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Series 65 > Economic Factors, Ratios, & Risk > Flashcards

Economic Factors, Ratios, & Risk Flashcards

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Series 65 flashcards
1
Q

What are the 4 Economic Cycles?

A

Expansion (Bullish)
Peak
Contraction (Bearish)
Trough

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2
Q

What’s Expansion?

A

When Economic Growth is ▲

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3
Q

What’s a Peak?

A

When Economic Growth has reached its max point

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4
Q

What’s Contraction?

A

When Economic Growth is ▼

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5
Q

What’s a Trough?

A

When Economic Growth has reached its lowest point

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6
Q

What’s a Recession?

A

2 Consecutive Quarters of ▼ Economic Growth

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7
Q

What’s Stagnation?

A

Annual Economic Growth of less than 2-3% GDP

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8
Q

What’s a Depression?

A

A Recession that lasts 2+ years or a ▼ in GDP of 10%+

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9
Q

What’s a Recovery?

A

A cascading incline in Economic Growth

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10
Q

What’s Fiscal Policy?

A

The responsibility of the U.S. Executive & Legislative Branches to manage Gov. Spending & Taxes

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11
Q

What’s Monetary Policy?

A

The responsibility of a Country’s Central Bank to control the overall $$$ Supply & I/R

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12
Q

What’s a Contractionary Fiscal Policy?

A

A Policy that ▲ Taxes & ▼ Gov. Spending

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13
Q

What’s an Expansionary Fiscal Policy?

A

A Policy that ▼ Taxes & ▲ Gov. Spending

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14
Q

What’s a Contractionary Monetary Policy

A

A Policy that ▲ I/R & ▼ the overall $$$ Supply

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15
Q

What’s an Expansionary Monetary Policy

A

A Policy that ▼ I/R & ▲ the overall $$$ Supply

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16
Q

What happens when Taxes ▲ & Gov. Spending ▼?

A

▼ Economic Activity & Income
▼ Gov. Deficit
▼ Inflation
▲ Unemployment

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17
Q

What happens when Taxes ▼ & Gov. Spending ▲?

A

▲ Economic Activity & Income
▲ Gov. Deficit
▲ Inflation
▼ Unemployment

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18
Q

What’s Currency Valuation?

A

The process of determining Exchange Rates between Currencies

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19
Q

What’s the Foreign Exchange Marketplace (FOREX)

A

The Marketplace in which Currencies are Traded

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20
Q

What’s Sovereign Debt?

A

Gov. Debt, Public Debt, & National Debt issued by a Gov.

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21
Q

What’s Inflation?

A

The Rate at which Prices for Goods & Services ▲ & Purchasing Power ▼

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22
Q

What’s HyperInflation?

A

A period of Inflation of 50% or more per Month

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23
Q

What’s Stagflation?

A

Continuing Inflation w/ no Economic Growth

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24
Q

What’s Deflation?

A

The Rate at which the Nominal Costs of Capital, Labor, Goods & Services ▼ & Purchasing Power ▲

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25
Q

What’s a Credit Spread?

A

The Basis Point difference in Yield between 2 Debt Securities of the same Maturity, but different Credit Quality

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26
Q

What’s an Interest Rate (I/R)?

A

The amount a Lender charges a Borrower and is a % of the Principal

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27
Q

What’s a Yield Curve?

A

The Slope of a Yield or I/R of a Bond

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28
Q

What’s an Investment Yield?

A

The Rate of Distributed or Realized Returns on an Investment, expressed as a % of the Cost of Investment

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29
Q

What’s a Normal Yield Curve?

A

When Long-Term I/R’s exceed Short-Term I/R’s

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30
Q

What may a Normal Yield Curve signify?

A

Economic Expansion

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31
Q

What are the effects of a Normal Yield Curve?

A

▲ Exports
▼ Imports
▲ Stock/Bond Prices
▼ US Dollar Value

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32
Q

What’s a Flat Yield Curve?

A

When Long-Term I/R’s are the same as Short-Term I/R’s

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33
Q

What’s an Inverted Yield Curve?

A

When Long-Term I/R’s are lower than Short-Term I/R’s

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34
Q

What may an Inverted Yield Curve signify?

A

Economic Contraction

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35
Q

What are the effects of an Inverted Yield Curve?

