Exam deck Flashcards
1
Q
Business, household, government, and banking sectors are all providing source of income to the economy, which one of these is primary source of savers
A
- Household sector
2
Q
What is a broker
A
an individual or firm that acts as an intermediary between investors and the securities markets. They execute buy and sell orders for stocks, bonds, and other securities on behalf of their clients. They provide additional services like investment advice, and research.
3
Q
what is a a financial intermediaries
A
institutions that serve as middlemen in the financial markets, bridging the gap between savers and borrowers. Financial intermediaries collect funds from savers and then lend these funds to individuals, businesses, and governments. They play a crucial role in the efficient allocation of capital and risk management in the economy.
4
Q
what is a dealer
A
an entity that buys and sells securities for its own account. They own the securities they are selling. They make profits by selling securities at higher prices than they paid. Unlike brokers, who act as agents for clients, dealers take positions in securities and bear the risk of holding those securities.
5
Q
what is a market intermediary?
A
They provide the infrastructure and services needed for buyers and sellers to trade financial instruments like stocks and bonds. Their role
6
Q
What is fiscal policy vs monetary policy?
A
- Fiscal policy is when the government adjusts its levels of spending to monitor and influence a nation’s economy. Examples: taxes and spending get adjusted
- Monetary policy is when the central bank, bank of Canada, currency board, etc, determine the size and rate of growth of the money supply. Examples: interest rates, currency, open market operations for money supply like t-bills
7
Q
What are the two methods in calculating GDP?
A
- Nominal GDP which is a measure of productivity that is calculated by using current price
- Real GDP which is a measure of productivity that is not affected by inflation
8
Q
What is circular flow for an economy
A
- It is a concept that illustrates the flow of goods and services, and money in the economy
- Shows the interactions between the different sectors of the economy and how money circulates within it.
9
Q
What are the factors of inflow and the factors of outflow
A
- Outflow into the economy: spending on goods and services, taxes, business’s paying wages, payment for materials, spending on infrastructure, import of goods and services.
- Inflow into the economy: exports of goods and services, taxes collected from households and firms, revenue from government owned enterprises, firm’s revenue from selling goods and services, households wages, money earned from investments, etc.
10
Q
What is factor market and what is product market in a circular flow
A
- Factor market is where resources or factors of production (labor, capital, land and natural resources, etc) are brought and sold; in this market households are suppliers and firms/ businesses are the buyers
- Product market is a marketplace where final goods and services are offered for purchase by businesses and public sector; firms are the sellers and households, government, and foreign buyers are the consumers
11
Q
What is CPI?
A
- Stands for consumer price index
- Key indicator used to measure inflation
- It measures the average change over time in prices paid by consumers for a market basket of consumer goods and services
12
Q
- How is CPI calculated? ( Basis point vs real GDP or GDP deflator)
A
- CPI = (cost of basket in current year/ cost of basket in base year) x 100
- Cost of basket is calculated by multiplying the quantity of each item by its price and adding them up.
- Basis point is a unit of measure to describe the percent change in a value. 1 basis point is 0.01%
- Real GDP measures the value of all final goods and services produced within a country in a given period, adjusted for inflation. It provides a more accurate picture of an economy’s size and how its growing over time
- GDP deflator is a measure of the level of prices of all domestically produced, final goods and services in an economy. It’s a ratio of nominal to real GDP. It shows how much a change in the base year’s GDP can be attributed to a change in the price level
13
Q
What is leading, lagging and coincident indicator
A
- Leading indicators are economic factors that change before the economy starts to follow a particular pattern or trend. Used to predict changes in the economy. Example: stock market returns
- Lagging indicator are economic factors that change after the economy has already begun to follow a pattern or trend. They are useful for confirming the pattern. Examples: unemployment rate, CPI, GDP, interest rate
- Coincident indictors change at almost the same time as the whole economy giving information about the current state of the economy. Example: employment level
14
Q
What type of exchange rate can a government use to control its currency?
A
- Fixed exchange rate; the central bank maintains the fixed rate by buying and selling its own currency on the foreign exchange market
- Floating exchange rate; the value is determined by supply and demand on the foreign exchange market. The government or central bank may intervene occasionally in the market to stabilize or influence the currency’s value
15
Q
- What is Bank of Canada
A
- It is the central bank of Canada.
- It controls monetary policy, issuing currency, and managing the country’s financial systems
16
Q
- How is Bank of Canada differed from chartered banks
A
- Bank of Canada focuses on broader economic objectives like controlling inflation and ensuring financial stability.
- Chartered banks focus on providing financial services to the public and businesses are driven by profit.
17
Q
- Which business cycle has the highest output, highest employment or the lowest output and lowest employment?
A
- The peak has the highest output and employment, this is because this phase is characterized by strong economic growth, high level of consumer and business spending and increased industrial production. Increased industrial production leads to more jobs which leads to more jobs.
- The recession phase had the lowest output and employment, this is because the economic output declines significantly during this phase. Consumer spending decreases, business investments drops and industrial production slows down. Decrease in industrial production leads to loss of jobs.
