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SIE > Economics > Flashcards

Economics Flashcards

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SIE Exam flashcards
1
Q

What are some characteristics of contraction=s

A

rising number of bankruptcies and bond defaults
higher consumer debt
falling sto prices
rising inventories - bec of weaker demand in hard times)
decreasing GDP

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2
Q

What are signs of the trough

A

high unemployment
flat GDP
low inflation
low but stable consumer demand

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3
Q

What are signs of expansion

A

rising sto, RE, and GDP
increasing industrial production
increasing consumer demand

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4
Q

whats a recession and depression

A

6mo contraction vs 18mo contraction

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5
Q

What are signs of the peak

A

very low unemployment
slowdown in inflation
slowing GDP growth
steady consumer demand

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6
Q

What is used to compare GDP from different periods

A

real GDP which uses CPI to adjust for inflation or deflation

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7
Q

What is another term for CPI

A

constant dollar measurement

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8
Q

What is Gross National Product

A

measures the activities of citizens and US based entities not just everything that happens here

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9
Q

What is an example of GNP

A

comp based in Japan, builds factory here - Adds to GDP not GNP
comp based in US, builds factory in Japan - Adds to GNP not GDP

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10
Q

What are some leading indicators of economic conditions

A

money supply (M2)
building permits (housing starts)
average weekly initial claims for state unemployment compensation
average work week in manufacturing
new orders for consumer goods
machine tool orders
changes in inventory of durable goods
changes in sensitive materials prices
sto prices
changes in business and consumer borrowing

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11
Q

What are some coincident indicators of economic conditions

A

number of hours worked
unemployment rate
nonagricultural employment
personal income
industrial production
manufacturing and trade sales
GDP

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12
Q

What are some lagging indicators of economic conditions

A

corporate profits
average duration of unemployment
labor cost per unit of output
ratio of inventories to sales
commercial and industrial loans outstanding
ratio of consumer installment credit to personal income

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13
Q

What is stagflation

A

inflation and high unemployment

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14
Q

Consid for stagflation and inflation

A

inflation doesnt need to be high just present

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15
Q

4 broad categories of industries

A

cyclical
noncyclical
countercyclical
growth

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16
Q

What is a cyclical industry

A

highly sensitive to the business cycle and inflation trends
usu produce durable goods like heavy equipment or automobiles, and raw materials like steel and concrete

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17
Q

What are non cycylical industries

A

also known as defensives
decline less in contractions, rise less in expansions
food
clothes
tobacco
pharma
utilities
liquor

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18
Q

What are the two primary financial reports comps provide and when are they released

A

balance sheet
income statement
quarterly or annually

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19
Q

What does a balance sheet show

A

current assets like
cash/highly liquid assets like accounts receiveable
fixed assets like RE and equipment
other assets like trademarks or intellectual property

Liabilities like:
current liabilities like taxes, acrued wages, accs payable, and interest payments
longterm lias like debts

Networth:
pref sto
com sto par value
money in excess of par value of com sto
retained earnings (earnings set as

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20
Q

What are 4 ratios/numbers that can be used for analysis from a balance sheet

A

working capital
current ratio
acid test/quick ratio
debt ratio

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21
Q

What is the working cap number

A

amount comp can spend/lose and remain operational
current assets - current liabilities

22
Q

What is the current ratio

A

used to find the liquidity of the company
cur ass / cur lias
expressed as a ratio
ex: 50/20 = 2.5:1

23
Q

What is acid test / quick ratio

A

test companies liquidity in really bad times
cur ass - inventrory / curr lias

24
Q

What is the debt ratio

A

test long term solvency, how much of the net worth is coming from debt
said to be highly leverage if debt ratio is higher than industry average
long term debt - (long term debt + net worth)
expressed as a percentage

25
Q

What is the income statement

A

also known as profit and loss statement
shows revenue and expenses for fiscal period

26
Q

What calculations are derived from the income statement

A

Earnings per share
P/E ratio

27
Q

What is Earnings per share

A

earnings available to common sto / outstanding shares

28
Q

What is P/E ratio

A

measure amount of earnings compared to the current market value
CMV / EPS

29
Q

Operating income is sometimes referred to as

A

earnings before interest and taxes EBIT or as EBITDA (earnings before interest taxes depreciation and amortization)

30
Q

What happens when our currency exchange rate decreases

A

dollar denominated products decrease in value compared to the other currency (1 unit of the other currency purchases more than it used to) because of that, the other currency my want to purchase more of our products bec they are now relatively cheaper causing us to export more and import less

31
Q

What happens when our currency exchange rate increases

A

dollar denominated products increase in value compared to the other currency (1 dollar purchases more in the other currency) bec of that, the other currency may want to purchase less of our products bec they are now relatively more expensive, causing us to export less and import more

32
Q

What is the flow between countries called

A

balance of payments

33
Q

What is the largest part of the balance of payments

A

balance of trades

34
Q

For balance of trades, exports are called/give the US

A

credit

35
Q

For balance of trades, imports are called/give the US

A

debit

36
Q

What is monetary and fiscal policy

A

monetary is done by the fed reserve board
fiscal is the gov

37
Q

What does the FED control

A

money available for businesses and consumers to spend

38
Q

What is the Feds dual mandate

A

promote max employment
keep prices stable

39
Q

Who is Milton Friedman

A

founder of monetarism theory

40
Q

What are the diagnostic tools used by the FED

A

the money supply

41
Q

How does the money supply work

A

M1 = Cash and money in demand deposit accs such as checking accs
(the money most readily available to be spent)

M2 = M1 + consumer savings deposits (assets that can be easily moved into cash or DDAs
savings accs
money markets
retail CDs
overnight repos

M3 = M2 + large time deposits (assets that are harder to move to DDAs)
Jumbo CDs
multiday repos

42
Q

What are some direct tools used by the Fed

A

Fed open market operations:
buying and selling secs to banks
Changing the discount rate

They COULD change Reg Ts minimum deposit amount for margin or change the reserve requirements for banks but unlikely

43
Q

What happens during Fed open market operations

A

buying secs from banks (expanding the money supply) gives the banks more money to lend out and lowers interest rates

Selling secs to banks (contracting the money supply) end with banks having less money to lend out (bec they spent it on buying secs from the Fed) so they cant make as many new loans and interest rates rise

44
Q

What is the rate that news is referring to when they say the Fed is raising rates

A

discount rate

45
Q

What is the federal funds rate

A

rate that commercial money center banks charge each other for overnight loans of 1mil or more

46
Q

What is the prime rate

A

rate that commercial money center banks charge their most creditworthy corporate borrowers for unsecured loans

47
Q

When the Fed eases or tightens the money supply what rate do the banks adjust

A

prime rate

48
Q

What is the broker call loan rate

A

rate that banks charge BDs for loans on margin accs

49
Q

What BD call loans are callable when

A

24hr notice

50
Q
A

SIE (17 decks)

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