Investing

Which economic indicator is most directly linked to the average person's cost of living?

CPI

What is the primary driver of the left-hand end of the yield curve?

Central bank interest rates

Company A pays a dividend of 2%. Company B's stock price increases 1% plus the inflation rate every year. Company C pays 3% dividends, and its stock price decreases every year by 2%. Company D pays 0% dividends, an its stock price does not increase year over year. If the companies are otherwise identical, which would you invest in?

Company B

Here is the vicioius deflationary cycle. What step connects the upper right blue arrow to the lower left gray arrow?

Company revenues decline.

What is the Federal Reserve's favorite inflation gauge?

Core PCE

What are the three main transmission mechanisms by which the yield curve affects the economy?

Corporate impact, global impact, consumer impact

A drop in which of the following measures would typically send a government bond price down?

Creditworthiness

Why is the release of GDP statistics less interesting to investors than the release of other economic indicators?

Because GDP statistics are released well after other economic indicators.

Why does the United States have a strong reputation for creditworthiness?

Because it has the right to tax the wealthiest population on earth.

Why is fixed income called fixed income?

Because the repayment amounts and timings are fixed for ordinary bonds.

What does the release of earnings announcements have in common with the release of economic indicators?

Both are scheduled in advance

What is true of both the U.K. and the U.S.?

Both countries are highly creditworthy

In 1994, the Mexican peso declined against the U.S. dollar during the so-called "Tequila Crisis." What exacerbating factor did Mexico's "Tequila Crisis" have in common with the Argentine crisis of 2002?

Both countries had large dollar-denominated debts.

Investors who fear rising inflation may buy Treasury Inflation Protected Securities (TIPS). How do TIPS shield lenders from inflation?

By compensating investors for inflation

In 2015, an accounting gimmick gave Ireland a 26% growth rate in GDP. What does this event reflect about the nature of GDP?

If the measurement of economic activity evolves, GDP can change.

Examine China's predicted economic activity on the below table captured in April 2019. As of that date, which of the following terms would have best described the predicted growth in the Chinese economy for 2021? (graph)

Deceleration

What do the red bars at the bottom signify?

Deficit

When an analyst is looking at a company for the first time, which of the following four activities does he do first?

Defines the industry or industries in which the company operates.

Samsung is based in South Korea and reports in South Korean won. Samsung sells its products around the world and the geographic breakdown of its 2015 revenues is in the first chart. The other charts show how some major world currencies moved against the South Korean won through the course of 2015. Of the currencies shown, which currency movement boosted Samsung's revenue growth the most.

Dollar

How is enterprise value calculated?

Enterprise Value = market cap - cash + debt

The white line on the first chart below shows the dollar index, which is an index that measures the general international value of the dollar. Which factor graphed in the second image is most supportive of the strength of the dollar over the period shown?

Federal Funds Target Rate, the main U.S. interest rate.

Which of the following important U.S. economic indicators is only available on a quarterly basis?

GDP

Cryptocurrencies are digital tokens that are created independently of government money, and can act as a medium of exchange and store of value. Which other instrument could most reasonably fulfill the same function?

Gold

What is the primary reason for U.S. government bond yields to ripple through the bond market?

Government bonds form a large proportion of investor holdings, and corporate bonds are often priced relative to corporate bonds.

What is the prime reason that Jenny's discretionary income is more volatile than her salary?

Her mortgage payments and necessities are fixed.

which of the following is an example of a successful peg?

Hong Kong dollar against the U.S. dollar in 1997.

What does the Big Mac index show?

How currencies may be overvalued or undervalued

Why do companies do IPOs

IPOs incentivize entrepreneurs to innovate as IPOs provide a way for entrepreneurs to monetize their work.

Which of the following lines is the best leading economic indicator?

PMI

In early 2016, the same Germany machinery company has interest from four prospective clients from emerging markets: Indonesia, Brazil, Russia, and South Africa. They all want to buy ten machines, but the factory can only produce ten in time. Therefore, the company has to choose only one client. Given the volatility of the domestic currencies of the four prospective clients, the CFO would like to choose the client which is least likely to cancel the order due to currency volatility. The invoice comes due on June 30, 2016. According to volatility alone, which prospective client would be most likely to cancel the order?

