FINRA Series 7 Unit 14

Footnotes

___________________ to a company's financial statements identify significant financial and management issues that may affect the company's overall performance.

Counter-Cyclical Industries

_____________________ tend to turn down as the economy heats up and to rise when the economy turns down.

Market Trading

_____________________ volume substantially above normal signifies or confirms a pattern in the direction of prices

D. setting the federal funds rate

All of the following are used by the Federal Reserve to control the money supply EXCEPT A. open market operations B. setting reserve requirements for member banks C. setting the discount rate D. setting the federal funds rate

B. debt-to-equity ratio

All of the following ratios are measures of the liquidity of a corporation EXCEPT A. acid-test ratio B. debt-to-equity ratio C. current ratio D. quick ratio

EBIT/Annual Interest + Principal Payments

Debt service ratio

Total Long-Term Debt/Total Shareholders' Equity

Debt-to-equity ratio

A. Leading

Decrease in building permits A. Leading B. Lagging C. Coincident

B. Lagging

Decrease in corporate profits A. Leading B. Lagging C. Coincident

A. Leading

Decrease in number of weekly unemployment claims A. Leading B. Lagging C. Coincident

B. Lagging

Decrease in the duration of unemployment A. Leading B. Lagging C. Coincident

Funded Debt

All long-term debt financing of a corporation

Tangible Assets (net tangible asset value)

Potential investors want to know how the value of _______________________ compares to the size of the company's debt and equity.

Preferred Stock/Total Capitalization

Preferred stock ratio

C. retained earnings

Profits that are not distributed to shareholders are called A. capital surplus B. dividends C. retained earnings D. interest

Stagnation

Prolonged periods of slow or little economic growth usually accompanied by high unemployment

D. Odd-lot theory

Proponents of which of the following technical theories assumes that small investors are usually wrong? A. Breadth-of-market theory B. Short-interest theory C. Volume-of-trading theory D. Odd-lot theory

Current Assets - Inventory

Quick Assets equation

Retained Earnings (Earned Surplus)

The amount of a corporation's net income that remains after all dividends have been paid to preferred and common stockholders

Capital in Excess of Par (additional paid-in capital, paid-in surplus)

The amount of money over par value that a company received for selling stock.

Current yield

The annual rate of return on a security, calculated by dividing the interest or dividends paid by the security's current market price.

Notes Payable

The balance due on equipment purchased on credit or cash borrowed

Consolidation

The technical analysis term for a narrowing of the trading range for a commodity or security, considered an indication that a strong price move is imminent.

Current Liabilities

A corporation's debt obligations due for payment within the next 12 months. Examples include accounts payable, accrued wages payable, and current long-term debt.

Earnings Per Share (EPS) (primary earning per share or basic earnings per share)

A corporation's net income available for common stock divided by its number of shares of common stock outstanding.

Earnings per Share (EPS)

A corporation's net income available for common stock dividend by its number of shares of common stock outstanding

Bearish Breakout

A decline through the support level

Constant Dollar plan

A defensive investment strategy in which the total sum of money invested is kept constant regardless of any price fluctuaton int the portfolio. As a result, the investor sells when the market i high and buys when it is low.

D. Increased shareholders' equity

A company has been experiencing increased earnings but has kept its dividend payments constant. As a result solely of this, the company's balance sheet would reflect A. Decreased net working capital B. Decreased net worth C. Decreased retained earnings D. Increased shareholders' equity

Dividends

A distribution of a corporation's earnings. they may be in the form of cash, stock, or property. The board of directors must declare all dividends.

Business or Growth Development Company (BDC)

A company that is created to help grow small companies while still in the initial stages of their development. These allow smaller nonaccredited investors the opportunity to invest in startup companies

Highly Leverged

A company with a high ratio of long-term debt to equity is said to be _________________.

