BEC Q5 Flashcards
What are interest rate derivatives
These protect buyers from risks associated with changed in interest rates
What is quantitative easing
Thi sis when the the Fed buys securities to ass liquidity to the economy
This is done when short term interest rates are already close to zero.
What are some of the aspects of Globalization
- Its been happening for many decades
- More savers have internationally diversified portfolios which reduces home bias
- it has led to more companies operating international
- It has led to increased international trade occurring within companies
What happened in the 2000’s
There was an increase in lending flows from developing countries to developed countries
The Chinese government bought US treasuries
What are TIPS Treasuries
These are inflation protected securities
-The principle of a TIPS increases with inflation and decreases deflation s measured by the CPI
So if you have a conventional bond at 3% for 10 years and a TIPS Treasury of 1% for 10 years the inflation rate expected in the next 10 years is 3-1 or 2%
What happens with deflation and how do you combat it
This is when there is a general decrease in the price level of goods and services.
- people will defer spending and investment and this damages the economy
- If you increase the money supply - this is an inflationary act and will combat deflation
What should the government do to combat unemployment
- increase expenditures
- lower taxes
- increase government spending
- running deficits is standard
How do you calculate GDP
\+ Consumption by household \+ Investment \+ government spending \+ net exports =GDP
What type of firm can employ predatory pricing
oligopoly - they can afford to do it - monopolistically competitive can not
What is transfer pricing
It is the process of setting prices that are charged for the transfer of goods or services between related parties - like department of a large entity
In international trade it refers to the price charged by one entity to a related entity as goods or services are transferred across international borders
What are the classic signs of a recession
- inventories grow as consumer stop spending
- unemployment increases
- businesses slow production
- business stop investment in capital projects
- lower interest rates
- lower stock market
What are the classic signs of stagflation
High inflation -
slow economic growth
high unemployment
What are repatriation restrictions
these represent restrictions on bringing money into the US
You want to consider these as part of your cash flow analysis
What are american depositary receipts
These are instruments that represent the securities of a foreign company trading in the US
What is a default risk premium
This is usually added on to the interest rate on a note or loan
It is the extra amount a borrower will pay to compensate a lender for assuming the risk of default
What happens when average credit card debt increases 4% from a year ago
It will probably have a contracting effect on the economy as a whole
This would have a positive impact for a company who is offering a bargain product line sales units
What is the impact if the average duration of employment increased 4 weeks from a year ago
This is a common trailing indicator of business cycle changes
An increase signifies recovery or expansion in the economy as a whole
Customers with increase income spend more on normal goods
What is the impact if average duration of employment decreased by 4 weeks from a year ago
It signifies a contraction of the economy
- Sale of normal goods generally contract during a period
What does it mean if there is no change in employment weeks
This implies a stable economy
normal goods sales remain constant
What is the impact of an increase in housing permits
This indicates that residential construction will increase
This heralds an expansive period (not recessionary or stable)
