CAPM, International Finance Flashcards
CAPM =
Capital Asset Pricing Model
A Master Budget consist of a
Sales Budget
Production Budget
Purchase Budget
Cash Budget (Cash Payment + Cash Receipt_
How does the US Government finance it’s budget deficit?
Selling government securities (T Notes, Bills, and Bonds)
What is the current US budget deficit
$1.5 trillion (at least as far as Noorian cares)
How often does the US govt borrow / pay back money?
Weekly basis
What is the risk of a treasury bill?
ZERO
What values are government securities issued for?
Minimum $1000, and in multiples of $1000
What are the maturity options of Treasury Bills
3 months, 6 months, 1 year
What government securities pay interest up front
3 and 6 month treasury bills
For government securities with maturities of >= 1 year, how often does interest pay
semi-annually
What is the difference between treasury notes and treasury bonds?
the maturity
What range of maturity are treasury notes issued?
2-10 years
What range of maturity are treasury bonds issued?
10, 20, and 30 years
most popular - 30 year
How is interested determined for a treasury bill?
Auction format
Bids for treasury bills are either ____ or ____
competitive or non-competitive
To what level of detail is interest bid for T-bills
4 significant digits
By law, the US treasury has to borrow from _____ bidders
non-competitive
The _____ rate from competitive investors will be extended to non-competitive investors
average interest rate
you have until ____ every ____ to submit your interest rate to the US treasury when bidding on a T-B
1pm, EST
Thursday
If you have a 3 month $10k TB with a 16% APR, what is the effective interest rate?
effective rate = Amount of Interest / Amount of Net Investment * 100%
16%/4 = 4%
4% * $10000 = $400
Net investment = 9600
400/9600 *100 = 4.16%
Rate = 4.16% * 4 = 16.67%
How often are treasury bills, notes, and bonds borrowed
Bill - every week
Note - every 6 weeks
Bond - every 8 weeks
The CAPM was developed by 3 American professors in….
1960s
Foundation of CAPM is that the rate investors are looking for is a function of:
- how the US govt finances its deficit
- the risk free rate (rf = Kf)
- the past performance of a stock
- the performance of the entire stock market
The past performance of a certain stock vs the market is represented by:
a company’s Beta
the risk free rate is equivalent to the rate of
1 year Treasury Bills
Market Rate of Return (Km) - Risk Free RoR (Kf) =
Market Risk Premium
If Kf = 16%, Beta = 1.8, and Km = 20%, what is the expected rate of return from investing in this company?
Ky = 16% + 1.8*(4%) = 23.2%
Rate of inflation s embedded in…
the risk free rate of return
Systematic risks are those risks which….
involved the entire economic system
examples of systematic risk:
risk of
inflation
unemployment
higher Fed interest rates
Unsystematic risks are …
those specific risks related to a particular industry or company
unsystematic risks can be eliminated by
diversifying your portfolio
When creating a cash payment budget, what item should not be included
depreciation
In master budgets, NM stands for
not meaningful
When and where were the IMF and World Bank founded
1944
Bretton Woods NH
44 allied nations
Initially, the contribution quota expected of each country to the IMF was based on
the country’s participation in international trade
A country can receive ___% of it’s quota in ____ if needed from the IMF
125%
hard currencies
What conditions must a country meet in order to borrow from the IMF
- devalue its currency
- cut government subsidies
- cut government spending
What is the main risk of devaluing your own currency
inflation
The purpose of borrowing from the IMF is to address a
short-term balance of payment problem (x vs M)
The purpose of borrowing from the World Bank is to fund
major infrastructure projects
How many ships have been waiting recently at the port of Shanghai
750
Stagflation describes a state of
inflation + poor economic outlook
Reported inflation rate in April 2022 was
8.5% year over year
unemployment rates are typically announced
1st Friday of the month
National unemployment rate in March was
3.7%
Full employment is when
unemployment rate is between 2%-4%
state of full employment can result in
cost-push inflation
increased lab cost
The highest increase in home income in 2021-2022 was achieved by the state of
New Hampshire
In Exxon’s annual report, it was revealed that
a hedge fund tried to stage a proxy fight
Macron was reelected president of France, the volatility of the election is ____ if you live in France and ____ if you are global investor
systematic risk
unsystematic risk
If the European Central Bank raises interest rates, it will be the first time it’s done so in…
11 years
Which major economies have increased their interest rate this year?
US Britain Japan India Canada Brazil Russia South Korea Saudi Arabia
According to the article, what is the projected 2022 inflation rate in the US
7.7%
What is the projected 2022 inflation rate in the Eurozone
5.3%
Which major economic power(s) has not raised it’s interest rate this year?
China
Eurozone
What is the projected 2022 inflation rate in Russia
21.3%
