Series 7 Economics And Analysis

Front 1

Expansions are characterized by increased

Back 1

DPPP=consumer Demand, industrial Production, rising stock Prices, Property values, and GDP

Front 2

Downturn characterized by

Back 2

Higher bankruptcy, consumer debt and inventory lower stock prices and GDP

Front 3

What are the leading economic indicators

Back 3

Happy NEW Money In MIO
H=housing starts; NE=New Unemployment claims; W=work week; M=Money supply; I=Index (sp500); M= changes in Material Prices; I= Inventory changes; O= Orders;

Front 4

Coincident indicators are those measurable factors that confirm where the economy is going. What are some

Back 4

I$ GDP ME
I$=Personal income; GDP, M=Manufacturing; E= employment levels; ;

Front 5

Lagging indicators are those that change after the economy has begun a new trend in service confirmation the new trend. What are some lagging indicators

Back 5

CP$ IS IL LUD
CP$=Corporate profits; IS=Inventory to Sales; I=Interest (prime); L=Loans;L=Labor UD= Unemployment Duration;

Front 6

What is Keynesian theory

Back 6

Demand side economics. Demand for goods control employment and prices . Government rights and responsibilities to manipulate overall demand.

Front 7

who is Milton Friedman

Back 7

Supply side economics. Originator of monetary economics theory. Money supply is the major determinant of price levels

Front 8

Who controls the monetary economic policy

Back 8

Federal Reserve Board

Front 9

What is supply side economics

Back 9

Noninterventionist. Government should allow market forces to determine prices of all goods. Supply-side theory calls for low taxes and low government spending

Front 10

What is m1, m2, and m3

Back 10

m1= aka narrow=currency in circulation and demand deposits
m2= time deposits less than $100,000 (money market mutual funds) plus m1
m3=aka near money= time deposits greater than $100,000. Includes assets that are less liquid than other components of the money supply, and are more closely related to the finances of larger financial institutions and corporations then to those of businesses and individuals plus m2

Front 11

What are the three ways that the FRB affects money supply

Back 11

1. Open market operations
2. changing the discount rate
3. changing reserve requirement

Front 12

Who is the FOMC

Back 12

The Federal Open Market Committee. They meet regularly to direct the government open market operations

Front 13

What is the discount rate

Back 13

The interest rate the Fed charges its members for short term loans

Front 14

What is the federal funds rate

Back 14

To compensate for short falls in reserve requirements, a bank may borrow money directly from the Fed at its discount rate or borrow the excess reserves, federal funds, from another member bank. The interest rate banks charge each other for such loans is called the federal funds rate

Front 15

What Is the most volatile interest rate in the economy

Back 15

The federal funds rate

Front 16

What is the reserve requirement

Back 16

The required amount (representing a certain percentage of their depositors money) that Commercial banks must deposit with the Federal Reserve.

Front 17

What is this disintermediation

Back 17

(removing the middle man) Leaving the banks to get bigger money directly from securities. If occurs when money is tight and bank interest rates are stagnant or low

Front 18

What is on the debit side of the balance of payment

Back 18

imports, us spending abroad, investment abroad, foreign aid

Front 19

What is on the credit side of the balance of payment

Back 19

Exports, foreign spending in the US

Front 20

Who sets the discount rate

Back 20

FRB

Front 21

What are some examples of things that cause a fall in the US dollar in relation to the Japanese yen

Back 21

A decrease in US interest rates will Chase money out of the US and increase the foreign currencies relative value. The value of the yen should increase, the dollar will fall in comparison. If US consumers are buying more Japanese goods then the Japanese are buying US goods

Front 22

What does it confirm if market trading volume is substantially above normal

Back 22

It signifies or confirm a pattern in the direction of prices

Front 23

What is the market breadth

Back 23

The number of issues closing up or down on a specific day

Front 24

A stock is consolidating when

Back 24

A stock price stay within a narrow range

Front 25

What does a head and shoulders top pattern indicate

Back 25

A bearish trend. Head and shoulders formation indicate a reversal of market trends to chartists.

