Ch. 19 Flashcards
The __________________ is the rate of interest banks charge each other on overnight loans.
Fed Funds Rate
List some examples of cyclical stocks.
Automobiles, housing, airlines
Which short-term interest rate is the most volatile?
Fed Funds Rate
A _____ stock tends to trade at a lower price relative to the issuing company’s fundamentals.
Value stock
For collateralized loans they make to broker-dealers (for margin purposes), commercial banks charge the ____ rate.
Call rate
____________ stock is resistant to recession.
Defensive
________ policy attempts to control the supply of money and credit in the economy.
Monetary
True or False: A flat yield curve reflects both long and short-term yields being the same.
True
If interest rates are higher in the U.S. than overseas, what should happen to the value of the U.S. dollar?
It should strengthen as more foreign money is being invested in the U.S.
What is the effect on the money supply if the Fed enters into a repurchase agreement (repo)?
Since the Fed is lending money, the money supply increases.
The __________ rate is the only rate directly controlled by the FRB.
Discount rate
______ stocks are related to companies whose sales and earnings are growing at a faster rate than the overall economy.
Growth
In proper order, list the four phases of the business cycle.
1) Expansion - 2) Peak - 3) Recession / Contraction - 4) Trough
What is the least effective tool available to the FRB?
Margin Requirements (Reg T)
What does a normal, positive, ascending, or upward sloping yield curve indicate?
Bonds with longer maturities have higher yields than bonds with shorter maturities.
True or False: Growth stocks have high P/E ratios and low dividend payouts.
True
What is the effect of raising the minimum reserve requirement?
It decreases the money supply and tightens credit.
For a bond, how is the real interest rate calculated?
Bond’s interest rate - Rate of inflation = Real Interest Rate
The average duration of unemployment is what type of economic indicator?
Lagging
____________ occurs when the supply of goods exceeds the demand for goods.
Deflation
There would be a tightening of the money supply if the discount rate is __________.
Increased
True or False: A value investor buys stocks with high P/E ratios.
False. Value investors buy stocks with low P/E ratios, low price-to-book ratios, and high dividend yields.
U.S. importers prefer a _________ dollar since their cost of goods will be cheaper.
Stronger
True or False: A strong U.S. dollar benefits U.S. manufacturers that export their goods.
False
What is the effect of lowering the minimum reserve requirement?
It increases the money supply and eases credit.
What typically happens to interest rates during an inflationary period?
Rates typically rise as investors need greater returns to compensate for rising prices.
Define Gross Domestic Product (GDP).
The output of all of the goods and services that are produced in the U.S., without regard to the origin of the producer.
Are inflationary periods characterized by rising or falling interest rates?
Rising
Define deflation.
General decline in price levels
The yield curve is ___________________________ when short-term bonds have higher yields than long-term bonds.
Inverted
Non-farm payrolls is what type of economic indicator?
Coincident (current)
If a member bank needs to borrow funds from the FRB, what rate will it be charged?
Discount rate
Would inflationary periods be characterized by rising or falling interest rates?
Rising
When the FOMC sells securities, it is pursuing a(n) _____ money policy in an attempt to ______ credit.
Tight monetary policy to restrict
True or False: Industrial production and manufacturing sales are lagging economic indicators.
False- coincident
True or False: GNP measures the output of goods and services within the U.S. disregarding the origin of the producer.
False, that is GDP
True or False: A strong U.S. dollar benefits foreign manufacturers that export their goods to the U.S.
True
True or False: Keynesian economic policies are implemented through government fiscal policies.
True
True or False: Market cap includes the treasury shares of the corporation.
False
True or False: GNP measures the output of goods and services by a national economy, both domestically and abroad.
True
What should investors buy if they’re worried about inflation?
Stocks and/or commodities
______________ is the rate that banks charge their most creditworthy corporate clients.
Prime Rate
What are lagging economic indicators able to confirm?
Confirm the business cycle
The FRB will ______ securities to decrease the money supply and tighten credit.
Sell securities
True or False: Companies with lower market caps tend to be safer.
False- they tend to be more risky
True or False: Value stocks have low P/E ratios and high dividend payouts.
True
There would be an easing of the money supply if the discount rate is __________.
Lowered
Higher inflation leads to ______ interest rates, which causes bond prices to ____.
Higher interest rates causing bond prices to fall
When the FOMC buys securities, it is pursuing a(n) _____ money policy in an attempt to _________ the economy.
Expansionary to stimulate the economy
A decline in GDP for two successive quarters is defined as a ____________.
Recession
_________ economic theory states that government intervention in the economy is necessary for sustained economic growth.
Keynsian
In the foreign exchange markets, what is required to correct a trade deficit in the U.S.?
US dollar would need to weaken
Define disinflation.
Reduction in the rate of inflation
Who sets the prime rate?
Individual banks
The money supply is what type of economic indicator?
Leading
List some of the leading economic indicators.
Unemployment claims, housing permits, orders for consumer goods, M2, S&P 500, average work week, interest rate spread
Lower inflation leads to _____ interest rates, which causes bond prices to ____.
Lower interest rates causing bond prices to increase
What is the effect on the money supply if the Fed enters into a reverse repurchase agreement (repo)?
Money supply will tighten
U.S. exporters prefer a _______ dollar since their products will be more competitive.
Weak dollar
The FRB will ______ securities to increase the money supply and ease credit.
Buy securities
__________ requirements set the amount of funds that banks must hold in reserve against specified deposit liabilities.
Reserve Requirements
The _______________________ is often considered the most important measure of inflation.
CPI
