1.A Basic Economic Concepts Flashcards
The central bank of a country decides to increase its benchmark interest rate. What is the likely impact of this decision on the country’s stock market?
A) Stock prices are expected to rise.
B) Stock prices are expected to fall.
C) Stock prices are unlikely to be affected.
D) It depends on other economic factors.
Stock prices are expected to fall.
Explanation: An increase in benchmark interest rates generally leads to a decrease in stock prices because higher interest rates can make borrowing more expensive for businesses and consumers, which can reduce spending and corporate profits.
1.A Basic Economic Concepts
A company’s financial statements show a consistent increase in its gross domestic product (GDP) over the past few years. What does this indicate about the company’s economic performance?
A) The company is likely facing financial difficulties.
B) The company is likely experiencing steady growth.
C) The company is likely experiencing deflation.
D) The company’s economic performance cannot be determined from this information.
The company is likely experiencing steady growth.
Explanation: A consistent increase in GDP indicates that the company’s economic performance has been growing steadily, which is generally a positive sign.
1.A Basic Economic Concepts
A financial analyst is assessing the impact of a government’s expansionary fiscal policy on a country’s economy. What would be an expected consequence of this policy?
A) Higher unemployment rates.
B) Lower inflation rates.
C) Increased government debt.
D) Stronger currency valuation.
Increased government debt.
Explanation: An expansionary fiscal policy typically involves increased government spending or tax cuts, which can lead to a budget deficit and an increase in government debt.
1.A Basic Economic Concepts
A portfolio manager is concerned about the potential impact of a trade deficit on a client’s investments. How might a trade deficit affect investment returns?
A) It typically leads to higher investment returns.
B) It usually has no impact on investment returns.
C) It may lead to lower investment returns.
D) It leads to guaranteed investment returns.
It may lead to lower investment returns.
Explanation: A trade deficit can weaken a country’s currency and potentially lead to lower investment returns due to currency devaluation.
1.A Basic Economic Concepts
A bond investor closely monitors yield curves when making investment decisions. What is the significance of yield curves in bond investing?
A) Yield curves provide information about a bond’s credit rating.
B) Yield curves help assess a bond’s liquidity.
C) Yield curves indicate the relationship between bond yields and maturities.
D) Yield curves show a bond’s current market price.
Yield curves indicate the relationship between bond yields and maturities.
Explanation: Yield curves display the interest rates (yields) of bonds of similar quality but different maturities, helping investors assess the term structure of interest rates.
1.A Basic Economic Concepts
A financial planner is analyzing the impact of inflation on a client’s retirement savings. How does inflation typically affect retirement savings?
A) It reduces the need for higher savings.
B) It erodes the purchasing power of savings.
C) It guarantees a fixed return on savings.
D) It increases the tax liability on savings.
It erodes the purchasing power of savings.
Explanation: Inflation reduces the real value of money over time, which can erode the purchasing power of retirement savings.
1.A Basic Economic Concepts
An investment advisor is discussing the impact of currency valuation on international investments. What is a potential benefit of a stronger currency valuation for international investments?
A) Increased export opportunities.
B) Higher investment returns.
C) Lower import costs.
D) Reduced exchange rate risk.
Lower import costs.
Explanation: A stronger currency valuation can lead to lower import costs, which can benefit businesses and consumers in the country.
1.A Basic Economic Concepts
A financial analyst is evaluating the effects of a recession on a particular industry. What is likely to happen to employment indicators in this industry during a recession?
A) Employment indicators will likely improve.
B) Employment indicators will likely remain unchanged.
C) Employment indicators will likely deteriorate.
D) Employment indicators will likely stabilize.
Employment indicators will likely deteriorate.
Explanation: During a recession, employment indicators, such as unemployment rates, typically worsen as businesses cut back on hiring and may lay off workers.
1.A Basic Economic Concepts
A portfolio manager is assessing the impact of credit spreads on corporate bond investments. What is the significance of widening credit spreads?
A) Widening credit spreads indicate lower default risk.
B) Widening credit spreads suggest higher bond prices.
C) Widening credit spreads indicate increased perceived credit risk.
D) Widening credit spreads have no impact on bond investments.
Widening credit spreads indicate increased perceived credit risk.
Explanation: Widening credit spreads suggest that investors perceive higher credit risk, which can negatively impact corporate bond prices.
1.A Basic Economic Concepts
A trader is considering the effects of changes in exchange rates on an international investment portfolio. How can currency valuation impact investment returns in this context?
A) It has no impact on investment returns.
B) A weaker foreign currency can increase investment returns.
C) A stronger foreign currency can increase investment returns.
D) Currency valuation only affects dividend income.
A stronger foreign currency can increase investment returns.
Explanation: A stronger foreign currency can increase the value of international investments when converted back into the investor’s domestic currency, potentially leading to higher investment returns.
1.A Basic Economic Concepts
