17: Macroeconomic and Industry Analysis Flashcards
Fundamental Analysis Definition
Research to predict stock values that focusses on…
- Earnings and dividend prospects
- Expectations for for future interest rates
- Risk evaluation of the firm
Exchange Rate Definition
The price of a unit of one country’s currency in terms of another country’s currency.
GDP Definition
The market value of goods and services produced over time.
Unemployment Rate Definition
The ratio of the number of people classified as unemployed to the total labour force.
Inflation Definition
The rate at which the general level of prices for goods and services is rising.
Budget Deficit Definition
The amount by which government spending exceeds government revenues.
Demand Shock Definition
An even that affects the demand for goods and services in the economy.
Supply Shock Definition
An event that affects the production capacity and costs in the economy.
Fiscal Policy Definition
The use of government spending and taxing for the purpose of stabilizing the economy.
Monetary Policy Definition
Actions taken by the central bank to influence the money supply and interest rates.
Business Cycle Definition
Repetitive periods of recession and recovery.
Peak Definition (Business Cycles)
Transition period from the end of an expansion to the start of a contraction.
Trough Definition (Business Cycles)
Transition period from the end of a contraction to the start of an expansion.
Cyclical Industries Definition
Industries with above-average sensitivity to the state of the economy.
Defensive Industries Definition
Industries with little sensitivity to the state of the economy.
Leading Economic Indicators Definition
Predictive factors that tend to rise or fall in advance of the rest of the economy.
NAICS Codes Definition
North American Industrial Classification System
Codes that use numerical values to identify industries.
Degree of Operating Leverage (DOL) Definition
% change in profits for a 1% change in sales.
Sector Rotation Definition
An investment strategy that entails shifting the portfolio into an industry that is expected to outperform others based on macroeconomic factors.
Industry Lifecycle Definition
Stages though which firms will typically pass as they mature.
What is the aim of macroeconomic policy?
To maintain the economy near full employment and keep inflation at target.
What are the two traditional types of macroeconomic policy?
Monetary policy and fiscal policy.
What are the tools of fiscal policy?
Government spending and tax collection.
What is the tool of monetary policy?
Influencing the money supply.
What are the effects of expansionary fiscal policy?
Stimulating the economy and increasing GDP. Downside is it increases interest rates,
How does expansionary monetary policy work?
By lowering interest rates.
What types of industries are more sensitive to business cycles?
High-priced durable goods because consumers can time their purchases.
What are examples of cyclical industries?
Jewelry, automobiles, capital equipment for firms.
What 2 factors increase sensitivity to the business cycle?
Operating leverage and financial leverage.
What are the 4 industry lifecycle stages?
- Start-up
- Consolidation
- Maturity
- Decline
An industry with rapid growth and no obvious industry leaders would be in which stage of the lifecycle?
Start-up
An industry that has an established product and emerging industry leaders would be in which stage of the lifecycle?
Consolidation
An industry whose products has largely saturated the market and has growth similar to that of the economy as a whole would be in which stage of the lifecycle?
Maturity
An industry that is facing competition from new products would be in which stage of the lifecycle?
Decline