Financial Leverage

A company's ability to use long-term debt to increase its return on equity

Long-Term Debt, Capital Stock Capital in Excess of Par, Retained Earnings

A corporation builds its capital structure with the following four elements

Deflation

A persistent and measurable fall in the general level of prices

Inflation

A persistent and measurable rise in the general level of prices

Business Cycle

A predictable long-term pattern of alternating periods of economic growth and decline. It passes through four stages: Expansion, Peak, Contraction, and Trough

Shareholder's Equity (net worth, owner's equity)

The stockholders' claims on a company's assets after all of its creditors have been paid.

Economics

The study of supply and demand

Capitalization

The sum of a corporation's long-term debt, stock, and surpluses

Income Statement

The summary of a corporation's revenues and expenses for a specific fiscal period

Financial Statements

A corporation's ___________________ provide a fundamental analyst with the raw material needed to assess that corporation's profitability, financial strength, and operating efficiency.

Depreciation

1) A tax deduction that compensates a business for the cost of certain tangible assets 2) A decrease in the value of a particular currency relative to other currencies

Expansion, Peak, Contraction, Trough

4 stages of the business cycle

M3

A category of money supply that includes M2 in addition to all large time deposits, institutional money market funds, short-term repurchase agreements, and certain other large liquid assets

M2

A category of the money supply that includes M1 in addition to all time deposits, savings deposits, and noninstitutional money market funds

M1

A category of the money supply that includes all coins, currency, and demand deposits

Multiplier

A change in the reserve requirement has a ____________________ effect on the money supply; it has the most drastic impact of the FRB's tools.

Federal Open Market Committee (FOMC)

A committee that makes decisions concerning the Fed's operations to control the money supply

Defensive Industries

A fundamental analysis term for an industry that is relatively unaffected by the business cycle. Most defensive industries produce nondurable goods for which demand remains steady throughout the business cycle; examples include the food industry and utilities

Cyclical Industries

A fundamental analysis term for an industry that is sensitive to the business cycle and price changes. Most of these produce durable goods, such as raw materials and heavy equipment.

D. trading volumes

A fundamental analyst is concerned with all of the following EXCEPT A. historical earnings trends B. inflation rates C. capitalization D. trading volumes

Recessions

A general economic decline lasting from 6 to 18 months

Liability

A legal obligation to pay a debt owed. Current liabilities are debts payable within 12 months. Long-term ones are debts payable over a period of more than 12 months

Interest Rates

A loan's ___________________ is the cost of the money.

Random Walk Theory

A market analysis theory that the past movement or direction of the price of a stock or market cannot be used to predict its future movement or direction

Lagging Indicators

A measurable economic factor that changes after the economy has started to follow a particular pattern or trend. these are believed to confirm long-term trends. Examples include average duration of unemployment, corporate profits, and labor cost per unit of output

Leading Indicators

A measurable economic factor that changes before the economy starts to follow a particular pattern or trend. Leading indicators are believed to predict changes in the economy. Examples include new orders for durable goods, slowdowns in deliveries new orders for durable goods, slowdowns in deliveries by vendors, and numbers of building permits issued.

Coincident Indicators

A measurable economic factor that varies directly and simultaneously with the business cycle, thus indicating the current state of the economy. Examples include nonagricultural employment, personal income, and industrial production

Liquidity Ratio

A measure of a corporation's ability to meet its current obligations. The ratio compares current assets to current liabilities

Quick Assets

A measure of a corporation's liquidity that takes into account the size of the unsold inventory. It is calculated by subtracting inventory from current assets, and it is used in the acid-test ratio.

Acid-Test Ratio (Quick Ratio)

A measure of a corporation's liquidity, calculated by adding cash, cash equivalents, and accounts and notes receivable, and dividing the result by total current liabilities. It is a more stringent test of liquidity than current ratio.