A

▼ Exports
▲ Imports
▼ Stock/Bond Prices
▲ US Dollar Value

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36
Q

What’s Disintermediation?

A

A large-scale Investor movement into Long-Term Debt Securities

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37
Q

What’s Gross Domestic Product (GDP)?

A

The Total Market Value of all Finished Goods & Services produced within a Country in a set time period

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38
Q

What causes an ▲ in a Currency Exchange Rate?

A

▲ I/R

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39
Q

What’s Non-Farm Payroll?

A

The # of Workers (per month) in the U.S. excl. Farming, Private Household, Non-Profit, and Active Military Employees & Proprietors

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40
Q

What’s the GDP Equation?

Gross Domestic Product

A

C + I + G + NX

Consumer Spending (C)
Firm Investment (I)
Gov. Spending (G)
Net Exports (NX)

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41
Q

What are the 4 most prominent Employment Indicators?

A

Duration of Unemployment
Non-Farm Payrolls (released monthly)
Unemployment Rate (released monthly)
Weekly Initial Unemployment Claims

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42
Q

What type of Business Cycle Indicator (BCI) is the CPI?

A

Lagging Indicator

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43
Q

What type of Business Cycle Indicator (BCI) is the Avg. Weekly Claims for Unemployment?

A

Leading Indicator

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44
Q

What’s a Trade Deficit?

A

A ▼ in GDP when the value of Imports exceeds the value of Exports

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45
Q

What type of Business Cycle Indicator (BCI) is the Avg. Length of Unemployment?

A

Lagging Indicator

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46
Q

What’s a Trade Surplus?

A

An ▲ in GDP when the value of Exports exceeds the value of Imports

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47
Q

What’s the Balance of Payments (BOP)?

Economic Indicator

A

A record of all International Financial Transactions made by the Residents of a Country

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48
Q

What’s a Price Index?

A

The tracking of the Prices of Goods & Services over Time

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49
Q

What’s the Consumer Price Index (CPI)

A

The Weighted Avg. of Prices of a Basket of Goods & Services classified as Primary Consumer Needs reported Monthly since 1913

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50
Q

What’s an Income Statement?

A

An overview of Revenues, Expenses, NI, & EPS

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51
Q

What’s a Balance Sheet?

A

An overview of a Firm’s Assets, Liabilities, and Shareholders’ Equity as a snapshot in time

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52
Q

What’s a Cash Flow Statement?

A

An overview of a Firm’s Financing, Investing, & Operating Activities

53
Q

What’s an Audited Financial Statement?

A

A Financial Statement that’s reviewed by a Certified Public Accountant(s) (CPA) for accuracy

54
Q

What’s an UnAudited Financial Statement?

A

A Financial Statement that isn’t reviewed by a Certified Public Accountant(s) (CPA) for accuracy, but is instead generated solely by the Firm

55
Q

What are the 4 Types of Auditor Opinions?

A

Unmodified or Unqualified Opinion
Qualified Opinion
Adverse Opinion
Disclaimer of Opinion

56
Q

What’s an Unmodified or Unqualified Opinion?

A

An Auditor Opinion that confirms everything is accurate and the Firms bookkeeping is following Standard Accounting Practice

57
Q

What’s a Qualified Opinion?

A

An Auditor Opinion that confirms everything is accurate except for a specified list of items

58
Q

What’s an Adverse Opinion?

A

An Auditor Opinion that the Firms Financial Statements aren’t accurate and that the info can’t be relied upon to make decisions

59
Q

What’s a Disclaimer of Opinion?

A

An Auditor Opinion where the Auditor refuses to provide an opinion because they don’t have all of the info to confirm the accuracy of the Financial Statements

60
Q

What are the 3 SEC Financial Reports required by a Firm?

A

Form 10K, 10Q, & 8K

61
Q

What’s SEC Form 10K?

A

A Firm’s Annual Financial Report

62
Q

What’s SEC Form 10Q?

A

A Firm’s Quarterly Financial Report

63
Q

What’s SEC Form 8K?

A

An SEC form that can be filed at anytime to inform Shareholders of “unscheduled material events that are important to Shareholders’

64
Q

What’s SEC Schedule 13D?

Beneficial Ownership Report

A

A form that must be filed within 10 Days when a Person or Group acquires a 5%+ Stake of a Voting Class of a Firm’s Equity Shares

65
Q

What’s SEC Schedule 13F?

