IP - Chapter 10 - Equity Securities Analysis* Flashcards
Two approaches to fundamental analysis of equity securities?
Bottom up approach
Top Down Approach
How does the bottom-up approach analyze an equity security?
1) Company
2) Industry
3) Economy
How does the top-down approach analyze an equity security?
1) Economy
2) Industry
3) Company
Most important variables to consider of economic analysis when evaluating equity securities?
1) GDP
2) Inflation
3) Interest Rates
4) Unemployment
What is the fundamental analysis equity securities approach favored by analysts?
Top Down Approach
Expresses general levels of price changes in the economy?
Inflation Rate
Basket of consumer goods is represented by what?
CPI
What are the 3 primary goals of the FED?
1) Maintain long term economic growth
2) Maintain Price Levels
3) Maintain full Employment
What kind of policy does the Federal Reserve implement?
Monetary Policy
What are the tools utilized by the Federal Reserve to implement monetary policy?
1) Reserve Requirement
2) Discount Rate/Fed funds rate
3) Open Market Operations
4) Excess Reserve Deposits
What is the percentage reserve requirement for banks?
10%
The interest rate that the Fed charges financial institutions for short term loans?
Discount Rate
How much higher is the discount rate or federal LENDING rate than banks charge each other to borrow?
1% Higher
This is also called the bank to bank lending rate
Federal Funds Rate
They selling and buying of U.S. Treasuries by the Federal Reserve?
Open market operations
What happens when the Federal reserve is tightening policy?
The SELLING of US Treasuries
What happens when the Federal reserve is loosening policy?
The buying of US Treasuries by the Federal Reserve
The Federal Reserve pays interest to banks for keeping an ____________________ .
Excess Reserve
Reserves above or in excess to the minimum requirement of deposits held with the Federal reserve.
Excess Reserve
If the Fed wants to “tighten” what will happen to the interest rate that they pay for excess reserves?
Interest Rate will increase (ties more money up)
What type of policy does Congress utilize?
Fiscal Policy
What are the 3 ways Congress implements Fiscal Policy?
1) Taxes
2) Government Spending
3) Deficit Management
What are the 3 goals of Congress when utilizing Fiscal policy?
1) Maintain price levels
2) Maintain employment
3) Maintain long term economic (GDP) growth
(Same as Federal Reserves goals)
What are the 5 stages of an industry life-cycle?
1) Pioneering Development
2) Rapid Growth
3) Mature Growth
4) Market Maturity
5) Market Decline