Working Capital

A measure of a corporation's liquidity, that is, its ability to transfer assets into cash to meet current short-term obligations. It is calculated by subtracting total current liabilities from total current assets

Current Ratio

A measure of a corporation's liquidity; that is , its ability to transfer assets into cash to meet current short-term obligations. It is calculated by dividing total current assets by total current liabilities

Dividend Payout Ratio

A measure of a corporation's policy of paying cash dividends calculated by dividing the dividends paid on common stock by the net income available for common stockholders. the ratio is the complement of the retained earnings ratio.

Inventory Turnover Ratio

A measure of efficiency regarding the management of inventory within a business of company.

Consumer Price Index (CPI)

A measure of price changes in consumer goods and services used to identify periods iof inflation or deflation.

Book Value per Share (Net Tangible Asset Value)

A measure of the net worth of each share of common stock. It is calculated by subtracting intangible assets and preferred stock from total net worth, then dividing the result by the number of shares of common outstanding.

Modern Portfolio Theory (MPT)

A method of choosing investments that focuses on the importance of the relationships among all of the investments in a portfolio rather than the individual merits of each investment. The method allows investors to quantify and control the amount of risk they accept and return they achieve.

Technical Analysis

A method of evaluating securities by analyzing statistics generated by market activity, such as past prices and volume. Technical analysts do not attempt to measure a security's intrinsic value.

Fundamental Analysis

A method of evaluating securities by attempting to measure the intrinsic value of a particular stock. Fundamental analysts study the overall economy, industry conditions, and the financial condition and management of particular companies.

Contracting

A period of general economic decline, one of the business cycle's four stages

Expansion

A period of increased business activity throughout an economy; one of the four stages of the business cycle.

Depressions

A prolonged period of general economic decline

Balance Sheet

A report of a corporation's financial condition at a specific time

Bullish Breakout

A rise through the resistance level

Federal reserve Board (FRB)

A seven-member group that directs the operations of the Federal Reserve System. The President appoints board members, subject to Congressional approval

B. a point at which a downward trend is expected to stop

A support level is A. a point at which an upward trend is expected to stop B. a point at which a downward trend is expected to stop C. the point at which an investment banker purchases for his own account D. usually evidence of an overbought position

Fixed Assets

A tangible, physical property used in the course of a corporation's everyday operations; it includes buildings, equipment, and land.

Support Level

A technical analysis term describing the bottom of a stock's historical trading range.

Resistance Level

A technical analysis term describing the top of a stock's historical trading range.

Overbought

A technical analysis term for a market in which more and stronger buying has occurred than the fundamentals justify

Oversold

A technical analysis term for a market in which more and stronger selling has occurred than the fundamentals justify

Odd-Lot Theory

A technical analysis theory based on the assumption that the small investor is always wrong. Therefore, if odd-lot sales are up - that is, small investors are selling stock - it is probably a good time to buy.

Odd-Lot Trading

A technical analysis theory based on the assumption that the small investor is always wrong. Therefore, if odd-lot sales are up - that is, small investors are selling stock - it is probably a good time to buy.

Short Interest Theory

A technical analysis theory that examines the ratio of short sales to volume in a stock. Because the underlying stock must be purchased to close out the short positions, a high ratio is considered bullish

Advance/Decline Line

A technical analysis tool representing the total of differences between advances and declines of security prices. It is considered the best indicator of market movement as a whole

Dow Theory

A technical market theory that long-term trends in the stock market may be confirmed by analyzing the movements of the Dow Jones Industrial Average and the Dow Jones Transportation Average.

Efficient Market Theory

A theory based on the premise that the stock market processes information efficiently. the theory postulates that, as new information becomes known, it is reflected immediately in the price of stock and therefore, stock prices represent fair prices.

Price-to-Earnings Ratio (P/E)

A tool for comparing the price of different common stocks by assessing how much the market is willing to pay for a share of each corporation's earnings. It is calculated by dividing the current market price of a stock by the earnings per share.

Trendlines

A tool used by technical analysts to trace a security's movement by connecting the reaction lows in an upward trend or the rally highs in a downward trend.