Front 26

What happens when a stock declines to its support level

Back 26

The support level is the price level which historically a stock has had difficulty falling below. The support level will be reconfirmed it a lot of buyers enter into the stock causing it to rise and move away from the support level. It will be wiped out if buyers will not enter the stock and the stock falls below.

Front 27

When is it stock oversold

Back 27

The number of declining stocks relative to the number of advancing stocks is falling

Front 28

Dow Theory uses a primary trend, a secondary trend and short-term fluctuations to confirm the end of a major markets trend. What are the time periods of these trends

Back 28

primary= 1 year or more; secondary= 3 to 12 weeks; short term= hours for days

Front 29

What is the random walk theory

Back 29

The direction of stock market prices is unpredictable. It is based on the efficient market theory

Front 30

What are examples of defensive industries

Back 30

Food, non durable consumer goods pharmaceuticals, and tobacco

Front 31

What are cyclical industries and what are some examples

Back 31

Cyclical industries are highly sensitive to business cycles and inflation trends. Examples include heavy machinery, airlines, furniture, clothing, hotels and automobiles

Front 32

What part of the balance sheet is affected when a corporation declares a cash dividend

Back 32

Current liabilities, working capital, total liabilities, and net worth. The declaration of the dividend creates a liability. Because liabilities are affected, working capital and total liabilities also change. The declaration of a dividend reduces the net worth

Front 33

What is a business development company

Back 33

One that is created to help grow small companies while still in the initial stages of their development. FINRA note that nontraded BDCs can be problematic in terms of suitability for retail investors. They are illiquid. They allow small non accredited investors to invest in more speculative startup ventures usually considered more suitable for accredited investors. They can be both listed and traded on exchange on exchanges or non traded.

Front 34

Operating income is also called

Back 34

Operating margin arranged before interest and taxes

Front 35

What are quick assets

Back 35

Current assets minus inventory

Front 36

What is the acid test ratio

Back 36

Quick assets divided by current liabilities

Front 37

What does debt service ratio measure and how is it computed

Back 37

debt Service ratio reflects a company's ability to meet the principal and interest payment on it stands. It is EBIT divided by annual interest and principal payments

Front 38

What is book value

Back 38

The company's theoretical liquidation value expressed on a per share basis

Front 39

What type of p/e ratios do speculative companies typically have

Back 39

Very high or very low p/e ratios

Front 40

If you compare growth companies to cyclical companies, which one has the highest p/e ratio

Back 40

Growth companies

Front 41

Earnings per share relates only to

Back 41

Common stock

Front 42

Which is more volatile short term rates for long term

Back 42

Short term rates are more volatile than long term rates

Front 43

Given a change in rates, which bond price moves more, long term or short term

Back 43

Long-term bond prices move more than short term bond prices because of the compounding effect over a much longer time

Front 44

When a member Bank of the Federal Reserve System borrows from the Federal Reserve, it would pay what rate

Back 44

Discount

Front 45

What is the most stringent test of liquidity

Back 45

Cash and equivalent s / current liabilities

Front 46

What is the dividend retention ratio

Back 46

It is the reciprocal of the dividend payout ratio.

Front 47

Is CPI is declining what would the Fed likely do

Back 47

Increase the money supply. If CPI is declining, inflation is receding, which usually occurs when business is contracting, which the Fed would usually wish to counteract. There is a danger of increased inflation if the Fed is too generous

Front 48

How is a recession defined

Back 48

Two or more consecutive quarters of economic decline

Front 49

How is a depression defined

Back 49

Six consecutive quarters of economic decline

Front 50

To retain an accurate comparison of one year to the next, GNP must be measured

Back 50

Constant dollars, inflation adjusted dollars

Front 51

The largest component of the S&P 500 index is made up of

Back 51

Industrial stocks

Front 52

What do economist consider the beginning of the business cycle

Back 52

Recovery followed by Peak, Contraction and Trough

Front 53

What is stagflation

Back 53

The term used to describe the unusual combination of inflation and unemployment

Front 54

In analyzing the ability of a company to meet its debt obligations but not wanting to be affected by certain accounting decisions or practices that will cloud the picture, one measure that you might look at is the firm's

