to the Better Business Bureau. C. contact your provincial consumer protection agency. D. notify the creditor of the error. E. contact your attorney to settle the matter.

40. Which of the following is considered to be a consumer loan?

A. Debit card B. Credit loan C. Personal line of credit D. Overdraft protection E. Mortgage loan 41. When a creditor looks at the borrower's attitude toward credit obligations, which of the 5 Cs of credit is she analyzing?

A. Capacity B. Capital C. Character D. Collateral E. Conditions 42. Valid reasons for using credit include all of the following except

A. medical emergency B. acquiring a car to return to the workforce C. borrowing for a higher education D. borrow for everyday living expenses E. buying an item now will cost less than in the future 43. Questions you should consider before you decide how and when to make a major purchase include all except

A. do I have the cash I need for a down payment B. do I want to use my savings for this purchase C. could I postpone this purchase D. what are the psychological costs of using credit (being in debt and responsible for monthly payments) E. all these questions should be considered 44. The advantages of credit include

A. can purchase goods even when funds are low B. carrying credit cards is safer than carrying cash C. a credit card can allow you to carry up to a 30 day "float D. credit cards may be used for identification when cashing a cheque E. all of these are advantages of credit

45. Which of the following is not an example of revolving credit?

A. overdraft protection B. charge cards C. mortgage D. line of credit. E. bank card credit 46. What percentage of Canadian households carry 1 or more credit cards

A. 20% B. 30% C. 50% D. 70% E. more than 80% 47. What percentage of credit card users generally pay off their balance in full every month?

A. 20% B. 30% C. 50% D. 70% E. more than 80% 48. Which of these is a characteristic of Paypal?

A. Facilitates online auction payments. B. Offers password protected accounts. C. Allows use of credit cards. D. Transfers funds in U.S. dollars. E. All are characteristics of Paypal 49. If you cosign a loan, all of the following are true except,

A. you are being asked to guarantee the debt. B. it is your legal responsibility to pay the debt. C. you'll have to pay only a portion of the debt if the borrower does not pay. D. the creditor must first try to collect from the borrower. E. the creditor can garnish your wages.

50. If your monthly net (after-tax) income is $2,000, what should be your maximum amount spent on credit payments?

A. $200 B. $300 C. $400 D. $500 E. $600 51. Generally, most of the information in your credit file may be reported for only ______ years.

A. 1 B. 3 C. 7 D. 9 E. 12 52. The best way to maintain your credit standing is to:

A. carry no credit cards B. pay all credit card invoices within 120 days C. repay your debts on time D. cancel any cars with outstanding balances E. if the balance is high and you cannot pay, claim your card was lost and misused by a 3 rd party 53. If your identity is stolen you should

A. Contact the fraud departments of each of the two credit bureaus. B. Contact the creditors for any accounts that have been tampered with or opened fraudulently. C. File a police report D. Keep a copy of the police report E. Take all of the actions indicated 54. There are _________ main credit bureaus in Canada

A. 1 B. 2 C. 3 D. 5 E. 8

55. Which of the following is the best rating to have on your credit report?

A. L0 B. L10 C. R0 D. R1 E. R9 56. Which of the following is the worst rating to have on your credit report?

A. L0 B. L10 C. R0 D. R1 E. R9 57. A FICO score of 700 would be considered

A. poor B. very poor C. a risk to default D. very good E. fair 58. FICO scores range between

A. 1-10 B. 1-100 C. 1-1,000 D. 300-900 E. 100-500 59. Credit is an arrangement to receive cash, goods, or services now and pay for them in the future. True

False

60. Consumer credit refers to the use of credit for personal needs (except a home mortgage) by individuals. True

False

61. Most consumers have only one choice in financing current purchases. True

False

62. Consumer credit is based on trust in people's ability and willingness to pay bills when due. True

False

63. A credit file is a report which includes the individual's present employer and position, former employer(s), public records and a list of cheques returned for insufficient funds. True

False

64. Collateral refers to the borrower's assets or net worth. True

False

65. There are very few valid reasons for using credit. True

False

66. "Shopaholics" and young adults are most vulnerable to misusing credit. True

False

67. College students are not a prime target for credit card issuers. True

False

68. Credit should not be considered a substitute for cash. True

False

69. It is safer to use credit, since charge accounts and credit cards let you shop and travel without carrying large amounts of cash. True

False

70. The use of credit can provide up to a 45 day "float." True

False

71. The use of credit indicates personal and financial instability. True

False

72. Perhaps the greatest disadvantage of using credit is the temptation to overspend. True

False

73. With an open-end credit, you pay back one-time loans in a specified period of time in equal amounts. True

False

74. In a closed-end credit, loans are made on a continuous basis and you make at least partial payment. True

False

75. Using a credit card, such as Visa or MasterCard is an example of closed-end credit. True

False

76. A line of credit is the maximum dollar amount of credit the lender has made available to you. True

False

77. Interest is a periodic charge for the use of credit, or other finance charges. True

False

78. Incidental credit is a credit arrangement that has no extra costs and no specific repayment plan. True

False

79. A line of credit is considered a form of revolving credit. True

False

80. A car loan is an example of a consumer loan. True

False

81. A personal line of credit is a pre-arranged loan for a specified amount that you can use by writing a special check. True

False

82. The credit cardholders who pay off their balances in full each month are known as convenience users. True

False

83. Cobranding has become increasingly unpopular since General Motors launched its credit card in 1992. True

False

84. Cobranding is the linking of a credit card with a business trade name offering "points" or premiums toward the purchase of a product or service. True

False

85. In the near future, smart cards will provide a crucial link between the World Wide Web and the physical world. True

False

86. You should sign your new credit cards as soon as they arrive. True

False

87. Department stores and gasoline companies are good places to obtain your first credit card. True

False

88. A home equity loan is based only on the amount you still owe on your mortgage. True

False

89. A home equity loan is usually set up as a revolving line of credit, typically with a variable interest rate. True

False

90. Financing from car dealers in affiliation with car manufacturers is called a conditional sales contract. True

False

91. Financing from car dealers in affiliation with financial institutions is called factory financing. True

False

92. A home equity loan is a good source of credit for daily expenses. True

False

93. The debt-payment-to-income ratio is calculated by dividing your total liabilities by your net worth. True

False

94. The debt-to-equity ratio is calculated by dividing your monthly debt payments (not including house payments) by your net worth. True

False

95. Experts suggest that you spend no more than 20 percent of your net income on credit payments. (However, 15 percent is much better.) True

False

96. The debt-to-equity ratio is calculated by dividing your total liabilities by your net worth. True

False

97. If your debt-to-equity ratio is about ½, you have reached the upper limit of debt obligations. True

False

98. If your debt-to-equity ratio is about 1, you have probably reached the upper limit of debt obligations. True

False

99. There is always a transaction fee attached to make a cash advance. True

False

100.The larger the debt-to-equity ratio, the riskier the situation is for lenders and borrowers. True

False

101.Some studies show that as many as three out of four cosigners are asked to repay the loan. True

False

102.When you cosign a loan, you are being asked to guarantee this debt. True

False

103.A lender requires a cosigner even when a borrower meets the lender's criteria for making a loan. True

False

104.Most creditors rely heavily on borrowers' bank reports when considering loan applications. True

False

105.Provincial legislation regarding consumer reporting agencies regulate the type of information that can appear in a credit report and protects the consumer's right not to suffer from false information. True

False

106.Your credit report may be issued only if this occurs with your consent. True

False

107.Your friends and neighbors can get credit information about you. True

False

108.Generally, most of the information in your credit file may be reported for only 3 ...