Which of the following best describes a finance company?Question 7Select one:A mutual fund managed by a financial intermediary that specialises in investing in short-term debt instrumentsA financial institution that sells unsecured notes and uses the funds to make loans to household borrowers and companiesA financial institution whose function is to provide cash income for employees of corporations or governments after they retireA financial institution that pools funds for individuals and then invests them in both the money and capital marketsA financial institution that aims to achieve high investment returns on its invested funds by using exotic financial products
Question
Which of the following best describes a finance company?Question 7Select one:A mutual fund managed by a financial intermediary that specialises in investing in short-term debt instrumentsA financial institution that sells unsecured notes and uses the funds to make loans to household borrowers and companiesA financial institution whose function is to provide cash income for employees of corporations or governments after they retireA financial institution that pools funds for individuals and then invests them in both the money and capital marketsA financial institution that aims to achieve high investment returns on its invested funds by using exotic financial products
Solution
The best description for a finance company from the options provided would be: "A financial institution that sells unsecured notes and uses the funds to make loans to household borrowers and companies".
Finance companies typically raise funds by issuing unsecured notes or commercial paper, and they use these funds to provide loans to individuals and businesses. They do not accept deposits like a bank, but rather rely on these other methods to raise capital. They often provide loans to borrowers who may not be able to secure loans from traditional banks, such as those with poor credit histories.
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