Which of the following qualities of economic indicators do investors prize the most?
answer
timeliness of release
question
Why is the release of GDP statistics less interesting to investors than the release of other economic indicators?
answer
because GPD statistics are released well after other economic indicators
question
Which of the following important US economic indicators is only available on a quarterly basis?
answer
GDP
question
Which economic indicator is most directly linked to unemployment?
answer
nonfarm payrolls
question
How accurately do GDP statistics portray the economy and why?
answer
inaccurately because the scope of GDP measurements can change
question
Which of the following lines is the best leading economic indicator?
answer
PMI
question
What typically happens to nonfarm payrolls, the PMI indicator, and housing starts at the onset of a recession in the United States?
answer
Nonfarm payrolls go down, the PMI indicator goes DOWN, the housing starts goes down.
question
How have economic forecasts for this country (US) evolved?
answer
minimal change
question
What is the main reason that investment banks create estimates of economic indicators?
answer
To know when specific economic data points are a positive or negative surprise
question
Which of the following is the biggest pitfall of economic indicators?
answer
They do not consistently presage turning points
question
Which country is the fourth biggest importer and exporter?
answer
Japan
question
Which of the following is not an example of a failed peg?
answer
Hong Kong dollar against the U.S. dollar in 1997.
question
What generally happens when a central bank unexpectedly increases interest rates?
answer
The currency strengthens.
question
Which driver weakened the Swiss franc?
answer
A surprise change in inflation expectations
question
What does the Big Mac index show?
answer
how currencies may be overvalued or undervalued
question
Which of the following are short-term drivers of currency valuation?
answer
surprise changes in interest rates, inflation, and trade
question
By what mechanism do interest rates affect currency values?
answer
Global investors are attracted by higher bond yields in high interest rate countries.
question
Which of these headlines could move a currency pair?
answer
U.S. Stocks rally on Fed's Surprise reduction of Interest Rate.
question
What is the most common target inflation rate for an advanced economy?
answer
2%
question
What was the primary goal of Abenomics?
answer
to halt the vicious cycle of deflation
question
Here is the vicious deflationary cycle. What step connects the lower left gray arrow to the upper right blue arrow?
answer
prices decline
question
Were the two oil crises in the 1970s linked to deflation or inflation?
answer
inflation
question
What is the median estimate for the number of Japanese yen per euro for calendar year 2020?
answer
126
question
What is the difference between Norma and RBC's estimate for the Japanese yen/euro currency pair for the end of Q1 2018?
answer
40 yen
question
Why would Jack Welch suggest putting all company plants on barges?
answer
To respond quickly to changes in the currency markets.
question
Which of the following options is the best way for investors to manage currency risk?
answer
By locking in forward rates for known foreign payments.
question
What quality of U.S. government bonds causes investors to buy them when market volatility rises?
answer
US Government bonds are considered low risk
question
Why is fixed income called Fixed income?
answer
Because the repayment amounts and timings are fixed for ordinary bonds
question
Why does the United States have a strong reputation for creditworthiness?
answer
because it has the right to tax the wealthiest population on earth.
question
What is one reason why foreign governments lend to the U.S. government?
answer
To build liquid FX reserves
question
What does one yellow bar depict in this debt distribution diagram?
answer
Coupon repayment
question
Which one of the following actors benefits when interest rates go up?
answer
An investor who is about to buy bonds.
question
When investors doubt the creditworthiness of a borrower, how do they alter their calculation of the bond yield to take into account these doubts?
answer
Investors do not after the calculation
question
As a general rule, what percentage of debt to GDP will make a government's bond yields spike?
answer
there is no general rule
question
What is true of both the U.K. and the U.S.?
answer
Both countries are highly creditworthy.
question
What is the primary reason for U.S. government bond yields to ripple through the bond market?
answer
The large government bond market competes for investors attention via yields
question
A rise in which of the following measures would typically send a government bond price up?
answer
Creditworthiness
question
How do investors compare bonds?
answer
by comparing the yields of single bonds
question
Which of the following is the strongest driver of inflation?
answer
wartime activities
question
Investors who fear rising inflation may buy Treasury Inflation Protected Securities (TIPS). How do TIPS shield lenders from inflation?
answer
By compensating investors for inflation
question
What is the Federal Reserve's favorite inflation gauge?
answer
Core PCE
question
Why does the yield curve naturally slope upwards?