Russia

These charts show data for four countries as of early 2016. For each country, the purple line denotes historic real GDP growth. The white line denotes the consensus estimated real GDP growth. The red line denotes the most pessimistic analyst forecast. The green line denotes the most optimistic analyst forecast. For which country does the analyst community exhibit the widest disagreement about 2016 growth prospects?

Russia

Which of the following is most likely to e the most challenging part of this fist step of the absolute valuation process?

Making the assumptions upon which to project future performance.

According to the Big Mac index screen, which of the following four countries' currency is the most undervalued?

Mexico

How have economic forecasts for this country evolved as shown in the chart below?

Minimal Change

If the yield on a fixed-coupon bond goes up, does the borrower have to pay more interest?

No, the price goes down. The payments are fixed.

What typically happens to nonfarm payrolls, the PMI indicator, and housing starts at the onset of a recession in the United States?

Nonfarm payrolls go DOWN, the PMI indicator goes DOWN, the housing starts goes DOWN.

What input do both absolute valuation and relative valuation typically require?

Short-term forecasts.

What generally happens when a central bank unexpectedly decreases interest rates?

The currency weeakens

Which of the following are short-term drivers of currency valuation?

Surprise changes in interest rates, inflation, and trade.

An investor is comparing two bonds of similar structure from the same issuer. Which bond should the investor buy?

The bond with the highest yield if the two bonds have the same maturity date.

On June 23, 2016, the United Kingdom voted to leave the European Union. The white line shows the U.K's main equity index, the FTSE 100, from the start of 2016 to the date on which the U.K. government notified the European Union of its intent to leave. The orange line shows the number of dollars it takes to buy one pound sterling. The United Kingdom is a net importer, meaning the value of imports exceeds the value of exports. What can be reasonably surmised from the chart about large U.K. corporations?

They are probably heavy exporters.

Which of the following qualities of economic indicators do investors prize the most?

Timeliness of release

Allison lives in the United States and has just retired. It is the end of October 2018. She has long had dreams of cruising the fjords on the west coast of Norway, visiting Buckingham Palace in the United Kingdom, seeing the cherry blossoms in Japan, and going to the top of the Eiffel Tower in France. She last considered all four options on New Year's Day 2008. She would like to select her trip based on which country's currency has subsequently weakened the most against the U.S. dollar. Where should she go on vacation?

United Kingdom

Which of the countries shown makes the greatest relative use of long-term government financing?

United Kingdom

Below is a chart illustrating global trade patterns in 2018. Which of the following countries was the world's largest importer at this time?

United States

Which of the following statements is true?

When you buy an equity, the most you can lose is 100% and your potential gain is unlimited.

The purchase of which of the following products is most affected by interest rates?

Apartment

Here is a chart displaying estimates of the initial jobless claims indicator, one of the main unemployment statistics in the U.S. It measures the number of new applicants for unemployment benefits. What was the level of the analyst with the most optimistic outlook?

220

At the time this screen was captured, what was the difference between Nomura and Rabobank's estimates for the Japanese yen/euro currency pair for the end of Q4 2019?

38 yen

How much will the Peruvian government spend on servicing its current debt outstanding for the give bond in 2025 according to this chart captured in 20009?

4,000 million Peruvian sol

Use the chart below to answer the question. How many Danish crowns (DDK) will buy 100 Japanese yen (JPY)?

5.868

At the end of January 2019, the total actively traded U.S. debt is $16T. According to the table, approximately what percent of U.S. debt does China own at this time>

7%

Engines are the most expensive, heavy component on an aircraft and are designed with detailed specifications. Which of the following would likely be the best theme for a Rolls-Royce analyst research note to help a portfolio manager decide between investing in Rolls-Royce or Unite Technologies?

A comparison of the commercial prospects of new aircraft models

The importance of cash flows in the absolute valuation process is most similar to which of the following?

A fishery exceeding fishing quotas, because it values short-term income more than long-term fishing stock.

A luxury cell phone maker has a high fixed-cost base and a lot of debt. Which stakeholder in the company would you rather be?

A shareholder in a booming economy.

If the earnings per share of a company is $3.85 and the earnings yield is 2.5%, what is the price per share?

