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Flashcards in ch12 kawncehpts Deck (72):
1

1., A top-down analysis of a firm's prospects starts with an analysis of the ____.


A. , firm's position in its industry

B. , U.S. economy or even the global economy

C. , industry

D. , specific firm under consideration

B. , U.S. economy or even the global economy

2

3., An increase in the value of the yen against the U.S. dollar can cause the Japanese automaker Toyota to either _____________ on its U.S. sales.


A. , lose market share or reduce its profit margin

B. , gain market share or reduce its profit margin

C. , lose market share or increase its profit margin

D. , gain market share or increase its profit margin

A. , lose market share or reduce its profit margin

3

5., Between 1999 and 2010, the purchasing power of the U.S. dollar increased relative to the purchasing power of _______.


A. , the United Kingdom

B. , the Euro

C. , Switzerland

D. , Canada

A. , the United Kingdom

4

34., The ratio of the purchasing power of two economies is termed the _______.


A. , balance of trade

B. , real exchange rate

C. , real interest rate

D. , nominal exchange rate

B. , real exchange rate

5

53., If the currency of your country is depreciating, this should __________ exports and __________ imports.


A. , stimulate; stimulate

B. , stimulate; discourage

C. , discourage; stimulate

D. , discourage; discourage

B. , stimulate; discourage

6

72., The decline in the value of the dollar relative to the yen will have what impact on the purchase of U.S. goods in Japan?


A. , U.S. goods will increase in cost, and Japan will import more.

B. , U.S. goods will increase in cost, and Japan will import less.

C. , U.S. goods will decrease in cost, and Japan will import more.

D. , U.S. goods will increase in cost, and Japan will export less.

C. , U.S. goods will decrease in cost, and Japan will import more.

7

83., Whenever OPEC attempts to influence the price of oil by significantly altering production, economists refer to this type of event as a ______________.


A. , demand shock

B. , equilibrium event

C. , expanding commodity event

D. , supply shock

D. , supply shock

8

82., During 2004 China increased its use of global oil by 40%. This followed a 100% increase during the previous 5 years. How do economists refer to this kind of economic event?


A. , Demand shock

B. , Equilibrium event

C. , Expanding commodity event

D. , Supply shock

A. , Demand shock

9

9., You can earn abnormal returns on your investments via macro forecasting ______.


A. , if you can forecast the economy at all

B. , if you can forecast the economy as well as the average forecaster

C. , if you can forecast the economy better than the average forecaster

D. , only if you can forecast the economy with perfect accuracy

C. , if you can forecast the economy better than the average forecaster

10

12., The most widely used monetary policy tool is _________.


A. , altering the discount rate

B. , altering reserve requirements

C. , open market operations

D. , increasing the budget deficit

C. , open market operations

11

13., Which one of the following is the ratio of actual output from factories to potential output from factories?


A. , Capacity utilizationrate

B. , Participation rate

C. , Durable goods orders rate

D. , Industrial production rate

A. , Capacity utilizationrate

12

14., According to __________ economists, the growth of the U.S. economy in the 1980s can be attributed to lower marginal tax rates, which improved the incentives for people to work.


A. , Keynesian

B. , monetarist

C. , supply-side

D. , demand-side

C. , supply-side

13

15., The market value of all goods and services produced during a given time period is called ______.


A. , GDP

B. , industrial production

C. , capacity utilization

D. , factory orders

A. , GDP

14

16., A big increase in government spending is an example of a _________.


A. , positive demand shock

B. , positive supply shock

C. , negative demand shock

D. , negative supply shock

A. , positive demand shock

15

17., GDP refers to _________.


A. , the amount of personal disposable income in the economy

B. , the difference between government spending and government revenues

C. , the total manufacturing output in the economy

D. , the total production of goods and services in the economy

D. , the total production of goods and services in the economy

16

19., Attempting to forecast future earnings and dividends is consistent with which of the following approaches to securities analysis?


A. , Technical analysis

B. , Fundamental analysis

C. , Both technical analysis and fundamental analysis

D. , Indexing

B. , Fundamental analysis

17

20., The analysis of the determinants of firm value is called _____________.


A. , fundamental analysis

B. , technical analysis

C. , momentum analysis

D. , indexing

A. , fundamental analysis

18

22., Inflation is caused by ________________.