A

A Quarterly Report required to be filed within 45 Days by all Institutional Investment Managers w/ $100M+ AUM

66
Q

What’s the SEC EDGAR?

A

The SEC’s Electronic Data Gathering, Analysis, & Retrieval System

67
Q

What are the 2 Bookkeeping Types?

A

Accrual Accounting
Cash Basis Accounting

68
Q

What’s Accrual Accounting?

A

Recording Revenue & Expenses when Transactions occur but before Cash is collected or remitted

69
Q

Who uses Accrual Accounting?

A

Large Firms since it smooths out Earnings over time & provides a Long-Term perspective

70
Q

What’s Cash Basis Accounting?

A

Recording Revenue & Expenses when Cash related to those Transactions are collected or remitted

71
Q

Who uses Cash Basis Accounting?

A

Sole Proprieters & Small Businesses w/ avg. Annual Gross Receipts of $25M- within a prior 3 year period

72
Q

What’s the Time Value of Money (TVM)?

Present Discounted Value

A

The concept that a sum of $$$ is worth more now than the same sum will be at a future date due to its earnings potential in the interim

73
Q

What’s the FRS?

A

Federal Reserve System

74
Q

What’s the Federal Open Market Committee (FOMC)?

A

The FRS Monetary Policymaking Body that manages the U.S. Money Supply

75
Q

What’s FOMC M1?

Federal Open Market Committee

A

Cash + Demand Deposits

76
Q

What’s FOMC M2?

Federal Open Market Committee

A

M1 + Savings Accounts + Non-Institutional Money Market Funds

77
Q

What’s FOMC M3?

Federal Open Market Committee

A

M2 + Large Deposits + Repos + Institutional Money Market Funds

78
Q

What type of Business Cycle Indicator (BCI) is FOMC M2?

Federal Open Market Committee

A

Lagging Indicator

79
Q

What’s the Discount Rate (DR)?

A
  1. The I/R the Federal Reserve Board in NY provides the FRS Member Banks
  2. The I/R used in DCF analysis
80
Q

What’s the Fed Funds Rate?

A

The I/R the FRS Member Banks charge each other

81
Q

What’s the Money Market Rate?

A

The I/R Investors earn within Money Market Instruments

82
Q

What’s the Prime Rate?

A

The I/R that Commercial Banks loan to their best Clients

83
Q

What’s a Broker-Dealer (BD)?

A

Any Person or Group engaged in the Business of effecting Securities Transactions for the Accounts of Others or for Themselves

84
Q

What’s the Broker Call Loan Rate?

A

The I/R that Commercial Banks loan to BDs for Client Margin Purchases

85
Q

What’s a Margin Loan Rate?

A

The I/R BDs charge Customers for Credit

86
Q

Order the Discount Rates from lowest to highest

A

FRB DR
Fed Funds Rate
Money Market Rate
Prime & Broker Call Loan Rates
Margin Loan Rate

87
Q

Which Discount Rate is the most Volatile?

A

Fed Funds Rate

It can change Overnight

88
Q

What’s a Discounted Cash Flow (DCF)?

Intrinsic Value

A

The current value of a future stream of payments from a Firm, project, or Investment

89
Q

What’s the Internal Rate of Return (IRR)?

Dollar Weighted RoR

A

The DR that makes the NPV of all CF’s 0 in a DCF analysis

90
Q

What’s the Net Present Value (NPV)?

A

The current value of a future stream of payments from a Firm, project, or investment minus the initial investment

91
Q

What’s a Statistical Mean?

A

The avg. of a dataset/range

92
Q

What’s a Statistical Median?

A

The middle # of a dataset/range

93
Q

What’s a Statistical Mode?

A

The # that occurs the highest # of times within a dataset/range

94
Q

What’s a Statistical Range?

A

A measure of Dispersion within a dataset
Greatest Value - Smallest Value

95
Q

What’s a Standard Deviation (Std)?

A

The Dispersion of a dataset relative to its Mean & is calculated as a SqRt of the Var

96
Q

What’s an ▲ Standard Deviation mean for a Stock?

A

That the Stock has a Wide Variation in its Historical Returns, thus ▲ Risk & ▼ Predictability

97
Q

What’s Beta?

