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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

1

How many consecutive quarters of deflation for:
1. Recesssion
2. Depression

1. 2
2. 4

2

What is the trough?

The point at which the economy bottoms and and begins to expand

3

Who does the fiscal policy involve?

the politicians and the bills that they pass

4

Which political branch can spend money it doesn't have and authorize borrowing?

congress

5

What government decisions help the economy?

increased spending and lower taxes

6

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.

7

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

8

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

9

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

10

Discount rate

-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

11

Discount Window

-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

12

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

13

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

14

M1

cash and demand deposits such as checking accounts

15

M2

M1 + savings accounts and some money market funds

16

M3

M2 + institutional investors and money markets

17

Interbank system

-international, decentralized unregulated market
-high risk market
-foreign currencies are traded in large blocks of $1-$5 million

18

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

19

What does a normal yield curve mean for money policy?

sign of loosening

20

Repurchase Aggreements

-when a bank dealer sells collateralized securities with a promise to buy them back

21

Commercial Paper

unsecured corporate notes with securities ranging from 30 to 270 days

22

Banker's acceptances

import/export paper

23

CDs

jumbos requiring a min investment of $100,000

24

Prime Rates

charged to the best customers

25

call loan rates

charged to B/D for customer margin purchases

26

loan rate

the highest rate

27

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
7. CDs
8. prime rates
9. call loan rates
10. loan rate

28

Leading indicators

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

29

Leading Indicators (types)

1. Consumer Confidence (as we are a consumer driven economy)
2. Durable Goods
3. Machine Tool orders
4. Building permits
5. housing starts
6. S&P 500
7. Claims for unemployments and length of manufacturing workweek
8. index of consumer expectations
9. the yield curve (spread between long and short interest rates)