A. , unions

B. , rapid growth of the money supply

C. , excess supply

D. , low rates of capacity utilization

B. , rapid growth of the money supply

19

23., Everything else equal, if you expect a larger interest rate increase than other market participants, you should _________.


A. , buy long-term bonds

B. , buy short-term bonds

C. , buy common stocks

D. , buy preferred stocks

B. , buy short-term bonds

20

24., To obtain an approximate estimate of the real interest rate, one must _________ the __________ the nominal risk-free rate.


A. , add; default premium to

B. , subtract; default premium from

C. , add; expected inflation to

D. , subtract; expected inflation from

D. , subtract; expected inflation from

21


25., Which of the following would not be considered a supply shock?


A. , A change in the price of imported oil

B. , Frost damage to the orange crop

C. , A change in the level of education of the average worker

D. , An increase in the level of government spending

D. , An increase in the level of government spending

22

27., Which of the following is not an example of fiscal policy?


A. , Social Security spending

B. , Medicare spending

C. , Fed purchases of Treasury securities

D. , Changes in the tax rate

C. , Fed purchases of Treasury securities

23

28., Supply-side economics tends to focus on _______________.


A. , government spending

B. , price controls

C. , monetary policy

D. , increasing productive capacity

D. , increasing productive capacity

24

29., Which one of the following describes the amount by which government spending exceeds government revenues?


A. , Balance of trade

B. , Budget deficit

C. , Gross domestic product

D. , Output gap

B. , Budget deficit

25

30., Which one of the following is probably the most direct and immediate way to stimulate or slow the economy, although it is not very useful for fine-tuning economic performance?


A. , Fiscal policy

B. , Monetary policy

C. , Supply-side policy

D. , Rising minimum wages

A. , Fiscal policy

26

31., In macroeconomic terms, an increase in the price of imported oil or a decrease in the availability of oil is an example of a _________.


A. , demand shock

B. , supply shock

C. , monetary shock

D. , refinery shock

B. , supply shock

27

32., ______________ in interest rates are associated with stock market declines.


A. , Anticipated increases

B. , Unanticipated increases

C. , Anticipated decreases

D. , Unanticipated decreases

B. , Unanticipated increases

28

35., Everything else equal, an increase in the government budget deficit would:

I. Increase the government's demand for funds
II. Shift the demand curve for funds to the left
III. Increase the interest rate in the economy


A. , II only

B. , I and II only

C. , I and III only

D. , I, II, and III

C. , I and III only

29

37., Which of the following describes the rate at which your ability to purchase grows while you hold an interest-earning investment?


A. , The nominal exchange rate

B. , The nominal interest rate

C. , The real exchange rate

D. , The real interest rate

D. , The real interest rate

30

40., Which one of the following is not a demand shock?


A. , Increase in government spending

B. , Increases in the money supply

C. , Reductions in consumer spending

D. , Improvements in education of U.S. workers

D. , Improvements in education of U.S. workers

31

41., Which one of the following is not a U.S. supply shock?


A. , Unions force an increase in national wage rates.

B. , The oil supply from the Middle East drops 30%.

C. , Extended droughts reduce U.S. food production 25%.

D. , Chinese purchases of U.S. exports increase.

D. , Chinese purchases of U.S. exports increase.

32

44., If you are going to earn abnormal returns based on your macroeconomic analysis, it will most likely have to be because __________.


A. , you have more information than others

B. , you are a better analyst than others

C. , you have the same information as others

D. , you are an equally good analyst as others

B. , you are a better analyst than others

33

46., Members of the Board of Governors of the Federal Reserve System are appointed by ____________ to serve _____________ terms.


A. , the Senate; 10-year

B. , the House of Representatives; 8-year

C. , the President; 14-year

D. , the Secretary of the Treasury; 6-year

C. , the President; 14-year

34

48., Which of the following describes the percentage of the total labor force that has yet to find work?


A. , The capacity utilization rate

B. , The participation rate

C. , The unemployment rate

D. , The natural rate

C. , The unemployment rate

35

49., Which of the following is the rate at which the general level of prices for goods and services is rising?