Secondary Trend

A trend of 3-12 weeks

Short-Term Fluctuations

A trend of hours or days

Primary Trends

A trend of one year or more

D. 40%

ABC, with 3 million shares outstanding, reports after-tax earnings of $7.5 million. Annual cash dividends total $1 per share. The dividend payout ratio is A. 20% B. 25% C. 33% D. 40%

Quick Assets/Current Liabilities

Acid test ratio

A. Japanese investors buying U.S. Treasury securities

All of the following situations could cause a fall in the value of the U.S. dollar in relation to the Japanese yen EXCEPT A. Japanese investors buying U.S. Treasury securities B. U.S. investors buying Japanese securities C. Increase in Japan's trade surplus over that of the United States D. general decrease in U.S. interest rates

Accounts Payable

Amounts owed to suppliers of materials and other business costs

Saucer

An easily identifiable reversal pattern with a gentle curving shape- Reversal of a down trend

Inverted Saucer

An easily identifiable reversal pattern with a gentle curving shape- Reversal of an up trend

Supply-Side Economics (supply-side theory)

An economic theory holding that bolstering an economy's ability to supply more goods is the most effective way to stimulate economic growth. Supply-side theorists advocate income tax reduction insofar as this increases private investment in corporations, facilities, and equipment.

Stock Split

An increase in the number of corporations outstanding shares, which decreases its stock's par value. the market value of the total number of shares remains the same. The proportional reductions in order held on the books for a split stock are calculated by dividing the stock's market price by the fraction that represents the split

Debt Service Ratio

An indication of the ability of an issuer to meet principal and interest payments on bonds.

Growth Phase

An industry is considered in its _______________ if the industry is growing faster than the economy as a whole because of technological changes, new products, or changing consumer tastes.

Goodwill

An intangible asset that represents the value that a firm's business reputation adds to its book value.

Balance of Payments (BOP)

An international accounting record of all transactions made by one particular country with others during a certain time period; it compares the amount of foreign currency the country has taken in which the amount of its own currency it has paid out.

Unsold Inventory

Another measure of liquidity is quick assets which subtracts ___________ a current asset, from other currents assets because inventory is not as liquid as cash or receivables.

Current Long-Term Debt

Any portion of long-term debt due within 12 months

B. Total liabilities increase

As a result of corporate transactions, a company's assets remain the same and its equity decreases. Which of the following statements is TRUE? A. Prepaid expenses decrease B. Total liabilities increase C. Accrued expense decrease D. Net worth increases

Assets - Liabilities = Net Worth or Assets - Liabilities + Net Worth

Basic balance sheet equation

Long-Term Liabilities/Total Capitalization

Bond Ratio

Asset - Liabilities - Intangibles - Par Value of preferred stock/Shares of Common Stock Outstanding

Book Value per Share

Current Market Price of Common Stock/PE Ratio

Calculate EPS

Current Market Price of Common Share/Earnings per Share (EPS)

Calculate PE ratio

Current Assets/Current Liabilities

Calculate current ratio

Annual Dividends per Common Share/Market Value per Common Share

Calculate current yield

Annual Dividends per Common Share/Earnings per Share (EPS)

Calculate dividend payout ratio

Annual Cash Dividends/No. of Common Shares Outstanding

Calculate dividends per share

Earnings Available to Common/Number of Shares Outstanding

Calculate earnings per share

Earnings Available to Common/No. of Common Shares Outstanding

Calculate earnings per share (EPS)

Earnings Before Interest, Taxes, Depreciation, and Amoritization (EBITDA)

Calculated by looking at an income statement and reversing out interest, taxes, depreciation, and amortization from net income.

Current Assets

Cash and other assets that are expected to be converted into cash within the next 12 months. Examples include such liquid items as cash and equivalents, accounts receivable, inventory, and prepaid expenses.

