Venture Capital Firms Mcq

Chapter 20 Venture Venture Capital Firms, Finance Companies, and Financial Conglomerates 20.1 Multiple Choice 1) A ______ is a specialized firm that finances young, start-up companies. A) enture capital firm !) finance company C) small-"usiness finance company #) capital-creation company Ans$er% A 2) &enture &enture capital firms fir ms are usually organized as A) closed-end mutual funds !) limited partnerships C) corporations #) nonprofit "usinesses Ans$er% ! ') (hich of the follo$ing is not a characteristic feature of enture capital firms A) *unding +ust one or a small num"er of firms. !) olding euity in the firms that are funded. C) aing a long-term inestment horizon. #) roiding adice and assistance to the firms that are funded. Ans$er% A /) (hich of the follo$ing is a characteristic feature of enture capital firms A) #eeloping a portfolio of companies. !) olding de"t in the firms that are funded. C) Allo$ing firms to use the funds as they see fit. #) aing a short-term inestment horizon. Ans$er% A ) he largest industry group receiing enture capital funding is A) computer soft$are. !) medicalhealth. C) computer hard$are. #) none of the a"oe. Ans$er% # 3) he source of enture capital funding has A) shifted from $ealthy indiiduals to pension funds and corporations. !) shifted from pension funds and corporations to $ealthy indiiduals. C) decreased since 1440. #) none of the a"oe. Ans$er% A 252 5) A typical enture capital firm has a ______ num"er of inestors $ho each contri"ute a ______ amount of money to the fund. A) large6 small !) small6 large

C) large6 large #) small6 small Ans$er% ! 7) he 20-year aerage return of enture capital firms has "een a"out ______. A) 0 percent !) 7 percent C) 20 percent #) 100 percent Ans$er% C 4) he earliest e8amples of finance companies date "ac9 to the "eginning of the 1700s $hen retailers offered A) installment credit to customers. !) "alloon loans to customers. C) zero-interest loans to customers. #) all of the a"oe to customers. Ans$er% A 10) Most automo"ile financing is proided "y A) commercial "an9s. !) thrifts. C) finance companies o$ned "y automo"ile companies. #) finance companies o$ned "y real estate "ro9ers. Ans$er% C 11) *inance companies A) are money mar9et intermediaries. !) "orro$ in large amounts, "ut lend in small amounts. C) are irtually unregulated. #) are all of the a"oe. :) are only ;A) and ;!) of the a"oe. Ans$er% # 12) Consumer finance companies can "e distinguished from commercial "an9s  "ecause consumer finance companies A) often accept loans $ith much higher default ris9 than "an9s $ould. !) are often $holly o$ned "y a manufacturer that might "e $illing to offer  faora"le credit terms to sell products. C) typically offer lo$er interest rates to its loan customers than do "an9s. #) do all of the a"oe. :) do only ;A) and ;!) of the a"oe. Ans$er% : 25' 1') (hich of the follo$ing statements a"out finance companies are true A) *inance company delinuency rates are usually higher than those for "an9s or  thrifts. !) *inance companies charge higher interest rates than do commercial "an9s.

C) 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.

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$er% : 22) G: ) Iot until the Breat #epression did commercial "an9s "egin competing for loans secured "y accounts receia"le. Ans$er% D: 3) (hen finance companies proide credit to "usiness firms "y purchasing their  accounts receia"le at a discount, the credit is referred to as a floor plan. Ans$er% *A>G: 5) Gales finance companies ma9e loans to consumers to purchase items from a  particular retailer or manufacturer. Ans$er% D:

7) A sales finance company, also called a captie finance company, is o$ned "y the manufacturer to ma9e loans to consumers to help finance the purchase of the manufacturer?s products. Ans$er% D: 4) Captie finance companies often offer interest rates "elo$ those of "an9s to increase sales. Ans$er% D: 254 10) Compared to commercial "an9s and thrifts, finance companies are heaily regulated. Ans$er% *A>G: 11) *inance companies allocate a portion of their income each period to an account to  "e used to offset losses, called the resere for loan losses. Ans$er% D: 12) *inancial conglomerates are firms offering a ariety of financial serices under one um"rella. Ans$er% D:

20.' :ssay 1) (hat niche in the financial system do enture capital firms fill 2) o$ do enture capital firms oercome the pro"lem of information asymmetries that accompany start-up firms ') :8plain $hy sales finance companies might offer loans at "elo$ mar9et interest rates. /) (hy hae finance companies "een more innoatie than commercial "an9s and thrifts ) :8plain the adantages to "oth firms and finance companies $hen finance companies lease "usiness euipment to firms. 3) :8plain ho$ economies of "oth scale and scope confer adantages that financial conglomerates might en+oy. 5) (hat types of ris9 do finance companies face that commercial "an9s do not (hat types of ris9 do commercial "an9s face that finance companies do not 270 271