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SEC > PART 4 ECONOMICS > Flashcards

PART 4 ECONOMICS Flashcards

1
Q

Measured by gdp growth and track by the different phases of the business cycle

A

Economic growth

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2
Q

This is also influenced by economic growth

A

Corporate earnings growth

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3
Q

Quantity of money or money supply is the major determinant of price levels

Well controlled slowly increasing money supply will have the most positive impact on the health of the economy

A

Monetarist economic theory

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4
Q

Maintain economic stability by controlling money supply

Avoid overheating and depression

A

Central bank

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5
Q

Currency in the circulation and demand deposits

A

M1
Narrow money

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6
Q

M1 + savings accounts and time deposits

A

M2 broad money

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7
Q

M2 + assets and liabilities of financial institutions

A

M3 domestic liquidity

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8
Q

What business cycle:

Overheating of investment and production

Very low unemployment

Over expansion and overproduction funded by debts

A

Peaks

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9
Q

What business cycle phase:

Investment and production flatten

High unemployment

Minimal debts

A

Trough

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10
Q

Economy can sometimes operate below potential output

Takes place when demand for good is insufficient

Sometimes no strong automatic mechanism moves output and employment towards full employment levels

A

Keynesian theory

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11
Q

What theory is the example below

Government policies could be used to increase demand
- cut interest rates
- pump priming of the economy
- investment in infrastructure

Economy to avoid depression

A

Keynesian theory

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12
Q

Economic growth by lowering barriers for people to produce goods and services

Reduce taxes reduce regulation

A

Supply side economic theory

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13
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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14
Q

Rising volumes

More advancers than declineers

Shares are trending higher above the moving average

The reverse would indicate a bearish market

A

Characteristics of bullish market

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15
Q

Theories against technical analysis

A

Efficient market hypothesis

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16
Q

Market is information efficient

Market reflects all available information

No one can consistently achieve excess returns above market average

Prices follow a “random walk”

Study of past price action is useless

A

Efficient market hypothesis

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17
Q

New issues of bonds preferred stock or common stock are sold by government municipalities and companies to acquire new capital

Example

T bills
Municipal bond issues
IPOs

A

Primary market

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18
Q

Permit reading in outstanding issues

Provide liquidity for security issued in the primary market

Usually conducted in an exchange or a centralized market for secondary trading of stocks bond and other securities

Example
PSE
NYSE
HK stock exchange

A

Secondary market

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19
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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20
Q

Direct trading of securities without broker intermediation

A

Fourth market

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21
Q

Action or order driven
Centralized: orders match by a facilitating agent
Execution at one price
Use for the opening or during resumption after trading is suspended

A

Call market

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22
Q

Dealer or quote driven
Decentralized: numerous dealers provide liquidity
Trades occur at any time market is open

A

Continuous market

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23
Q

Order driven auction markets

A

Tokyo stock exchange
Paris boures

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24
Q

Quote driven dealer markets

A

Nasdaq
London stock exchange

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25
Q

Combination ordered driven action market and quote driven dealer market

A

Frankfurt stock exchange

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26
Q

Buys and sell securities for account of others

A

Brokers

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27
Q

Buys and sells securities for his own account

A

Dealer

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28
Q

Also called specialist

Provides liquidity to the market by posting both bid and as prices for certain issues

Acts as both brokers and dealer

A

Market maker

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29
Q

Used to measure the average performance of a group of securities

A

Index

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30
Q

Judge the performance of investment managers

A

Benchmark

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31
Q

Perform research on effect of macroeconomic factors on security prices and to compare risk adjusted performance of alternative asset classes

A

Index

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32
Q

Perform technical and fundamental analysis of the entire class of assets

A

Index

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33
Q

Serve as the market portfolio for measuring beta and systematic risk

A

Index

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34
Q

Types of indices

A

Price (weighted averages)
Market value (weighted indices)
Equal weighted indices

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35
Q

Influence on small capitalization = large capitalizations

Appropriate benchmark for portfolio with equal dollar amount invested in each of several stocks

Employed by many individual investors

Unlike the others, cannot be used for buy and hold strategy

A

Equal weighted indices

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36
Q

Indices in the same country are

A

Highly correlated

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37
Q

Correlation of indices

A

Indices in the same country are highly correlated

There may be some difference in performance between large and small companies

Less correlation between indexes of different national indexes

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38
Q

Arithmetic mean of current prices

A

Price - weighted averages

39
Q

Sum of the market value of all stocks

A

Market value - weighted indices

40
Q

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

A

Equal weighted indices

41
Q

Risk of global investing

A

Currency risk
Country risk
Geographic risk
Regional risk

42
Q

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

A

Gross profit margin

43
Q

Gross profit margin is equals to

A

Gross profit/ Net Sales

44
Q

Measures how much a company earns on top of cost to produce goods and cost to conduct day to day operations