Cash and Equivalents/Current Liabilities

Cash asset ratio

Indicators

Certain aspects of economic activity serves as barometers, or _______________, of business cycle phases

Common Stockholders' Equity/Total Capitalization

Common Stock Ratio

Equity (EQ)

Common and preferred stockholders' ownership interests in a corporation

Cash and Equivalents, Accounts Receivable, Inventory, Prepaid Expenses

Current assets include all cash and other items expected to be converted into cash within the next 12 months and include...

D. the discount rate is decreased by FRB

Disintermediation is a movement of funds which results when all of the following occurs EXCEPT A. the money supply tightens B. the FRB increases reserve requirements C. money market rates are higher than typical savings account rates D. the discount rate is decreased by FRB

A. money is tight

Disintermediation is most likely to occur when A. money is tight B. interest rates remain low across all savings institutions and investments C. margin requirements are high D. the interest ceilings on certificates of deposit have been raised

Rising Number of Bankruptcies and Bond Defaults, Higher Consumer Debt, Falling Stock Prices, Rising Inventories, Decreasing Gross Domestic Product

Downturns in the business cycle tend to be characterized by...

Common, Preferred

Earnings per share relates only to ______________ stock, it assumes _______________ dividends were paid

Private Equity

Equity capital invested in operating companies that are not traded publicly.

Double-Entry Brookkeeping

Every financial change in a business requires two offsetting changes on the company books, known as _______________________

Increased Consumer Demand for Goods and Services, Increases in Industrial Production, Rising Stock Prices, Rising Property Values, Increasing Gross Domestic Product

Expansions are characterized by...

Buy U.S. Government Securities in the Open Market, Lower the Discount Rate, Lower Reserve Requirements

Federal Reserve policy tactics to expand credit during a recession to stimulate a slow economy

Sell U.S. Government Securities in the Open Market, Raise the Discount Rate, Raise Reserve Requirements

Federal Reserve policy tactics to tighten credit to slow economic expansion and prevent inflation

Federal Spending, Money Raised Through Taxes, Federal Budget Deficits or Surpluses

Fiscal policy refers to governmental budge decisions, which can include increases or decrease in...

Current Assets - Current Liabilities

Formula for working capital

A. Once a trendline is established, the price movement of a stock usually follows the trendline

From a chartist's (technical analyst's) viewpoint, which of the following statements is TRUE? A. Once a trendline is established, the price movement of a stock usually follows the trendline B. More odd-lot buying than selling is bullish C. Heavy volume in a declining market is bullish D. Light volume in an advancing market is bullish

Actions of Congress and President, Government Spending and Taxation

Fundamentals of fiscal Policy

Policy of the Federal Reserve Board (FRB), Discount Rate, Reserve Requirement (most drastic) Open-Market Operations (most frequently used)

Fundamentals of monetary Policy

B. Its paid-in surplus will increase

If XYZ Corporation sells an additional 1 million common stock with a par value of $1 for $10 per share, which of the following is TRUE? A. Its EPS will increase B. Its paid-in surplus will increase C. Its liquidity ratio will decrease D. Current ratio will decrease

D. Travel abroad would be less expensive for Americans

If the U.S. dollar depreciates in value, which of the following statements is NOT true? A. The same amount of yen would buy more dollars B. The balance of payments deficit probably would be reduced C. Foreign goods would become more expensive in the United States D. Travel abroad would be less expensive for Americans

Liquidation

In a ____________, a company sells its tangible assets and uses the proceeds to pay creditors and stockholders.

C. Coincident

Increase in industrial production A. Leading B. Lagging C. Coincident

C. Coincident

Increase in personal income A. Leading B. Lagging C. Coincident

A. Leading

Increase in the S&P 500 index A. Leading B. Lagging C. Coincident

Reversal

Indicates that an upward or downward trendline has halted and the stock's price is moving in the opposite direction.

Corporate Profits, Average Duration of Unemployment, Labor Cost per Unit of Output (manufacturing), Ratio of Inventories to Sales, Commercial and Industrial Loans Outstanding, Ratio of Consumer Installment Credit to Personal Income

Lagging indicators include...