Back 54

EBITDA Earnings before interest, taxes, depreciation, and Amortization retaliation

Front 55

What economic indicators reflect the current level of business activity

Back 55

The leading economic indicators= New money in mio See acronyms

Front 56

What economic indicators reflect the current state of the economy

Back 56

Personal income levels

Front 57

If the US dollar has fallen relative to foreign currencies what would happen

Back 57

US exports are likely to rise. Foreign currencies buy more US dollars. When the US dollar loses value compared to a foreign currency, us goods are cheaper in terms of that foreign currency, which means that the foreign country and its residents can buy more US products and US exports rise

Front 58

If the FRB decides to curb inflation what will it most likely do

Back 58

Tighten the money supply

Front 59

If the Feds begin selling securities in the open market to tighten credit, what is the first interest rate to feel this change in the Fed policy

Back 59

The federal funds rate

Front 60

Is the Dow Jones Industrial Average a weighted average

Back 60

Yes it is a price weighted average of 30 stocks representing Industrial Corporation but also includes a few others

Front 61

According to Dow theory, reversal of a primary bullish trend must be confirmed by

Back 61

Dow Jones Industrial Average and transportation average

Front 62

What is trading on equity

Back 62

Trading on equity relates to a highly leveraged company such as a utility company. The earnings in excess of the interest on new debt will increase shareholder earnings

Front 63

What stock, one in terms of type and the other in terms of industry, will probably be reflect the biggest impact of rising interest rates

Back 63

Public utilities and preferred stocks. preferred stock with its fixed dividend and utilities with their high degree of debt leverage are considered interest rate sensitive.

Front 64

While looking at a chart for ABC common stock, a technical trader wants to have in order in position in the event that ABC moves higher and breaks out on the chart.. A buy stop order would be placed where

Back 64

Just above the resistance. To take advantage of a stock moving higher and breaking out on a chart, a technical trader wiill place a stop order just above the resistance level. Technical traders believe that if it breaks the resistance level, it will move to and trade within a higher price range. Using a buy stop order placed just above the resistance level ensures that the purchase is not made until the stock has broken through the resistance.

Front 65

What does it indicate when short interest is high

Back 65

Many investors consider it a bullish indicator when this number is high because each share must be covered at some point.

Front 66

The Federal Reserve System is responsible for

Back 66

Conducting monetary policy, acting as an agent for the US Treasury, acting as a coordinator of the money supply

Front 67

How often is the Consumer Price Index released

Back 67

Monthly

Front 68

The Federal Reserve sets three things. What are they

Back 68

1.The reserve requirement.
2.The discount rate.
3.The initial margin requirements for non exempt securities

Front 69

What type of rate is the federal funds rate

Back 69

It is a market rate of interest charged in bank to bank borrowing. It is however heavily influenced by Fed action

Front 70

What government entity does not purchase Treasury securities in the primary market

Back 70

The Federal Reserve Board. It purchases and trades in the secondary market. They are not primary purchasers

Front 71

What is the relationship between duration and bond value

Back 71

higher a bonds duration, the more its value will change given a 1% change in the interest rate

Front 72

What is the general rule that determines the price of a bond given 1% change in the interest rate and the duration of the bond

Back 72

interest rate change* duration= change in price of bond. example 1% increase in bond with 5 yr duration=5% decrease in bond price

Front 73

When investor confidence in the economy is increasing, the yield spread between the savings bonds and be more speculative bonds do what

Back 73

Decreased. Investors are willing to take on greater risk. Yields on speculative remain higher than safe. When investor confidence declines, the yield spread will increase

Front 74

What fundamental analysis theory might rely on lowering and raising taxes to stimulate or cool down an economy

Back 74

Keynesian. Keynesian theory is interventionist.