A

Operating profit margin

45
Q

Operating profit margin is equal to

A

Operating profit/ net sales

46
Q

Measures how much a company earns on top of all costs

A

Net profit margin

47
Q

Net profit margin is equal to

A

Net profit/ net sales

48
Q

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

A

Return on common equity

49
Q

Return on common equity is equal to

A

Net income - preferred dividends/
Average common equity

50
Q

What are the profitable ratios

A

Gross profit margin
Operating profit margin
Net profit margin
Return on common equity

51
Q

What are the activity ratios

A

Inventory turnover
Days inventory
Receivable turnover
Average collection period

52
Q

Inventory turnover is equal to

A

Cost of goods sold/ average inventory

53
Q

Days inventory is equal to

A

365 days/ inventory turnover

54
Q

Receivables turnover is equal to

A

Sales/ average receivable

55
Q

Average collection period is equal to

A

365/ receivable turnover

56
Q

Measures ability to meet short term obligations

A

Liquidity ratios

57
Q

Networking capital is equal to

A

Current asset - current liabilities

58
Q

Current ratio is equal to

A

Current assets/ current liabilities

59
Q

Quick ratio is equal to

A

Caution equivalents + receivables/
Current liabilities

60
Q

Cash ratio is equal to

A

Cash & equivalents/ current liabilities

61
Q

What are the liquidity ratios

A

Networking capital
Current ratio
Quick ratio
Cash ratio

62
Q

Measures a company’s financial leverage and risk

A

Coverage ratio

63
Q

Depth to equity ratio is equal to

A

Total liabilities/ total equity

64
Q

Times interest earned is equal to

A

Earnings before interest and tax/ interest

65
Q

What are the coverage ratios

A

Debt to equity ratio
Times interest earned

66
Q

What coverage ratio ratio is the lower the less risky

A

Debt to equity ratio

67
Q

What coverage ratio is the higher the better

A

Times interest earned

68
Q

Factors affecting the portfolio of individual investors

A

Dependence
Age
Financial resources
Risk tolerance
Types of investments

Income characteristics
Temperament
Taxation
Ability to supervise investment

69
Q

Understanding the institutional investor

High liquidity requirement
Invest insecurities that offers lightly higher turns that saving account t bills time deposit

A

Corporation

70
Q

Understanding the institutional investor

Generally have long time horizon
Invested in a wider array of investment products

A

Pension or retirement fund

71
Q

Understanding the institutional investors

France available for investment have cost example, interest and deposits, reserve requirements

Invest on the basis of spreads
High liquidity requirements

A

Banks

72
Q

Understand the institutional investor

Classic lt investor
Minimal liquidity requirements
Invest in a diversified pool of investments

A

Insurance companies

73
Q

Understanding the institutional investor

Investment objectives and policies dictate return expectations, liquidity requirements and diversity of investment

A

Investment companies

74
Q

Understanding the institutional investors

Reduce risk
Much financial goals with appropriate investment product

A

Rationale

75
Q

Types of diversification

A

By asset class
By industry
By tenor
Biogeography

76
Q

When supply and demand are equal

A

Equilibrium

77
Q

What are the economic indicators

A

Gross domestic products
Gross national products

78
Q

Indicator of general level of prices by measuring changes in the prices, using a specified year as the base year

A

Cpi or consumer price index

79
Q

Economic condition characterized by a continuing rise in the general level of prices of goods and services

A

Inflation

80
Q

Opposite of inflation and is therefore a period of declining prices of goods and services

A

Deflation

81
Q

Explains how individuals and economies aim to gain optimal satisfaction in dealing with scarcity

A

Utility

82
Q

Total volume of currency in circulation at a particular point in time

A

Money supply

83
Q

Represents the output of goods and services produced within the geographic borders of the philippines in any given year

A

Gross domestic product

84
Q

Represents the total value of goods and services produced by philippine nationals in a given year

A

Gross national products

85
Q

The additional satisfaction or amount of utility gained from each extra unit of consumption

A

Marginal utility

86
Q

All the total utility usually increases as more of a good is consumed, marginal utility usually decreases with each additional increase in the consumption of a good

A

Law of diminishing marginal utility

87
Q

The degree to which a demand or supply curve reacts to a change in price is the curves?

A

Elasticity

88
Q

If the elasticity is greater or equal to one

A

Elastic

89
Q

If the elasticity is less than or equal to 1

A

Inelastic

90
Q

Inverse relationship between the price of good and the amount demanded

Higher price other things constant quantity demanded will decrease

A

Law of demand

91
Q

How much quantity of a product or service is desired by buyers at a certain price

A

Demand

92
Q

The relationship between the price of a good and the amount of it offered for sale

Higher price other things constant will increase the producers incentive to supply the good

A

Law of supply

93
Q

How much the market can offer when receiving a certain price

A

Supply

94
Q

The act of committing money or capital to endeavor with expectation of obtaining additional income or profit

A

Investing

SEC (8 decks)

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