answer
To compensate leaders for the greater risk of long-term loans compared to short-term loans
question
Why did the corporate spread significantly widen during the 2008 market crash?
answer
Corporate bond issuers go bankrupt more frequently then governments, as they do no have a tax base to fall back on in hard times
question
What impact will a tightening of the corporate spread most likely have on a company?`
answer
A tendency to expand the borrowing capacity of the company.
question
What are the three main transmission mechanisms by which the yield curve affects the economy?
answer
Corporate impact, global impact, consumer impact.
question
The purchase of which of the following products is most affected by interest rates?
answer
A house
question
What is the primary driver of the left-hand end of the yield curve?
answer
Central bank interest rates
question
Why does the yield curve tend to invert shortly before a recession?
answer
An inverted yield curve means that bond traders are predicting interest rate cuts, and interest rate cuts happen in response to a recession.
question
Why do companies do IPOs?
answer
IPOs incentivize entrepreneurs to innovate as IPOs provide a way for entrepreneurs to monetize their work
question
Why do company manager-owners smile when they ring the stock exchange bell at their IPO
answer
An IPO crystalizes the value of the manager-owners stake
question
What is the prime reason that Jenny's discretionary income is more volatile than her salary?
answer
Her mortgage payments and necessities are fixed
question
A wedding planning company has a high fixed-cost base and a lot of debt. Who would you rather be?
answer
A shareholder in a booming economy.
question
Why are equities volatile?
answer
Due to the residual nature of earnings
question
Which of the following statements is true?
answer
When you buy an equity, the most you can lose is 100% and your potential gain is unlimited.
question
What does the release of earnings announcements have in common with the release of economic indicators?
answer
Both are estimated in advance by analysts.
question
Engines are the most expensive, heavy component on an aircraft and are designed with detailed specifications. Which of the following would likely be the best theme for a Rolls-Royce analyst research note to help a portfolio manager decide between investing in Rolls-Royce or United Technologies?
answer
A comparison of the commercial prospects of new aircraft models
question
You are building a financial model of a bifocal lens manufacturer. Which of the following is the best driver to use?
answer
Median age of society
question
When an analyst is looking at a company for the first time, which of the following four activities does he do first?
answer
Defines the industry or industries in which the company operates.
question
Company X was expected to have earnings per share of $0.52 for the upcoming quarter. On the day of the results, the company reported earnings per share of $0.83. What happened to the share price when the stock market opened?
answer
There is not enough information to tell.
question
Widget Co has a market capitalization of $100 million. it does a 10-for-1 stock split. it then does a 1-for-16 reverse stock split. Finally, it does a 35-for-1 stock split. Nothing else changes. what's the new market cap?
answer
$100M
question
What input do both absolute valuation and relative valuation typically require?
answer
Short-term forecasts
question
Which of the following is most likely to be the most challenging part of this first step of the absolute valuation process?
answer
Making the assumptions upon which the project future performance
question
What is a reason one discounts future cash flows as part of the absolute valuation process?
answer
Future profits are uncertain.
question
What role does beta play in absolute valuation?
answer
It determines how risky a stock is in comparison to the overall stock market
question
How is enterprise value calculated?
answer
Enterprise value = market cap - cash + debt
question
Which of the following assigns the same relative weightings to short-term and long-term outcomes as the absolute valuation process?
answer
A fishery exceeding fishing quotas
question
A rise in which of the following inputs will increase an absolute valuation?
answer
Earnings estimates
question
How do earnings yields differ from bond yields?
answer
The cash flow from equities can continue indefinitely while the cash flow from most bonds comes to an end.
question
At its peak at the end of 1999, Microsoft had a market cap of $600B, It was the apple of its day as PC sales were booming and most ran Microsoft software. Revenue was growing 30% per year. The P/E ratio peaked at 70.0x. Looking at this chart, what happen in the subsequent 15years?
answer
The P/E ratio drifted downwards, and this more than offset earnings growth, meaning that the shares went down
question
What is one possible weakness of this peer approach to valuation
answer
The estimated growth can be dramatically wrong.
question
What may be a problem of comparing the P/E of a stock to the P/E of the overall market?
answer
A stock's P/E ratio can remain above or below market average for extended periods.
question
If the earnings per share of a company is $1 and the earnings yield is 2%, What is the price per share?
answer
$50
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