Flashcards in Analysis - 9% Deck (59)
What four Major issues is Fundamental Analysis concerned with?
1. Monetarist policies as implemented by the FRB through is open market committed
2. Fiscal vs Monetary policy
3. Economic Indicators, leading, lagging, and coincident
4. Specific company balance sheet and income statement information
How many consecutive quarters of deflation for:
What is the trough?
The point at which the economy bottoms and and begins to expand
Who does the fiscal policy involve?
the politicians and the bills that they pass
Which political branch can spend money it doesn't have and authorize borrowing?
What government decisions help the economy?
increased spending and lower taxes
What is the Keynesian Theory?
it is the government's responsibility to stimulate the economy. the economy runs at and equilibrium level that is determined by income and spending, and aggregate demand.
What is supply side economics?
as long as government does not meddle with the economy, business will take care of itself. stable interest rates, money supply, and low inflation achieved through monetary policy will enable business to drive the economy
Who controls and what is Monetary Policy?
-Controlled by the FRB or the Fed
-Main bank is in NY
-If the FRB believes the economy is growing too quickly it will tighten the money supply to slow the economy, causing interest rates to rise
The FRB Reserve requirement
-overnight cash reserve that each Fed reserve member bank must maintain each night.
-most powerful tool to tighten or loosen the economy
-set by the FRB
-rate that the FRB charges member banks for loans to meet their overnight loan requirement
-FRB meets at least quarterly on the discount rate
-when a member bank borrows from the main FR bank, which is considered the lender of last resort
-borrowing from the main bank is a symbol that the member is experiencing financial trouble
Fed Funds Rate
-intra-member bank rate
-average of all interest rates charged by member banks for overnight loans
-extremely volatile as it can literally change overnight
Federal Open Market Committee (Operations)
-the most often used FRB tool
-buys or sells treasuries in the secondary market through primary government securities dealers to help stimulate or slow the economy
cash and demand deposits such as checking accounts
M1 + savings accounts and some money market funds
M2 + institutional investors and money markets
-international, decentralized unregulated market
-high risk market
-foreign currencies are traded in large blocks of $1-$5 million
What can an inverted yield curve lead to and when is one formed?
-leads to disintermediation, which is a large scale investor movement into long term debt instruments
-formed with short-term rates rising above bond yields
-this is tightening the money
What does a normal yield curve mean for money policy?
sign of loosening
-when a bank dealer sells collateralized securities with a promise to buy them back
unsecured corporate notes with securities ranging from 30 to 270 days
jumbos requiring a min investment of $100,000
charged to the best customers
call loan rates
charged to B/D for customer margin purchases
the highest rate
order from lowest to highest loan rates
1. discount rate
2. fed funds rate
3. money market rates
4. repurchase agreements
5. commercial paper
6. banker's acceptances
8. prime rates
9. call loan rates
10. loan rate
estimate future economic activity in a business cycle, determined by:
1. US Commerce Department
2. Conference Board
are conceptually negative as they lead the way to recession