13

Question 1

fundamental analysis

Answer 1

FA assesses industries and companies’ short/medium/long-term prospects to determine how associated securities prices will move. Studies CAUSES of price movements.

Question 2

technical analysis

Answer 2

TA examines historical stock and market prices to find recurring/predictable price patterns to predict future price movements. Studies effects of SUPPLY&DEMAND (price and volume).

Question 3

efficient market hypothesis

Answer 3

EMH - at any given time a stock’s price will fully reflect ALL AVAILABLE INFORMATION and so is best estimate of stock’s true value. Marketplace reacts instantly to new information.

Question 4

random walk theory

Answer 4

RWT - new information about a stock is disseminated randomly and so price changes are also random and not connected to previous price

Question 5

rational expectations hypothesis

Answer 5

REH - investors are rational and have access to all necessary information and will make intelligent decisions

Question 6

two most important fiscal policy tools

Answer 6

1) Government spending 2) Taxes. Fiscal policies can be limited by time lags, either getting legislation through or for fiscal actions to actually affect the economy

Question 7

monetary policy - economic expansion

Answer 7

BOC will restrain rate of growth of money and credit availability which usually leads to higher interest rates

Question 8

monetary policy - slowdown

Answer 8

BOC will increase money supply and credit availability which usually leads to lower interest rates

Question 9

stock prices are affected by monetary policy how

Answer 9

1) interest rates 2) corporate profits

Question 10

inverting yield curve

Answer 10

long-term bond yields fall while short-term rates rise

Question 11

technician: bear market

Answer 11

volume should increase as prices decline while in a bull market.

Question 12

technician: bearish reversal

Answer 12

When prices rise and volume does not increase, the market may be in the beginning stages of a potential bearish reversal (possible market top).

Question 13

technician: bull market

Answer 13

volume should increase when prices rise while in a bull market.

Question 14

technician: bullish reversal

Answer 14

When prices fall and volume does not increase, the market may be in the beginning stages of a potential bullish reversal (possible market bottom).

Question 15

head and shoulders patterns

Answer 15

Reversal patterns are formations on charts that usually precede a sizeable advance or decline in stock prices. Although there are many types of reversal patterns, probably the most frequently observed pattern is the head-and-shoulders formation. This formation can occur at either a market top, where it is referred to as a head-and-shoulders top formation, or at a market bottom, where it is called either an inverse head-and-shoulders or a head-and-shoulders bottom formation.

Question 16

inflation and p/e multiples

Answer 16

Inflation creates widespread uncertainty and lack of confidence in the future. These factors tend to result in higher interest rates, lower corporate profits, and lower price-earnings multiples. There is an inverse relationship between the rate of inflation and price-earnings multiples.

Question 17

advance-decline ratios

Answer 17

Cumulative advance-decline line is popular way of measuring breadth. It is a non price measure of the trend of the market. In a rising market, you will generally see more advancing issues, whereas in a falling market, you will usually find more declining issues.

Question 18

oscillator

Answer 18

Oscillator used by technical analysts when a stock’s chart is not showing a definite trend in either direction. Oscillators are most beneficial when a stock is moving in either a horizontal or sideways trading pattern. Oscillator readings are from: 0 to 100 OR -1 to +1. The market is said to be overbought when prices are near the upper extreme and oversold when near the lower extreme. The oscillator is specific to the particular share, and does not indicate a broad trend for the market as a whole, making it irrelevant to a decision on an ETF purchase or sale

Question 19

oscillator - overbought/oversold

Answer 19

The market is said to be overbought when prices are near the upper extreme and oversold when near the lower extreme. This warns that the price move is overextended and vulnerable