True/False
Indicate whether the
statement is true or false.
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1.
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Credit is the privilege of using someone else’s money for a period of
time.
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2.
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A debtor is any person or business that grants a loan or sells on credit, while
a creditor is any person or business that buys on credit or receives a loan.
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3.
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One advantage of credit is that it is designed to help protect consumers from
impulse buying because it has limits on how much can be purchased.
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4.
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A credit rating indicates the level of risk that someone would pose if credit
were granted to them.
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5.
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Disadvantages of using consumer credit include the credit costs associated with
credit purchases and the financial difficulties that could result from credit purchases.
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6.
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Debts can accumulate through the use of credit and, at the same time, credit can
be used to discharge a person’s debts.
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7.
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All levels of government use credit to some extent and the federal government,
on an annual basis, loans money to thousands of people when they issue Canada Savings Bonds.
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8.
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Businesses use short-term credit all of the time to purchase such things as
land, buildings, and equipment.
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9.
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Banks make money by investing the difference between the amount of interest they
extend through deposits versus the amount of interest they require through loans.
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10.
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If a company defaults on a loan, the organization that granted the loan may be
able to seize the assets of the company.
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11.
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Corporate credit cards are similar to credit cards in that the holder is
required to pay interest charges on all purchases made on behalf of the company.
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12.
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A bad debt typically results from a business’s lack of ability to repay a
debt, and must be turned over to a collection agency for handling.
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13.
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There are three basic types of credit cards: bank-issued credit cards, charge
cards issued by retailers, and cards issued by travel and entertainment companies.
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14.
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Of the three basic types of credit cards, charge cards issued by retailers
account for the largest percentage of consumer spending.
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15.
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Using a credit card is like taking out a long-term loan because the debt must be
paid off over an extended period of time.
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16.
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Visa and MasterCard calculate interest immediately on cash advances, but on
purchases the interest is calculated only after the due date has passed.
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17.
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Businesses like cash purchases but also like credit purchases because credit
means that payment is guaranteed, payment is quicker, and sales could be increased.
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18.
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Subscribers like to use travel and entertainment cards because the yearly
membership fee for them is much less than the fee charged for bank-issued cards.
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19.
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Many stores establish and issue their own credit card system to avoid the
charges that they would have to pay to universal credit card companies.
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20.
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Installment sales credit is a credit plan that requires a seller to make a down
payment and fixed regular payments, with finance charges added to the purchase price.
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21.
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A term loan is a form of installment credit in which the borrower agrees to make
fixed monthly payments over a set period of time.
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22.
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Leasing is very much like a loan because both represent long-term rentals where
the borrower doesn’t own the asset until the end of the lease or loan.
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23.
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A demand loan may have a guarantee in the form of collateral, which is something
of value that a lender can take and sell if the loan is not repaid on time.
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24.
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When calculating the cost of credit, it is important to remember that the
economic conditions are the chief factor in determining the interest cost.
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25.
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I = P + R + T is a formula that can be used to calculate simple interest when
borrowing money.
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26.
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A debtor who has a record of borrowing money and repaying it promptly will
probably get a competitive interest rate from the lender.
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27.
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Credit worthiness can be determined by the three Cs of credit, which are
character, collateral, and capital.
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28.
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A credit bureau is a business that gathers credit information on all borrowers
in a particular region for the purpose of selling that information to credit grantors, or
lenders.
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29.
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A consolidation loan is a way to combine several debts into one loan and then to
bring in a collection agency to manage the loan for the borrower.
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30.
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Credit counselling services are not-for-profit organizations that provide
unbiased assistance to individuals and families experiencing money and credit problems.
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Multiple Choice
Identify the
choice that best completes the statement or answers the question.
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1.
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The name which identifies a person or business that grants a loan or sells on
credit is a
A. | debtor | B. | creditor | C. | loan
officer | D. | payee |
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2.
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Advantages of consumer credit include such things as
A. | saving money | B. | convenience | C. | instant
enjoyment | D. | all of the above |
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3.
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Disadvantages of using consumer credit include such things as
A. | credit rating | B. | impulse buying | C. | emergency
help | D. | all of the above |
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4.
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When a person charges something on credit with a business, he or she is listed
on the books of that business as a(n)
A. | accounts payable | B. | liability | C. | accounts
receivable | D. | outstanding account |
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5.
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The expression “businesses are cyclical” means that
A. | sales are higher in some months than in others | B. | sales are spread
evenly throughout the year | C. | sales are equal from month to
month | D. | sales increase from month to month |
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6.
