Chapter 1 : Introduction to research analyst profession Flashcards
What kind of information do Research Analysts need?
A) Macro and microeconomic factors
B) Industry-specific information
C) Company-specific information
D) All of the above
D) All of the above
Reason: Research Analysts must gather information on economic conditions, industry trends, and specific company details to provide accurate research and investment recommendations.
What are the focus areas for analysts to understand the economy?
A) Regulatory environment prevalent in the industry
B) Business models and competition
C) Changes in various macroeconomic factors
D) Balance sheets and profit and loss statements
C) Changes in various macroeconomic factors
Reason: Macroeconomic factors like national income, inflation, interest rates, and unemployment significantly impact economic performance and financial markets.
What responsibilities does a Research Analyst have?
A) Solely participate in data collection
B) Contribute to the financial planning of their clients
C) Exclusively engage in data analysis
D) Assist clients in making well-informed decisions
D) Assist clients in making well-informed decisions
Reason: Research Analysts must analyze financial data, industry trends, and company performance to provide insights that help clients make informed investment decisions.
Analysis and decision-making, the two crucial parameters, are influenced by which of the following factors?
A) Ethical practices of management
B) Revenue and cost considerations
C) Operational efficiency
D) All of the above
D) All of the above
Reason: Analysts evaluate a company’s financial statements, operational efficiency, and ethical management practices to determine its stability and growth potential.
Sell-side analysts typically serve money managers such as mutual funds, hedge funds, and portfolio managers who buy and sell securities either for their personal investment accounts or on behalf of their clients. True or False?
A) True
B) False
B) False
Reason: Sell-side analysts work for investment banks, brokerages, and advisory firms, conducting research and making recommendations for investors.
Which of the following attributes are sought in an effective research analyst?
A) Aptitude for numbers and interpretation
B) Clear understanding of financial concepts
C) Capability to read and comprehend financial statements
D) All of the above
D) All of the above
Reason: Analysts must interpret financial data, understand market trends, and evaluate company performance to provide accurate and reliable research.
What do Research Analysts need to understand about industries?
A) Analyzing consumer spending on luxury goods
B) Regulatory environment prevalent in the industry
C) Business models and competition
D) Both B & C
D) Both B & C
Reason: Understanding industry regulations, competition, and business models helps analysts assess risks and opportunities for companies in that sector.
Question: What are the two dimensions in which companies are studied by analysts?
A) Regulatory environment prevalent in the industry
B) Business models and competition
C) Qualitatively and Quantitatively
D) Changes in various macroeconomic factors
C) Qualitatively and Quantitatively
Reason: Analysts use qualitative methods (management quality, business strategy) and quantitative methods (financial statements, performance metrics) to assess companies.
What does qualitative understanding of companies involve?
A) Understanding the regulatory environment prevalent in the industry
B) Understanding why a particular business is better when compared to its peers
C) Understanding changes in various macroeconomic factors
D) Understanding the balance sheets and profit and loss statements
B) Understanding why a particular business is better when compared to its peers
Reason: Qualitative analysis includes assessing a company’s work ethics, competitive advantage, and long-term strategy beyond financial data.
What does quantitative understanding of companies involve?
A) Understanding why a particular business is better when compared to its peers
B) Understanding changes in various macroeconomic factors
C) Understanding the regulatory environment prevalent in the industry
D) Understanding the balance sheets and profit and loss statements
D) Understanding the balance sheets and profit and loss statements
Reason: Quantitative analysis involves evaluating financial metrics such as revenues, expenses, profit margins, and cash flow to assess company performance.
What did John Maynard Keynes believe about governments and economic performance?
A) Governments can change economic performance by adjusting tax rates and government spending
B) Governments can change economic performance by adjusting interest rates
C) Governments cannot change economic performance
D) Governments can change economic performance by adjusting inflation rates
A) Governments can change economic performance by adjusting tax rates and government spending
Reason: Keynesian economics suggests that government intervention in fiscal policy (taxation and spending) can influence economic growth and stability.
