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

A

Benchmark

24
Q

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

A

Form indexed portfolios

25
Q

-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
A

INDEX USES

26
Q

Serve as the “market” portfolio for measuring beta and systematic risk

A

INDEX USES

27
Q

TYPES OF INDICES (BASED ON INDEX WEIGHTINGS)

A

PRICE – WEIGHTED AVERAGES
MARKET VALUE – WEIGHTED INDICES
EQUAL WEIGHTED INDICES

28
Q

Arithmetic mean of current prices

A

PRICE – WEIGHTED AVERAGES

29
Q

Sum of the market value of all stocks

A

MARKET VALUE – WEIGHTED INDICES

30
Q

Compute day-to-day percentage price change for each security in the index and then averaging the results

A

EQUAL WEIGHTED INDICES

31
Q

RISK OF GLOBAL INVESTING

A

Currency Risk
Country Risk
Geographic Risk
Regional Risk

32
Q

FINANCIAL RATIOS

A

PROFITABLE RATIOS
ACTIVITY RATIOS
LIQUIDITY RATIOS
COVERAGE RATIOS
VALUATION MEASURES

33
Q

Measures how much a company earns on top of cost to produce goods

A

Gross Profit Margin (GPM)

34
Q

Formula of Gross Profit Margin (GPM)

A

Gross Margin = Gross Profit/Net Sales

35
Q

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)

A

Operating Profit Margin (OPM)

36
Q

Formula of Operating Profit Margin (OPM)

A

Operating Profit Margin = Operating Profit/Net Sales

37
Q

Measures how much a company earns on top of ALL costs

A

Net Profit Margin (NPM)

38
Q

Formula of Net Profit Margin (NPM)

A

Net Profit Margin = Net Profit/Net Sales

39
Q

Measures how much return the company generated on the capital of common shareholders

A

Return on Common Equity (RCE)

40
Q

Formula of Return on Common Equity (RCE)

A

Return on Common Equity = (Net Income- Preferred Dividends)/Average Common Equity

41
Q

Purpose for studying activity ratios

A

• Improve company’s cash flow
• Enhance profitability
• Improve ability to capitalize on opportunities

42
Q

Formula of Inventory Turnover

A

Inventory Turnover = Cost of Goods Sold/Average Inventory

43
Q

Formula of Days Inventory

A

Days Inventory = 365 days/Inventory Turnover

44
Q

Formula of Receivables Turnover

A

Receivables Turnover = Sales/Average Receivable

45
Q

Formula of Average Collection Period

A

Average Collection Period = 365/ Receivables Turnover

46
Q

Measures ability to meet short-term obligations

A

LIQUIDITY RATIOS

47
Q

Formula of Net Working Capital

A

Net Working Capital = Current Assets – Current Liabilities

48
Q

Formula of Current Ratio

A

Current Ratio = Current Assets/Current Liabilities

49
Q

Formula of Quick Ratio

A

Quick Ratio = (Cash & equivalents + Receivables)/Current Liabilities

50
Q

Also called acid test ratio

A

QUICK RATIO

51
Q

Formula of Cash Ratio

A

Cash Ratio = Cash & equivalents/Current Liabilities

52
Q

Measure a company’s financial leverage and risk

A

COVERAGE RATIOS

53
Q

Formula of Debt to Equity Ratio

A

Debt to Equity Ratio = Total Liabilities/Total Equity

(The lower, the less risky!)

54
Q

Formula of Times Interest Earned

A

Times Interest Earned = Earnings before Interest and Tax/Interest

(The higher, the better)