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If a business is unable to repay a debt by defaulting on a loan, the following
action(s) may or may not take place.
A. | company becomes more solvent | B. | company’s reputation is
enhanced | C. | company’s assets are seized | D. | all of the
above |
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7.
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Common types of credit used by a business could include
A. | installment sales credit | B. | loans | C. | mortgages | D. | all of the
above |
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8.
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Credit cards are popular but the one that accounts for the largest percentage of
consumer spending is
A. | bank-issued credit cards | B. | travel and entertainment
cards | C. | retailer credit cards | D. | installment sales
cards |
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9.
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Financial institutions typically offer credit cards to their customers based on
their
A. | account balance | B. | credit rating | C. | age | D. | marital status |
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10.
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Visa and MasterCard will allow you to purchase on credit and not charge any
interest as long as you
A. | limit the amount of the cash advance | B. | pay a minimum amount each
month | C. | pay the balance owing in full | D. | do not exceed your credit
limit |
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11.
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Credit card advantages could include one or more of the following
A. | increase the amount purchased | B. | eliminates the risk of a bounced
cheque | C. | universally accepted | D. | all of the
above |
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12.
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One big disadvantage to allowing payment through a universal credit card would
be
A. | the speed of payment | B. | the costs associated with the
transaction | C. | the amount purchased | D. | all of the
above |
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13.
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American Express, Diners Club, and Discover are examples of
A. | bank-issued cards | B. | travel and entertainment
cards | C. | retailer cards | D. | installment
cards |
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14.
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The type of credit plan where the purchaser makes a down payment and fixed
regular payments is called
A. | installment sales credit | B. | term loan | C. | demand
loan | D. | mortgage loan |
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15.
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This form of credit is usually granted to borrowers who have a strong
relationship with the financial institution and who can guarantee the repayment.
A. | installment sales credit | B. | term loan | C. | demand
loan | D. | mortgage loan |
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16.
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If a loan is not paid on time, a lender can seize something of value, which is
called
A. | collateral | B. | lease | C. | demand
note | D. | liability |
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17.
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The amount that an asset is worth at the end of the lease is referred to as
the
A. | face value | B. | operating value | C. | residual
value | D. | lease value |
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18.
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The most important factor in determining the interest cost on money borrowed
would be the
A. | collateral | B. | principal | C. | risk | D. | all of the
above |
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19.
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The reason that short-term loans have lower interest rates is the lender can
somewhat predict
A. | interest rates | B. | economic conditions | C. | inflation
rates | D. | all of the above |
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20.
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The simple interest amount, where the principal is $500.00, the rate is 5.5
percent, and the time is one year, would be
A. | $25.00 | B. | $27.50 | C. | $7.50 | D. | $72.50 |
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21.
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Getting the lowest rate possible when borrowing money could be a function of one
or more of the following factors.
A. | borrowing record | B. | loan history | C. | credit
risk | D. | all of the above |
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22.
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One of the following “Cs” does not have anything to do with a
borrower’s credit worthiness.
A. | character | B. | cost | C. | capacity | D. | capital |
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23.
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This “C” represents the value of the borrower’s
investments.
A. | character | B. | cost | C. | capacity | D. | capital |
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24.
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This “C” refers to the borrower’s reliability and
trustworthiness.
A. | character | B. | cost | C. | capacity | D. | capital |
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25.
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A business that gathers credit information on all borrowers in a particular
region for the purpose of selling that information is called a
A. | credit union | B. | credit bureau | C. | bank | D. | trust company |
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26.
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A good credit rating can result from when a borrower
A. | has too many credit cards | B. | owes large sums of money | C. | keeps debt to a
reasonable level | D. | pays bills late |
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27.
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Credit bureaus gather information, which can be used to assess the credit
worthiness of a borrower, and keep that information for
A. | 1 year | B. | 7 years | C. | 17
years | D. | the lifetime of a borrower |
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28.
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One of the best ways to build a credit rating would be to
A. | have as many different jobs as possible | B. | borrow as much as
possible | C. | buy something and pay it back within 30 days | D. | rely on parent or
guardian credit history |
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29.
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One indication that a person may be in a credit crisis would be if that
person
A. | uses cash advances for everyday purchases | B. | pays credit cards
when they are due | C. | has little or no debt | D. | has a positive
credit rating |
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30.
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The not-for-profit organization that provides unbiased assistance to individuals
and families who may be experiencing money problems is called a
A. | credit union | B. | trust and loan company | C. | bank | D. | credit counselling
service |
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