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Economics Flashcards

1
Q

Quantity of money or money supply is the major determinant of price levels

A

MONETARIST ECONOMIC THEORY

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2
Q

Currency in circulation and demand deposits

A

M1-NARROW MONEY

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3
Q

M1 + savings accounts and time deposits

A

M2 (BROAD MONEY)

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4
Q

M2 plus assets and liabilities of financial institutions

A

M3 (DOMESTIC LIQUIDITY)

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5
Q

Government policies could be used to increase demand

A

> cut interest rates
pump priming of the economy
investment in infrastructure

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6
Q

Maintain economic stability by controlling money supply

A

CENTRAL BANK

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7
Q

M2 plus assets and liabilities of financial institutions

A

M3 (DOMESTIC LIQUIDITY)

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8
Q
  • Overheating of investments and production
  • Very low unemployment
  • Overexpansion and overproduction, funded by debts
A

PEAKS

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9
Q
  • Economic growth by lowering barriers for people to produce goods and services
  • Reduce taxes, reduce regulations
A

SUPPLY SIDE ECONOMIC THEORY

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10
Q

Sometimes, no strong automatic mechanism moves output and employment towards full employment levels

A

KEYNESIAN THEORY

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11
Q

Where new issues of bonds, preferred stock or common stock are sold by government, municipalities and companies to acquire new capital
Ex. T-bills, municipal bond issues, IPOs

A

PRIMARY MARKET

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12
Q
  • Analysis of past market data to estimate future price
  • Believes that prices are affected by numerous factors
  • Aside from fundamental factors, prices are affected by psychology
    and sentiment of investors
A

TECHNICAL ANALYSIS

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13
Q
  • Permit trading in outstanding issues
  • Provide liquidity for securities issued in the primary market
  • Usually conducted in an exchange or a centralized market for secondary trading of stocks, bond and other securities
    Ex. PSE, NYSE, HK Stock Exchange
A

SECONDARY MARKET

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14
Q
  • Involves dealers and brokers who trade shares that are listed on an exchange away from the exchange
  • Also referred to as over the counter or OTC trading
A

THIRD MARKET

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15
Q

Direct trading of securities without broker intermediation

A

FOURTH MARKET

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16
Q
  • Buys and sells securities for his own account
A

DEALER

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17
Q
  • Buys and sells securities for account of others
A

BROKER

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18
Q
  • Also called specialists
  • Provides liquidity to the market by posting both bid and ask prices for certain issues
  • Acts as both broker and dealer
A

MARKET MAKER

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19
Q

Market is centralized, where Orders matched by a facilitating agent and executed at one price

A

Order driven auction market

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20
Q

Market is decentralized, where numerous dealers provide liquidity

A

Quote driven dealer market

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21
Q

What type of monetary policy does the central bank adopt when M3 growth and inflation are high?

A

Restrictive

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22
Q

Used to measure the average performance of a group of securities

A

INDEX USES

23
Q

Judge the performance of investment managers

24
Q

Led to the creation of index funds and ETFs (Exchange-traded funds)

A

Form indexed portfolios

25
-Perform research on effect of macroeconomic factors on security prices and to compare risk-adjusted performance of alternative asset classes - Perform technical and fundamental analysis of the entire class of assets
INDEX USES
26
Serve as the “market” portfolio for measuring beta and systematic risk
INDEX USES
27
TYPES OF INDICES (BASED ON INDEX WEIGHTINGS)
PRICE – WEIGHTED AVERAGES MARKET VALUE – WEIGHTED INDICES EQUAL WEIGHTED INDICES
28
Arithmetic mean of current prices
PRICE – WEIGHTED AVERAGES
29
Sum of the market value of all stocks
MARKET VALUE – WEIGHTED INDICES
30
Compute day-to-day percentage price change for each security in the index and then averaging the results
EQUAL WEIGHTED INDICES
31
RISK OF GLOBAL INVESTING
Currency Risk Country Risk Geographic Risk Regional Risk
32
FINANCIAL RATIOS
PROFITABLE RATIOS ACTIVITY RATIOS LIQUIDITY RATIOS COVERAGE RATIOS VALUATION MEASURES
33
Measures how much a company earns on top of cost to produce goods
Gross Profit Margin (GPM)
34
Formula of Gross Profit Margin (GPM)
Gross Margin = Gross Profit/Net Sales
35
Measures how much a company earns on top of cost to produce goods, and costs to conduct day to day operations (selling, general and administrative expenses)
Operating Profit Margin (OPM)
36
Formula of Operating Profit Margin (OPM)
Operating Profit Margin = Operating Profit/Net Sales
37
Measures how much a company earns on top of ALL costs
Net Profit Margin (NPM)
38
Formula of Net Profit Margin (NPM)
Net Profit Margin = Net Profit/Net Sales
39
Measures how much return the company generated on the capital of common shareholders
Return on Common Equity (RCE)
40
Formula of Return on Common Equity (RCE)
Return on Common Equity = (Net Income- Preferred Dividends)/Average Common Equity
41
Purpose for studying activity ratios
• Improve company’s cash flow • Enhance profitability • Improve ability to capitalize on opportunities
42
Formula of Inventory Turnover
Inventory Turnover = Cost of Goods Sold/Average Inventory
43
Formula of Days Inventory
Days Inventory = 365 days/Inventory Turnover
44
Formula of Receivables Turnover
Receivables Turnover = Sales/Average Receivable
45
Formula of Average Collection Period
Average Collection Period = 365/ Receivables Turnover
46
Measures ability to meet short-term obligations
LIQUIDITY RATIOS
47
Formula of Net Working Capital
Net Working Capital = Current Assets – Current Liabilities
48
Formula of Current Ratio
Current Ratio = Current Assets/Current Liabilities
49
Formula of Quick Ratio
Quick Ratio = (Cash & equivalents + Receivables)/Current Liabilities
50
Also called acid test ratio
QUICK RATIO
51
Formula of Cash Ratio
Cash Ratio = Cash & equivalents/Current Liabilities
52
Measure a company’s financial leverage and risk
COVERAGE RATIOS
53
Formula of Debt to Equity Ratio
Debt to Equity Ratio = Total Liabilities/Total Equity (The lower, the less risky!)
54
Formula of Times Interest Earned
Times Interest Earned = Earnings before Interest and Tax/Interest (The higher, the better)

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