economics and analysis Flashcards
GDP
- total value of all good and services
- published quarterly
CPI
- consumer price index
- is a measure of inflation
- published daily
describe an ideal economy
- GDP is up
- CPI is down
- moderate inflation
describe a general business cycle
- expansion-goes up
- peak-prosperity
- decline-goes down
- trough
- recovery-moves back up
what are the 5 leading economic indicators
- building permits
- manufacturers’ new orders
- S&P 500 index
- M2 (money supply)
- new unemployment claims
what are the 4 coincident economic indicators
- GDP
- industrial production
- personal income
- manufacturing and trade sales
what are the 2 lagging economic indicators
- corporate profits
- duration of unemployment
what 3 things can influence the economy
- fiscal policy (congress/president)
- monetary policy (federal reserve)
- federal reserve
how does fiscal policy affect economy
- taxation (high = deflation, low = inflation)
- government spending
what is keynesian theory?
active government manipulation of the economy
describe M1 money supply
cash + demand deposits (checking accounts)
describe M2 money supply
M1 + CDs + money market mutual funds
describe M3 money supply
M2 + negotiable CDs
what are the tools that the federal reserve board can use to influence economy?
- multipliers
- federal funds
- discount rate
- open market operations
federal reserve board has control over?
bank reserve requirements
describe the multiplier FRB tool
- is the most drastic tool
- changes reserve requirements banks must have in their position
describe the fed funds FRB tool
-bank’s excess reserves to lend
describe the discount rate FRB tool
- rate charged from feds to banks for loaning
- all rates are affected by the discount rate
describe the open market operations FRB tool
- fed buys t-bills from institutions to make interest rate go down
- fed sells t-bills to institutions to make interest rate go up
what happens if the value of a dollar goes up
- exports less competitive
- imports more competitive
what happens if the value of a dollar goes down
- exports more competitive
- imports less competitve
what are defensive (noncyclical) securities
basic human needs
- food
- utilities
- clothing
- drugs
- tobacco
- liquor
- cosmetics
what are cyclical securities
can go way up or way down
- steel
- heavy equipment
- capital goods
- automobiles
- toy companies
what are countercyclical securities
-precious metals (gold)
assets=
liabilities + net worth
net worth=
assets - liabilities
working capital=
current assets - current liabilities
current ratio=
current assets / current liabilities
debt ratio=
long term debt / total capitalization
earnings per share=
net income / # of common shares
price to earnings ratio=
current market value / earnings per share
dividend payout ratio=
common dividends / earnings per share
when analyzing the market technically, what would a person use?
- price forecasting
- timing
what is the odd lot trading theory?
says to do the opposite of what the little guys are doing
what are the 4 market indiices
- dow jones composite
- nyse composite
- wilshire
- S&P
describe the components of the dow jones composite
-looks at 65 companies
30-industrials
20-transportation
15-utilities
how many companies make up the NYSE composite?
3,000+
how many companies make up the Wilshire composite?
5,000
how many companies make up the S&P?
500
what kind of recommendation for growth objectives?
-growth mutual fund and reinvest earnings
what kind of recommendation for income objectives?
-income funds and dont reinvest earnings
what kind of recommendation for preserving capital objectives?
- govt
- govt backed
- blue chip stocks
what kind of recommendation for liquidity objectives?
- money markets
- IRAs, keoughs
- Roth IRAs
what is credit risk?
risk of company going bankrupt
what is business risk?
risk of industry doing poorly
what is market risk?
risk of market decline
what is purchasing power risk?
has to do with inflation risk
what is marketability risk?
ability to resale security
what is taxed as ordinary income?
earned money
- salaries
- wages
- commissions
- bonuses
describe passive income
says that passive losses can only be used to offset passive income
what is the 30 day wash rule
- investor exits position with a loss, then reestablishes position in an identical security with 30 days before or after trade
- NOT ALLOWED
what are examples of progressive taxes?
- income
- estate
- gift
what are examples of regressive taxes?
- sales
- fuel
