FIN 461 LATEST 2026 MAIN FINAL EXAMS QUESTIONS AND
ANSWERS RATED A+
✔✔A type of company that specializes in distressed loans is
A. a bank loan mutual fund.
B. a domestic bank.
C. a foreign bank.
D. an investment bank.
E. a vulture fund. - ✔✔E
✔✔Which observation is true of vulture funds?
A. Their decisions based on developing and maintaining long-term relationships.
B. Their sole agenda is to helping the distressed firm to survive.
C. Their investments are always passive.
D. They are relationship based, not transaction driven.
E. In a restructuring, they are looking for a return on capital invested. - ✔✔E
✔✔Which of the following rely on non-distressed HLT loan purchases as a means of
diversifying without the high cost of developing costly nationwide banking networks?
A. Bank loan mutual funds.
B. Credit unions.
C. Foreign banks.
D. Investment banks.
E. Vulture funds. - ✔✔C
✔✔The traditional interbank loan sale market has been shrinking for which of the
following reasons?
A. The barriers to nationwide banking have been largely removed through legislation.
B. Concerns about counterparty risk and moral hazard have increased.
C. The traditional correspondent banking relationships are slowly breaking down.
D. All of the options.
E. Concerns about counterparty risk and moral hazard have increased, and the
traditional correspondent banking relationships are slowly breaking down. - ✔✔D
✔✔Which of the following is NOT a reason for FIs to sell loans?
A. Loan diversification.
B. To reduce required reserves.
C. To reduce required capital.
D. To reduce costs of credit risk assessment.
E. To provide liquidity. - ✔✔D
✔✔Loan sales by foreign banks
A. are forbidden in the U.S. domestic market.
B. must be of a certain size to be purchased by a domestic FI.
C. are allowed to be purchased by domestic FIs if the loan is to a highly-rated company.
, D. must be of a certain duration, and be sold without recourse in order to be purchased
by a domestic FI.
E. have no restrictions placed on them. - ✔✔A
✔✔The move toward market value accounting
A. increases banks' incentives to sell loans to avoid reporting capital losses.
B. decreases banks' incentives to sell loans to avoid reporting capital losses.
C. increases banks' incentives to sell loans since all assets will automatically be marked
to market.
D. decreases banks' incentives to sell loans since all assets will automatically be
marked to market.
E. has no impact on the banks' incentives to sell loans. - ✔✔C
✔✔Banks that sell many of their loans
A. utilize more of a dealer intermediation approach.
B. utilize more of a broker intermediation approach.
C. utilize more of a trader intermediation approach.
D. utilize more of a market maker intermediation approach.
E. relinquish some of their roles as financial intermediaries. - ✔✔B
✔✔Banks and other FIs sell loans because of all of the following EXCEPT
A. loan diversification benefits.
B. reduction in reserve requirements.
C. lowering of capital costs.
D. reduction of liquid assets of the institution.
E. increase in fee income through brokerage functions. - ✔✔D
✔✔Which of the following aided in allowing Federal Government Agencies (such as the
FDIC) to sell loans of institutions for which the agency has become responsible?
A. National Banking Act.
B. Financial Services Modernization Act.
C. Savings Institutions Reform Act.
D. Glass-Steagall Act.
E. Federal Debt Collection Improvement Act. - ✔✔E
✔✔Which of the following is NOT a factor that may tend to increase loan sales in the
future?
A. There is an increased trend to apply credit ratings to loans offered for sale,
increasing the attractiveness to secondary market purchasers.
B. The federal government takeover of Fannie Mae and Freddie Mac means that the
loans held by these agencies can never be sold to other entities.
C. Because of their special credit monitoring skills, FIs have a comparative advantage in
making loans to below-investment grade companies and then selling the loan.
D. The trend toward marked-to-market accounting for assets makes bank loans more
like securities so they may be easier to sell.
ANSWERS RATED A+
✔✔A type of company that specializes in distressed loans is
A. a bank loan mutual fund.
B. a domestic bank.
C. a foreign bank.
D. an investment bank.
E. a vulture fund. - ✔✔E
✔✔Which observation is true of vulture funds?
A. Their decisions based on developing and maintaining long-term relationships.
B. Their sole agenda is to helping the distressed firm to survive.
C. Their investments are always passive.
D. They are relationship based, not transaction driven.
E. In a restructuring, they are looking for a return on capital invested. - ✔✔E
✔✔Which of the following rely on non-distressed HLT loan purchases as a means of
diversifying without the high cost of developing costly nationwide banking networks?
A. Bank loan mutual funds.
B. Credit unions.
C. Foreign banks.
D. Investment banks.
E. Vulture funds. - ✔✔C
✔✔The traditional interbank loan sale market has been shrinking for which of the
following reasons?
A. The barriers to nationwide banking have been largely removed through legislation.
B. Concerns about counterparty risk and moral hazard have increased.
C. The traditional correspondent banking relationships are slowly breaking down.
D. All of the options.
E. Concerns about counterparty risk and moral hazard have increased, and the
traditional correspondent banking relationships are slowly breaking down. - ✔✔D
✔✔Which of the following is NOT a reason for FIs to sell loans?
A. Loan diversification.
B. To reduce required reserves.
C. To reduce required capital.
D. To reduce costs of credit risk assessment.
E. To provide liquidity. - ✔✔D
✔✔Loan sales by foreign banks
A. are forbidden in the U.S. domestic market.
B. must be of a certain size to be purchased by a domestic FI.
C. are allowed to be purchased by domestic FIs if the loan is to a highly-rated company.
, D. must be of a certain duration, and be sold without recourse in order to be purchased
by a domestic FI.
E. have no restrictions placed on them. - ✔✔A
✔✔The move toward market value accounting
A. increases banks' incentives to sell loans to avoid reporting capital losses.
B. decreases banks' incentives to sell loans to avoid reporting capital losses.
C. increases banks' incentives to sell loans since all assets will automatically be marked
to market.
D. decreases banks' incentives to sell loans since all assets will automatically be
marked to market.
E. has no impact on the banks' incentives to sell loans. - ✔✔C
✔✔Banks that sell many of their loans
A. utilize more of a dealer intermediation approach.
B. utilize more of a broker intermediation approach.
C. utilize more of a trader intermediation approach.
D. utilize more of a market maker intermediation approach.
E. relinquish some of their roles as financial intermediaries. - ✔✔B
✔✔Banks and other FIs sell loans because of all of the following EXCEPT
A. loan diversification benefits.
B. reduction in reserve requirements.
C. lowering of capital costs.
D. reduction of liquid assets of the institution.
E. increase in fee income through brokerage functions. - ✔✔D
✔✔Which of the following aided in allowing Federal Government Agencies (such as the
FDIC) to sell loans of institutions for which the agency has become responsible?
A. National Banking Act.
B. Financial Services Modernization Act.
C. Savings Institutions Reform Act.
D. Glass-Steagall Act.
E. Federal Debt Collection Improvement Act. - ✔✔E
✔✔Which of the following is NOT a factor that may tend to increase loan sales in the
future?
A. There is an increased trend to apply credit ratings to loans offered for sale,
increasing the attractiveness to secondary market purchasers.
B. The federal government takeover of Fannie Mae and Freddie Mac means that the
loans held by these agencies can never be sold to other entities.
C. Because of their special credit monitoring skills, FIs have a comparative advantage in
making loans to below-investment grade companies and then selling the loan.
D. The trend toward marked-to-market accounting for assets makes bank loans more
like securities so they may be easier to sell.
