Analysis Questions

Which statements are TRUE regarding interest rate movements? I Actions of the Federal Reserve tend to affect short- term rates more than long- term rates II Actions of the Federal Reserve tend to affect long- term rates more than short- term rates III Short-term rates are more volatile than long-term rates IV Long-term rates are more volatile than short-term rates A. I and III B. I and IV C. II and III D. II and IV

A. I and III (The tools of the Federal Reserve influence the "short end" of the yield curve. For example, if the Fed conducts reverse repurchase agreements via open market operations, the impact of the tightening will be felt immediately on short term rates - which will go up instantly. Thus, these rates move faster than long term rates (which are more influenced by long term economic and inflation expectations than by Fed actions).)

If a foreign government wishes to stabilize its currency because it has been falling against the U.S. Dollar, the government would: A. buy its own currency B. sell its own currency C. sell short its own currency D. buy U.S. dollars

A. buy its own currency (To stabilize a currency that is falling against the dollar, the foreign government would buy its currency (driving its price up against the U.S. dollar); and sell the U.S. Dollar (driving the U.S. dollar down against the foreign currency.)

To evaluate investor sentiment, a technical analyst would examine all of the following EXCEPT (the): A. Put / Call ratio B. Revised corporate earning reports C. Short Interest figures D. Odd lot transactions

B. Revised corporate earning reports (Technical analysts do not look at the fundamentals of a company, such as earnings reports, in order to make investment decisions. Instead they examine market movements and indicators such as the makeup of odd lot transactions, put/call ratio, and short interest figures.)

The Federal Reserve will lend funds at the discount rate to: A. savings and loans B. commercial banks C. investment banks D. insurance companies

B. commercial banks (Only commercial banks are members of the Federal reserve system. Member banks can borrow reserves from the Fed at the discount rate.)

The market price average is decreasing daily; however, the level of declines relative to advances is falling. The market is reaching a(n): A. overbought condition B. oversold condition C. breakout on the upside D. breakout on the downside

B. oversold condition (The market price averages are falling, but the strength of the market decline is weakening because the number of declining issues is decreasing relative to the number of issues that are rising in price. The market is reaching an "oversold" condition, and is approaching a bottom.)

The "Monetary Environment" is a reflection of all of the following EXCEPT: A. money supply levels B. stock price levels C. monetary policy D. fiscal policy

B. stock price levels (The "Monetary Environment" is a reflection of whether credit is easy or tight, as shown by interest rate levels, money supply levels and current economic policies of the Government - that is, fiscal policy.)

The largest component of the Standard and Poor's 500 Average is the: A. utilities B. technology C. consumer staples D. industrials

B. technology (Breakdown by approximate size: Technology- 24% Financials- 15% Healthcare- 14% Consumer- 12% Industrials- 10%)

If 1-Year Treasuries are yielding 5%, all preferred stocks are yielding 10%, and a manager selects a portfolio of preferred stocks yielding 15%, the risk premium for investing in the manager's preferred stock selections is: A. 0% B. 5% C. 10% D. 15%

C. 10% (The risk premium is the excess return for investing in a specific class of assets as compared to the risk free return. The managers preferred stock selections are yielding 15% at the same as risk-free Treasuries are yielding 5%. The excess return for investing in this manager's preferred stock selections is 10%.)

If a corporation decides to split its stock, which of the following will occur after the split? I The Price / Earnings Ratio changes II The Price / Earnings Ratio remains the same III The Earnings Per Share changes IV The Earnings Per Share remains the same A. I and III B. I and IV C. II and III D. II and IV

C. II and III (A stock split or dividend will have no effect on the Price / Earnings ratio of an issuer. The market price is adjusted on "ex date" for the split; and the earnings per share are restated downward to reflect the increased number of shares that will be issued. Since both decrease proportionately, the ratio stays the same.)

In fundamental analysis, "extraordinary items" are: I found on the balance sheet II found on the income statement III gains and losses from the company's regular business operations IV gains and losses outside the company's regular business operations A. I and III B. I and IV C. II and III D. II and IV

D. II and IV (An "extraordinary" item is found on the Income Statement. Extraordinary items are gains or losses that occur outside the company's normal scope of operations and are one time events. For example, a gain from selling part of a business is an Extraordinary Item. These are disclosed separately on the income statement.)

Which of the following actions are likely to cause the value of the U.S. Dollar to rise? I The Federal Reserve lowers the discount rate II The Federal Reserve raises the discount rate III United States investors purchase foreign securities IV Foreign investors purchase U.S. securities A. I and III B. I and IV C. II and III D. II and IV

D. II and IV (If the Federal Reserve raises the discount rate, then interest rates would rise in the U.S. As interest rates rise, so does the U.S. Dollar's value, since dollar denominated investments are more attractive to foreign purchasers. If foreign investors make large purchases of U.S. securities, then they must sell their foreign currency to buy the U.S. dollars needed to pay for that security. As dollars are bought, the value will rise. Conversely, if U.S. investors make large purchases of foreign securities, then they must sell their dollars to buy the foreign currency needed to pay for that foreign security. As dollars are sold, the value will drop.)