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SIE > Ch. 19 > Flashcards

Ch. 19 Flashcards

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SIE Exam flashcards
1
Q

The __________________ is the rate of interest banks charge each other on overnight loans.

A

Fed Funds Rate

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2
Q

List some examples of cyclical stocks.

A

Automobiles, housing, airlines

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3
Q

Which short-term interest rate is the most volatile?

A

Fed Funds Rate

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4
Q

A _____ stock tends to trade at a lower price relative to the issuing company’s fundamentals.

A

Value stock

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5
Q

For collateralized loans they make to broker-dealers (for margin purposes), commercial banks charge the ____ rate.

A

Call rate

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6
Q

____________ stock is resistant to recession.

A

Defensive

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7
Q

________ policy attempts to control the supply of money and credit in the economy.

A

Monetary

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8
Q

True or False: A flat yield curve reflects both long and short-term yields being the same.

A

True

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9
Q

If interest rates are higher in the U.S. than overseas, what should happen to the value of the U.S. dollar?

A

It should strengthen as more foreign money is being invested in the U.S.

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10
Q

What is the effect on the money supply if the Fed enters into a repurchase agreement (repo)?

A

Since the Fed is lending money, the money supply increases.

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11
Q

The __________ rate is the only rate directly controlled by the FRB.

A

Discount rate

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12
Q

______ stocks are related to companies whose sales and earnings are growing at a faster rate than the overall economy.

A

Growth

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13
Q

In proper order, list the four phases of the business cycle.

A

1) Expansion - 2) Peak - 3) Recession / Contraction - 4) Trough

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14
Q

What is the least effective tool available to the FRB?

A

Margin Requirements (Reg T)

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15
Q

What does a normal, positive, ascending, or upward sloping yield curve indicate?

A

Bonds with longer maturities have higher yields than bonds with shorter maturities.

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16
Q

True or False: Growth stocks have high P/E ratios and low dividend payouts.

A

True

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17
Q

What is the effect of raising the minimum reserve requirement?

A

It decreases the money supply and tightens credit.

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18
Q

For a bond, how is the real interest rate calculated?

A

Bond’s interest rate - Rate of inflation = Real Interest Rate

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19
Q

The average duration of unemployment is what type of economic indicator?

A

Lagging

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20
Q

____________ occurs when the supply of goods exceeds the demand for goods.

A

Deflation

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21
Q

There would be a tightening of the money supply if the discount rate is __________.

A

Increased

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22
Q

True or False: A value investor buys stocks with high P/E ratios.

A

False. Value investors buy stocks with low P/E ratios, low price-to-book ratios, and high dividend yields.

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23
Q

U.S. importers prefer a _________ dollar since their cost of goods will be cheaper.

A

Stronger

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24
Q

True or False: A strong U.S. dollar benefits U.S. manufacturers that export their goods.

A

False

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25
Q

What is the effect of lowering the minimum reserve requirement?

A

It increases the money supply and eases credit.

26
Q

What typically happens to interest rates during an inflationary period?

A

Rates typically rise as investors need greater returns to compensate for rising prices.

27
Q

Define Gross Domestic Product (GDP).

A

The output of all of the goods and services that are produced in the U.S., without regard to the origin of the producer.

28
Q

Are inflationary periods characterized by rising or falling interest rates?

A

Rising

29
Q

Define deflation.

A

General decline in price levels

30
Q

The yield curve is ___________________________ when short-term bonds have higher yields than long-term bonds.

A

Inverted

31
Q

Non-farm payrolls is what type of economic indicator?

A

Coincident (current)

32
Q

If a member bank needs to borrow funds from the FRB, what rate will it be charged?

A

Discount rate

33
Q

Would inflationary periods be characterized by rising or falling interest rates?

A

Rising

34
Q

When the FOMC sells securities, it is pursuing a(n) _____ money policy in an attempt to ______ credit.

A

Tight monetary policy to restrict

35
Q

True or False: Industrial production and manufacturing sales are lagging economic indicators.

A

False- coincident

36
Q

True or False: GNP measures the output of goods and services within the U.S. disregarding the origin of the producer.

A

False, that is GDP

37
Q

True or False: A strong U.S. dollar benefits foreign manufacturers that export their goods to the U.S.

A

True

38
Q

True or False: Keynesian economic policies are implemented through government fiscal policies.

A

True

39
Q

True or False: Market cap includes the treasury shares of the corporation.

A

False

40
Q

True or False: GNP measures the output of goods and services by a national economy, both domestically and abroad.

A

True

41
Q

What should investors buy if they’re worried about inflation?

A

Stocks and/or commodities

42
Q

______________ is the rate that banks charge their most creditworthy corporate clients.

A

Prime Rate

43
Q

What are lagging economic indicators able to confirm?

A

Confirm the business cycle

44
Q

The FRB will ______ securities to decrease the money supply and tighten credit.

A

Sell securities

45
Q

True or False: Companies with lower market caps tend to be safer.

A

False- they tend to be more risky

46
Q

True or False: Value stocks have low P/E ratios and high dividend payouts.

A

True

47
Q

There would be an easing of the money supply if the discount rate is __________.

A

Lowered

48
Q

Higher inflation leads to ______ interest rates, which causes bond prices to ____.

A

Higher interest rates causing bond prices to fall

49
Q

When the FOMC buys securities, it is pursuing a(n) _____ money policy in an attempt to _________ the economy.

A

Expansionary to stimulate the economy

50
Q

A decline in GDP for two successive quarters is defined as a ____________.

A

Recession

51
Q

_________ economic theory states that government intervention in the economy is necessary for sustained economic growth.

A

Keynsian

52
Q

In the foreign exchange markets, what is required to correct a trade deficit in the U.S.?

A

US dollar would need to weaken

53
Q

Define disinflation.

A

Reduction in the rate of inflation

54
Q

Who sets the prime rate?

A

Individual banks

55
Q

The money supply is what type of economic indicator?

A

Leading

56
Q

List some of the leading economic indicators.

A

Unemployment claims, housing permits, orders for consumer goods, M2, S&P 500, average work week, interest rate spread

57
Q

Lower inflation leads to _____ interest rates, which causes bond prices to ____.

A

Lower interest rates causing bond prices to increase

58
Q

What is the effect on the money supply if the Fed enters into a reverse repurchase agreement (repo)?

A

Money supply will tighten

59
Q

U.S. exporters prefer a _______ dollar since their products will be more competitive.

A

Weak dollar

60
Q

The FRB will ______ securities to increase the money supply and ease credit.

A

Buy securities

61
Q

__________ requirements set the amount of funds that banks must hold in reserve against specified deposit liabilities.

A

Reserve Requirements

62
Q

The _______________________ is often considered the most important measure of inflation.

A

CPI

SIE (20 decks)

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