A

The Volatility of a Security or Portfolio compared to the Systematic Risk of the Overall Market (Benchmark)

98
Q

What’s Alpha?

Excess Return or Abnormal RoR

A

ROI - Beta
An Investment Strategies ability to beat the Market

99
Q

What’s the Sharpe Ratio?

A

The ROI compared w/ its Risk

100
Q

What’s the Sharpe Ratio Equation?

A
Rp = Return of Portfolio Rf = Risk-Free Rate σp = Std of the Portfolio’s Excess Return
101
Q

What’s a Correlation?

A

The degree to which 2 variables move in relation to each other

102
Q

What’s a Liqudity Ratio?

A

A class of financial metrics used to assess a Debtor’s ability to pay Current Debt Obligations w/out raising External Capital

103
Q

What’s the Current or Working Capital Ratio?

A

A Liquidity Ratio that measures a Firm’s ability to meet its Short-Term Obligations w/ all of its Assets

104
Q

What’s the Current Ratio Equation?

Working Capital Ratio

A

CA / CL

105
Q

What’s the Quick Ratio?

Acid-Test Ratio

A

A Liqudity Ratio that measures a Firm’s ability to meet its Short-Term Obligations w/ its most Liquid Assets w/out selling its Inventory or Prepaid Assets

106
Q

What’s the Quick Ratio Equation?

A

Quick Assets / CL

107
Q

What’s the Quick Assets Equation?

A

TCA - I - PE

108
Q

What’s a Solvency Ratio?

A

A class of financial metrics used to assess a Debtor’s ability to pay its Long-Term Debt Obligations w/out raising external Capital

109
Q

What’s the Debt-Equity (D/E) Ratio

A

A Solvency Ratio that measures how much of a Firm’s Debt could be liquidated using Equity

110
Q

What’s the D/E Equation?

Debt-Equity Ratio

A

Debt / Equity

111
Q

What’s a Valuation Ratio?

A

A class of financial metrics used to assess if a Stock’s past or future performance is over/under-valued by Investors

112
Q

What’s Earnings per Share (EPS)?

A

A Valuation Ratio that signifies how profitable a Firm is

113
Q

What’s the EPS Equation?

Earnings per Share

A
114
Q

What’s Diluted EPS?

Earnings per Share

A

The quality of a Firm’s EPS if all Convertible Securities were exercised

115
Q

What’s the Diluted EPS Equation?

Earnings per Share

A
116
Q

What’s the Price-to-Earnings (P/E) Ratio?

A

A Valuation Ratio
A Price Multiple
An Earnings Multiple

117
Q

What’s the P/E Equation?

Price-to-Earnings Ratio

A
118
Q

What’s the Price-to-Book (P/B) Ratio?

A

A Valuation Ratio that compares a Firm’s Market Capitalization to its Book Value

119
Q

What’s the P/B Equation?

Price-to-Book Ratio

A
120
Q

What’s the BVPS Equation?

Book Value Per Share

A
121
Q

What’s Systematic Risk?

A

The Risk inherent to the entire market or market segment, reflecting the impact of Economic, Geopolitical, & Financial Factors

Volatility Risk
Market Risk

Undiversifiable Risk

122
Q

What are the 4 different types of Systematic Risk?

A

Geopolitical Risk
I/R Risk
Inflation Risk
Sector or Industry Risk

123
Q

How do you mitigate Sytstematic Risk?

A

Asset Allocation Strategies
Diversification
Hedging

124
Q

What are Unsystematic Risks?

A

The Risk inherent to a specific Firm or Industry Investment

Nonsystematic Risk
Specific Risk
Diversifiable Risk
Residual Risk

125
Q

What are the 5 different types of Unsystematic Risk?

A

Business Risk
Financial Risk
Legal & Regulatory Risk
Operational Risk
Strategic Risk

126
Q

How do you mitigate Unsystematic Risk?

A

Diversification

127
Q

What’s Opportunity Cost?

A

The Cost of one Choice that must be forfeited for another

128
Q

What’s the Liquidation Priority of a Firm?

A

Employee Wages
IRS Tax & Penalty Payments
Secured Bondholders
Unsecured Bondholders & General Creditors
Subordinated Debentures
Preferred Stockholders
Common Stockholders

Series 65 (5 decks)

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