What is the importance of personal communication with management?
A) To get a better insight into the vision of the company
B) To influence the market prices positively
C) To substitute direct interaction with companies and clients
D) To acquire a lot of information
A) To get a better insight into the vision of the company
Reason: Direct communication with management provides analysts with valuable insights into a company’s goals, strategies, and future prospects.
Why should analysts cross-verify the claims of management?
A) To ensure the accuracy of the recommendations
B) To get a better insight into the vision of the company
C) To acquire a lot of information
D) To substitute direct interaction with companies and clients
A) To ensure the accuracy of the recommendations
Reason: Verifying management’s claims ensures the integrity of research findings and prevents misleading investment decisions.
What should analysts do before meeting a company’s management?
A) Thoroughly learn about the company’s products, industry, and competitors
B) Read previous year’s annual reports
C) Understand the direction of the company
D) All of the above
D) All of the above
Reason: Preparing in advance enables analysts to ask relevant questions and gain deeper insights from management.
What should analysts base their analysis on?
A) Factual information
B) Personal inclinations
C) Opinions of the management
D) Public domain information
A) Factual information
Reason: Research should be based on verified data rather than personal biases or subjective opinions.
Who can provide meaningful insights into a company’s performance and plans?
A) Top management
B) Competitors
C) Suppliers
D) All of the above
D) All of the above
Reason: Management provides internal insights, competitors reveal industry challenges, and suppliers give supply chain perspectives.
What should analysts have in mind while communicating with clients?
A) Use complex jargon
B) State unrealistic assumptions
C) Be optimistic in suggesting companies
D) Disclose any conflict of interest
D) Disclose any conflict of interest
Reason: Ethical transparency is crucial for maintaining trust and credibility with clients.
What is expected from research analysts in terms of ethics?
A) To make use of technology without consent
B) To interpret data/information with bias
C) To follow all the rules and regulations specified by SEBI
D) To collect data/information from unreliable sources
C) To follow all the rules and regulations specified by SEBI
Reason: Compliance with SEBI regulations ensures fair and responsible research practices.
What skills are required for a research analyst?
A) Quantitative skills only
B) Qualitative skills only
C) Both quantitative and qualitative skills
D) None of the above
C) Both quantitative and qualitative skills
Reason: Analysts need numerical skills for data analysis and qualitative judgment for strategic insights.
What is the importance of having good Excel skills for a research analyst?
A) To analyze financial factors
B) To identify trends
C) To find relevant information
D) All of the above
D) All of the above
Reason: Excel is essential for financial analysis, trend identification, and data organization, making it a crucial tool for research analysts.
What is one quality that a research analyst must possess?
A) Ability to understand business models
B) Ability to ask pertinent questions
C) Attention to details
D) All of the above
D) All of the above
Reason: Understanding business models, asking relevant questions, and being detail-oriented are critical skills for making accurate and reliable research reports.
In his study report on the automotive industry, Mr. Shyam offers his opinions on the field as well as the best securities to purchase, hold, and sell, which is being provided for internal consumption by the organization’s staff. Determine the kind of analyst.
A) Sell Side Analyst
B) Buy Side Analyst
C) None of the above
D) Independent Analyst
B) Buy Side Analyst
Reason: Buy-side analysts work for investment firms such as hedge funds, mutual funds, and pension funds, providing research for internal use rather than for public distribution.
Which is not an essential quality for a Research Analyst?
A) Good with numbers and Excel
B) Verbal and written communication skills
C) Asking relevant questions
D) Preparing research reports based on personal opinion
D) Preparing research reports based on personal opinion
Reason: Research analysts must base their findings on factual and verifiable data rather than personal opinions or emotions.
Should a research analyst seek information from management that is not available in the public domain?
A) True
B) False
B) False
Reason: Analysts should not attempt to obtain confidential or non-public information, as it could lead to insider trading violations and unethical practices.
