Chapter 1: Analysis of Markets and Industry Trends

Question 1

Functions of Financial Markets

Answer 1

Raising Capital
Valuing and Trading Assets
Facilitating Commercial Activity
Managing and Transferring Risk

Question 2

Stock Markets

Answer 2

Trading of Equity

Question 3

Bond Markets

Answer 3

Trading of L-T Debt

Question 4

Commodities Markets

Answer 4

Trading bulk goods, either spot or futures

Question 5

Money Markets

Answer 5

Trading S-T debt

Question 6

FX Markets

Answer 6

Trading currencies, either spot or futures

Question 7

Derivatives Markets

Answer 7

Trading derivatives instruments, allows for the reduction of exposure to volatility by hedging.

Question 8

Effective Market Requirements

Answer 8

Liquidity
Transparency
Operational Efficiency
Informational Efficiency
Appropriate Regulation
Enforcement Mechanism

Question 9

Business Cycle

Answer 9

Cyclical changes in the economy as a whole

Question 10

Phases of a business cycle

Answer 10

Expansion
Peak
Contraction
Trough

Question 11

Market Capitalization

Answer 11

PPS x Total Shs Outstanding

Question 12

Mega Cap

Answer 12

> $200b

Question 13

Large Cap

Answer 13

$10b - $200b

Question 14

Mid Cap

Answer 14

$2b - $10b

Question 15

Small Cap

Answer 15

$300m - $2b

Question 16

Micro Cap

Answer 16

< $300m

Question 17

Dow Jones Industrial Average

Answer 17

30 blue chip stocks

Price weighted

Question 18

S&P 500

Answer 18

500 large cap stocks

Leading economic indicator

Question 19

Wilshire 5000

Answer 19

All U.S. headquartered stocks traded on the big boards

Question 20

Russell 2000

Answer 20

2000 small cap stocks

Question 21

Economic Indicators

Answer 21

Statistics that shed light on the current or future performance of the economy

Question 22

Leading Economic Indicators

Answer 22

Changes in advance of the economy

Question 23

Coincident Economic Indicators

Answer 23

Move in tandem with the economy

Question 24

Lagging Economic Indicators

Answer 24

Don’t change until after changes in the broad economy have occurred

Question 25

Monetary Policy

Answer 25

Used to control the supply and availability of money and credit

Question 26

Expansionary Monetary Policy

Answer 26

Stimulates economic growth
Increases available credit
Decreases interest rates
Increases inflation

Question 27

Contractionary Monetary Policy

Answer 27

Slows economic growth
Increases interest rates
Increases unemployment
Fosters lower inflation

Question 28

Goal of Monetary Policy

Answer 28

Low unemployment & stable prices

Question 29

Central Banks

Answer 29

Administers monetary policy

Issues currency

Question 30

Open Market Operations

Answer 30

Buying and selling government securities on the open market.
The most frequently used tool of the Fed.
Affects the Federal Funds Rate.

Question 31

Federal Funds Rate

Answer 31

The interest rate charged between banks for overnight loans to meet reserve requirements

Question 32

Discount Window

Answer 32

Where a bank can borrow directly from the Fed. The discount rate charges is usually 1% above the Federal Funds rate.

Question 33

Fiscal Policy

Answer 33

A governments policy of using taxes and spending to affect economic performance