$154

How many Australian dollars (AUD) can you buy with 100 euros (EUR) according to the information in the below chart?

159.68

which would you prefer?

A 4% annual yield on a credit risk-free 10-year government bond from the mythical country of Utopia.

Which would you prefer?

A 5% annual yield on an investment in 10-year U.S. government bonds.

What may be a problem of comparing the P/E of a stock to the P/E of the overall market?

A stock's P/E ratio can remain above or below market average for extended periods.

Which driver weakened the Swiss fanc?

A surprise change in inflation expectations

Why are equities volatile?

Due to the residual nature of earnings

A rise in which of the following inputs will increase an absolute valuation?

Earnings estimated

What is a reason one discounts future cash flows as part of the absolute valuation process?

Investors prefer cash flows today to cash flows in the future.

What are possible weaknesses of this peer approach to valuation?

The chosen peers might not be true competitors, the company might have multiple divisions, and the most appropriate competitors might not have P/E multiples.

What does it mean when a company's corporate spread tightens?

The company's bonds are outperforming the benchmark yield.

Here is a chart showing both nominal GDP growth and real GDP growth for a country. Which of the following can be a true statement at the time the chart was captured?

The country has inflation. The top line is nominal growth and the bottom line is real growth.

Company X was expected to have earnings per share of $0.52 for the upcoming quarter. On the day of the results, the company reported earning per share of $0.83. What happened to the share price when the stock market opened?

There is not enough information to tell.

Which of the following is the biggest pitfall of economic indicators?

They are not sufficiently timely to make informed investment decisions.

You are a euro-based portfolio manager and you have invested in the technology sector of the U.S. stock market. You want to keep your exposure to tech stocks but are worried about an impending financial crisis in the United States. What is the best way to manage your dollar currency risk?

You enter into a EUR/USD forward contract

Were the two oil crises in the 1970s linked to deflation or inflation?

Inflation

What is the most common measure central banks seek to target directly?

Inflation

Legendary investor Warren Buffett said, "Gold gets dug out of the ground... Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head." Based on this quotation, what quality of gold is he referring to?

Its storage costs.

Review the currency pair charts for the Barbadian dollar against the Jamaican dollar, the Czech koruna against the Polish zloty, the Ingerian naira against the Ghanaian cedi, and the Hong Kong dollar against the Macanese pataca. Which pair is pegged?

The Hong Kong dollar against the Macanese pataca

You are an analyst for a home-building company tasked with creating a financial model of home-building trends. Which of the following factors should your model address?

The price of wood products and long-term interest rates.

As a general rule, what percentage of debt to GDP will make a government's bond yields spike?

There is no general rule.

Why does the yield curve naturally slope upwards?

To compensate lenders for the greater risk of long-term loans compared to short-term loans

What was the primary goal of Abenomics?

To halt the vicious cycle of deflation.

What is the main reason that investment banks create estimates of economic indicators?

To know when specific economic data points are a positive or negative surprise.

Which of these headlines is most likely to move a currency pair?

U.S. Stocks Sink on Fed's Surprise Increase of Interest Rate.

What quality of U.S. government bonds causes investors to buy them when market volatility rises?

U.S. government bonds are considered low risk.

Which of the following has the biggest impact on consumer goods during war times? a. Consumers deferring purchases in hopes of a better deal b. High interest rates c. Low inflation d. High inflation

d. high inflation

In 1999, James Glass-man and Kevin Hassett published a book called "Dow 36,000." At the time, the Dow Jones Industrial Average Index was just under 12,000. Which of the following is a potential substitute for the book title?

"The Sum of the Share Prices of All 30 Dow Jones Members Will Triple"

Widget Co. has a market capitalization of $125M. It does a 5-for-1 stock split. It then does a 1-for-25 reverse stock split. Finally, it does 35-for-1 stock split. Nothing else changes. What's the new market cap?

$125M

GDP per capita is a measure of prosperity because it divides the total GDP of a country by its population. Which of the below forecasts for a country would result in the highest GDP per capita growth?

An increase of 2% in GDP and a population growth of 0%

Which one of the following actors benefits when interest rates go up?

An investor who is about to buy bonds.