Money Supply (M2), Building Permits, Average Weekly Initial Claims for State Unemployment Compensation, Average Work Week in Manufacturing, New Orders for Consumer Goods, Machine Tool Orders, Charges in Inventorues of Durable Goods, Changes in Sensitive Materials Prices, Stock Prices, Changes in Business and Consumer Borrowing

Leading indicators used most often include...

Asset Coverage Ratio

Measures the ability of a company to meet its outstanding debt obligations with its assets

Preferred Stock Ratio

Measures the percentage of total capitalization from preferred stock

Surplus

More money flowing into the country than out

Deficit

More money flowing out of the country than in

Head-and-Shoulders

On a technical analyst's trading chart, a pattern that has three peaks resembling a head and two shoulders. The stock price moves up to its first peak (the left shoulder), drops back, then moves to a higher peak (the top of the head, drops again, but recovers to another lower peak (the right shoulder). The top typically forms after a substantial rise and indicates a market reversal. The bottom indicates a market advance.

Bond Ratio (debt ratio)

One of several tools used by bond analysis to assess the degree of safety offered by a corporation's bonds. It measures the percentage of the corporation's capitalization that is provided by long-term debt financing, calculated by dividing the total face value of the outstanding bonds by the total capitalization

Common Stock Ratio

One of several tools used by bond analysts to assess the degree of safety offered by a corporations bonds. it measures the percentage of the common stockholders and is calculated by adding the par value, the capital in excess of par, and the retained earnings and then dividing the result by the total capitalization.

M1, M2, M3

Parts of the money supply

B. oversold

Stock market indexes such as the S&P 500 and the DJIA are declining daily, but he number of declining stocks relative to advancing stocks is falling. A technical analyst would conclude that the market is A. overbought B. oversold C. becoming volatile D. unstable

Trend

Stock prices tend to move, or ____________, together, although some move in the opposite direction.

Special Situation Stocks

Stocks of a company with unusual profit potential resulting from nonrecurring circumstances

Market Timers

Technical analysts

30, 20, 15

The Dow Jones Composite includes __________ industrial, _________ transportation, and _____________ utility issues

Earnings Before Taxes (EBT)

The Eamount of money retained by a company before deducting the money to be paid for taxes.

B. I and IV

The FOMC purchases T-bills in the open market. Which of the following scenarios are likely to occur? I. Secondary bond prices will rise II. Secondary bond prices will fall III. Interest rates will rise IV. Interest rates will fall A. I and III B. I and IV C. II and III D. II and IV

Open-Market Operations, Changes in the Discount Rate, Changes in Reserve Requirements

The FRB affects the money supply through its use of three policy tools...

Acting as Agent of the U.S. Treasury, Regulating the U.S. Money Supply, Setting Reserve Requirements for Members, Supervising the Printing of Currency, Clearing Fund Transfers Throughout the System, Examining Members to Ensure Compliance with Federal Regulations

The FRB determines monetary policy and takes actions to implement its policies, including...

Discount

The FRB sets the ___________ rate, not the federal funds rate.

1,700

The Value Line Index includes ______________ NYSE and OTC stocks.

S&P 500

The ______________ consists of 500 of the most widely held companies chosen with respect to market size, liquidity, and industrial sector.

Acid-Test

The ______________ ratio is a more stringent measurement of liquidity than the current ratio.

Laffer Curve

The ________________ shows the relationship between tax rates and tax revenue collected by governments. As tax rates increase from low levels, tax revenue would increase. As tax rates continue to rise, there would come a point where people would not work as hard or as much.

Dow Jones Industrial Average (DJIA)

The __________________ is the oldest and most widely quoted index.