18
Q
- What is the difference between a change in quantity demand vs a change in demand
A
- Change in quantity demand is a movement along the curve in response to a price change of the good itself
- Change in demand is a shift of the entire demand curve due to changes in factors other than the good’s own price
19
Q
- What will happen to quantity demand or supply if the economy is not in equilibrium
A
- A surplus is when there is more supply than demand which can be caused by high pricing, decrease in demand, or increase of supply. Producers may lower prices causing consumers to buy the products, moving the economy back to equilibrium.
- A shortage of supply (excess demand) happens when there is more demand than supply available. Can happen due to low prices, increase in demand, or decrease in supply. Producers may increase prices to balance demand with their current supply which causes demand to decrease.
20
Q
- How are these form of business differed in terms of ownership, and liabilities (sole proprietorship, partnership and corporation)
A
- Sole proprietorship is owned by one person who has complete control over the business operations. The owner has unlimited personal liability. No legal distinction between the owner and the business
- Corporation ownership is based on shareholding and management is usually through a board of directors. Liabilities is limited, the corporation is responsible for its own debts
- Partnership is owned by two or more people. In general partnership all partners have unlimited personal liability for the debts of the business. In limited partnerships the limited partners normally only have liability of the amount they invested.
21
Q
- What are the advantages and disadvantages of sole proprietorship, partnership ( general vs limited partnership), corporation
A
- Sole proprietorship advantages: simple to establish, complete control, tax benefits and flexibility and privacy. Disadvantages: unlimited personal liability, limited capital, limited lifespan of business, heavy burden
- General partnership advantages: simple formation, combined resources and skills, shared decision making, tax advantages. Disadvantages: unlimited liability, potential conflicts, shared profits, joint and several liability
- Limited partnership advantages: limited liability for limited partners, attracts investors, flexibility in structure. Disadvantages: complexity, general partners unlimited liability, regulatory requirements.
- Corporation advantages: limited liability, getting capital, perpetual existence, transferable ownership. Disadvantages: complexity and cost, double taxation, regulatory scrutiny, potential for agency problems
22
Q
- What is the difference between direct vs indirect intermediation
A
- Direct intermediation occurs when savers (or investors) lend funds directly to borrowers without the involvement of an intermediary.
- Indirect intermediation occurs when there is an intermediary (like a bank, mutual fund, or pension fund) between savers and borrowers. The intermediary collects funds from savers and then lends or invests these funds on their behalf.
23
Q
- What is the difference between debt financing vs equity financing
A
- Debt financing involves borrowing funds, which must be repaid over time with interest.
- Equity financing involves raising capital by selling shares of the company.
24
Q
- What are securities
A
- Stocks (equities): own shares that earn you a portion of the company’s profits
- Bonds: debt securities issued by corporations, etc to finance projects and operations
- Mutual funds: investments that are made with the money pooled from many investors to buy a diversified portfolio of securities
- Options: give the holder the right but not the obligation to buy or sell the share at a predetermined price by a predetermined date
- ETFs (exchange traded funds): traded on stock exchanges and track an index or basket of assets
25
Q
- What is stock or shares
A
- A stock or share is a financial instrument that signifies an ownership position (called equity) in a corporation.
- Common stock: typically, have voting rights, receive dividends but are not guaranteed and can fluctuate, in the event of liquidation they most likely won’t get anything.
- Preferred stocks: generally, do not have voting rights, higher claim on assets and earnings than common stockholders, in event of liquidation they are paid before common stockholders but after debt holders.
26
Q
- What is the biggest stock exchange in Canada
A
- TSX (Toronto stock exchange)
- Characteristics: largest stock exchange in terms of market capitalization, lots of different types of companies are listed, global reach, etc
27
Q
- What is the meaning of ‘going public’
A
- the process a private company undertakes to offer its shares to the public in a new stock issuance.
- known as an Initial Public Offering (IPO), transforms a privately held company into a public company whose shares can be bought and sold by the general public on a stock exchange.
28
Q
- What is the difference between bidding and asking price
A
- Bid price is the highest price that a buyer is willing to pay for a security. Represents the demand side of the market
- Ask price is the lowest price at which a seller is willing to sell a security. Represents the supply side of the market
29
Q
- Name 5 types of stocks
A
- Blue chip stocks
- Growth stocks
- Cyclical stocks
- Speculative stocks
- Potential turnaround company
30
Q
- How would a stock be classified as blue chip, growth etc.
A
- Blue chip: shares in large, well established, companies with stable and reliable growth. Ex. Apple, Microsoft etc
- Growth stocks: shares in companies that have above average growth. Example amazon, tesla etc
- Cyclical: shares in companies whose performance is closely related to the economic cycle. Ex. Automobile companies, airlines etc
- Speculative stocks: shares in companies with potential for substantial price movements, offering high risk and reward possibilities. Ex. Penny stocks, start up companies etc
- Potential turnaround company: a business that is experiencing operational or financial difficulties but shows promise for major improvement and recovery.
31
Q
- What is mutual fund
A
- investments that are made with the money pooled from many investors to buy a diversified portfolio of securities
32
Q
- What is the purpose of holding mutual funds
A
- Diversification
- Variety
- High liquidity for most funds