Wilshire 5000 Index

The _____________________ is the broadest market index and includes all NYSE listed stocks, as well as all Nasdaq listed stocks

Net Worth

The amount by which assets exceed liabilities

Retained Earnings

The amount of a corporation's net income that remains after all dividends have been paid to preferred and common stockholders

Open-Market Operations

The buying and selling of securities (primarily government or agency debt) by the Federal Open Market Committee to effect control of the money supply. These transactions increase or decrease the level of banks reserves available for lending.

B. working capital

The difference between current assets and current liabilities is called A. net worth B. working capital C. cash flow D. quick assets

Par Value

The dollar amount assigned to a security by the issuer. For an equity security, par value is usually a small dollar amount that bears no relationship to the security's market price. For a debt security, it is the amount repaid to the investor when the bond matures, usually $1,000.

Dividends per Share

The dollar amount of cash dividends paid on each common share during one year.

Liquidity

The ease with which an asset may be converted to cash in the marketplace. A large number of buyers and sellers and a high volume of trading activity provide high _________________.

Trough

The end of a period of declining business activity throughout the economy, one of the four stages of the business cycle

Fiscal Policy

The federal tax and spending policies set by Congress or the President. These policies affect tax rates, and government spending in an effort to control the economy.

Disintermediation

The flow of money form low-yielding accounts in traditional savings institutions to higher yielding investments. Typically, this occurs when the Fed tightens the money supply and interest rates rise.

Federal Funds Rate

The interest rate charged by one institution lending federal funds to another

Discount Rate

The interest rate charged by the 12 Federal Reserve Banks for short-term loans made to member banks

Balance of Trade

The largest component of a country's balance of payments; it concerns the export and import of merchandise (not service). Debit items include imports, foreign aid, domestic spending abroad, and domestic investments abroad. Credit items include exports, foreign spending in the domestic economy, and foreign investments in the domestic economy.

Cash Assets Ratio

The most stringent test of liquidity, calculated by dividing the sum of cash and cash equivalents by total current liabilities

Market Breadth

The number of issues closing up or down on a specific day reflects __________________________.

Reserve Requirement

The percentage of depositors' money that the Federal Reserve Board requires a commercial bank to keep on deposit kn the form of cash or in its vault

Operating Income

The profit realized from one year of operation of a business

Debt-to-Equity ratio

The ratio of total long-term debt to total stockholders' equity; it is used to measure leverage.

Capital Structure

The relative amounts of debt and equity that compose a company's capitalization.

Federal Funds

The reserves of banks and certain other institutions greater than the reserve requirements or excess reserves. These funds are available immediately.

Keynesian Theory (Keynesian Economics)

The theory that active government intervention in the marketplace is the best method of ensuring economic growth and stability

Money Supply

The total stock of bills, coins, loans, credit and other liquid instruments in the economy. It is divided into four categories- L, M1, M2, M3 according to the type of account in which the instrument is kept

Gross Domestic Product (GDP)

The total value of goods and series produced in a country during one year. It includes consumption; government purchases, investments, and exports minus imports

Stagflation

The unusual combination of inflation and high unemployment

Monetarist Theory

This theory states the quantity of money, the money supply, is the major determinant of price levels.

Excess Reserves (federal funds)

To compensate for shortfalls in its reserve requirement, a bank may borrow money directly from the Fed at its discount rate or borrow the ______________________________ from another member bank.

D. lower taxes

To tighten credit during inflationary periods, the Federal Reserve Board can take any of the following actions EXCEPT A. raise reserve requirements B. increase the amount of U.S. government debt held by primary dealers C. sell securities in the open market D. lower taxes

D. lower taxes

To tighten credit during inflationary periods, the Federal Reserve Board may take any of the following actions EXCEPT A. raise reserve requirements B. change the amount of U.S. government debt held by major banks C. sell securities in the open market D. lower taxes

False

True or False: Concerned with a company's financial strength within an industry

True

True or False: Concerned with daily trading volumes on the NYSE.

False

True or False: Concerned with structure and use of a company's capital

False

True or False: Concerned with the overall economy.

False

True or False: Interested in corporate annual reports.

True

True or False: May follow the odd-lot trading theory

True

True or False: Studies support and resistance diagrams.

Book Value

____________ is the company's theoretical liquidation value expressed on a per share basis.

Growth

______________ companies have higher PE ratios than cyclical companies.

FIFO (First in, first out)

Under the ____________ method, the oldest items in inventory are used to compute cost of sales.

LIFO (last in, first out)

Under the _____________ method, the most recently purchased items are matched against current sales.

Accrued Taxes

Unpaid federal, state, and local taxes

Accrued Wages Payable

Unpaid wages, salaries, commissions, and interest

Leverage

Using borrowed capital to increase investment returns

C. sideways

When a technical analyst says that the market is consolidating, the trendline is moving A. upward B. downward C. sideways D. unpredictably

B. I and IV

When the FOMC purchases T-bills in the open market, which of the following scenarios are likely to occur? I. Secondary bond prices will rise II. Secondary bond prices will fall III. Interest rates will rise IV. Interest rates will fall A. I and III B. I and IV C. II and III D. II and IV

B. Current liabilities C. Working capital E. Total liabilities F. Net worth

Which are affected when a corporation declares a cash dividend? A. Current assets B. Current liabilities C. Working capital D. Total assets E. Total liabilities F. Net worth

A. Current assets and C. Working capital

Which of the following choices are affected when a corporation purchases a printing press for cash? A. Current assets B. Current liabilities C. Working capital D. Total assets E. Total liabilities F. Net worth

B. John Maynard Keynes

Which of the following economists is considered a supporter of demand-side economics? A. Adam Smith B. John Maynard Keynes C. Arthur Laffer D. Milton Friedman

B. Federal funds rate

Which of the following interest rates is considered the most volatile? A. Discount rate B. Federal funds rate C. Prime rate D. Broker call loan rate

D. Shareholders' equity

Which of the following is NOT affected by the issuance of a bond? A. Assets B. Total Liabilities C. Working capital D. Shareholders' equity

C. Corporate profits

Which of the following is a lagging economic indicator? A. S&P 500 B. Housing permits issued C. Corporate profits D. Hours worked

A. Stock market index

Which of the following is a leading economic indicator? A. Stock market index B. Gross domestic product C. Duration of unemployment claims D. Industrial production

B. Money market mutual funds

Which of the following is not part of M1? A. Traveler's checks B. Money market mutual funds C. Coins D. Consumer checking accounts

C. DJIA

Which of the following is the narrowest measure of the market? A. NYSE Composite Index B. Value Line Index C. DJIA D. Standard & Poor's 500

B. I and IV

Which of the following statements regarding the economics of fixed-income securities are TRUE? I. Short-term rates are more volatile than long-term rates II. Long-term rates are more volatile than short-term rates III. Short-term bond prices react more than long-term bond prices given a change in interest rates. IV. Long-term bond prices react more than short- term bond prices given a change in interest rates A. I and III B. I and IV C. II and III D. II and IV

D. Electric utility stock

Which of the following stocks is regarded as a defensive stock? A. Aerospace stock B. Stock selling close to its support level C. Stock with strong cash position and a low ratio of debt D. Electric utility stock

C. Congress and the president

Which organization or governmental unit sets fiscal policy? A. Federal Reserve Board (FRB) B. Government Economic Board C. Congress and the president D. Secretary of the Treasury

Number of Hours Worked, Employment Levels, Nonagricultural Employment, Personal Income, Industrial Production, Manufacturing and Trade Sales, GDP

Widely used coincident indicators include...

Valuation Ratios

________________ are used by analysis to compare companies within an industry as well as in different industries.

Capital Stocks

________________ includes preferred and common stock listed at par value

Speculative

__________________ companies typically have very high or very low PE ratios.

Open-Market

___________________ operations are the most frequently used tool of the FRB.

Low Debt-Equity

___________________ ratios are considered more conservative than high debt-equity ratios