A. , The exchange rate

B. , The gross domestic product growth rate

C. , The inflation rate

D. , The real interest rate

C. , The inflation rate

36

50., An analyst starts by examining the broad economic environment and then considers the implications of the economy on the industry in which the firm operates. Finally, the firm's position within the industry is examined. This is called __________ analysis.


A. , bottom-up

B. , outside-inside

C. , top-down

D. , upside-down

C. , top-down

37

51., Assume that the Federal Reserve increases the money supply. This will cause:

I. Interest rates to decrease
II. Consumption and investment to decrease
III. Inflation to fall


A. , I only

B. , I and II only

C. , II and III only

D. , I, II, and III

A. , I only

38

52., The discount rate is the ________.


A. , interest rate banks charge each other for overnight loans of deposits on reserve at the Fed

B. , interest rate the Fed charges commercial banks on short-term loans

C. , interest rate that the U.S. Treasury pays on its bills

D. , interest rate that banks charge their best corporate customers

B. , interest rate the Fed charges commercial banks on short-term loans

39

54., If interest rates increase, business investment expenditures are likely to __________ and consumer durable expenditures are likely to _________.


A. , increase; increase

B. , increase; decrease

C. , decrease; increase

D. , decrease; decrease

D. , decrease; decrease

40

55., Increases in the money supply will cause demand for investment and consumption goods to __________ in the short run and may cause prices to __________ in the long run.


A. , increase; increase

B. , increase; decrease

C. , decrease; increase

D. , decrease; decrease

A. , increase; increase

41

62., The fed funds rate is the __________.


A. , interest rate that banks charge their best corporate customers

B. , interest rate banks charge each other for overnight loans of deposits on reserve at the Fed

C. , interest rate the Fed charges commercial banks on short-term loans

D. , interest rate that the U.S. Treasury pays on its bills

B. , interest rate banks charge each other for overnight loans of deposits on reserve at the Fed

42

64., The goal of supply-side policies is to _______.


A. , increase government involvement in the economy

B. , create an environment where workers and owners of capital have the maximum incentive and ability to produce and develop goods

C. , maximize tax revenues of the government

D. , focus more on wealth redistribution policies

B. , create an environment where workers and owners of capital have the maximum incentive and ability to produce and develop goods

43

69., Countercyclical fiscal policy is best described by which of the following statements?


A. , Government surpluses are planned during economic booms, and deficits are planned during economic recessions.

B. , The annual budget should always be balanced.

C. , Deficits should always equal surpluses.

D. , Government deficits are planned during economic booms, and surpluses are planned during economic recessions.

A. , Government surpluses are planned during economic booms, and deficits are planned during economic recessions.

44

70., A supply-side economist would likely agree with which of the following statements?


A. , Real output and aggregate employment are primarily determined by aggregate demand.

B. , Real income will rise when government expenditures and tax rates increase.

C. , Real output and aggregate employment are primarily determined by tax rates.

D. , Increasing the money supply will increase real output without causing higher inflation.

C. , Real output and aggregate employment are primarily determined by tax rates.

45

71., Which of the following actions should the central bank take if monetary authorities want to reduce the supply of money to slow the rate of inflation?


A. , Sell government bonds, reducing money supply, increasing interest rates, and slowing aggregate demand.

B. , Buy government bonds, reducing money supply, increasing interest rates, and slowing aggregate demand.

C. , Decrease the discount rate, lowering interest rates and causing both costs and prices to fall.

D. , Increase taxes, reducing costs and causing prices to fall.

A. , Sell government bonds, reducing money supply, increasing interest rates, and slowing aggregate demand.

46

6., If you believe the economy is about to go into a recession, you might change your asset allocation by selling _______ and buying ______.


A. , growth stocks; long-term bonds

B. , long-term bonds; growth stocks

C. , defensive stocks; growth stocks

D. , defensive stocks; long-term bonds

A. , growth stocks; long-term bonds

47

11., Which one of the following stocks represents industries with below-average sensitivity to the state of the economy?


A. , Financials

B. , Technology

C. , Food and beverage

D. , Cyclicals

C. , Food and beverage

48

26., If economic conditions are such that very slow growth is expected in the foreseeable future, one would want to invest in industries with __________ sensitivity to economic conditions.


A. , below-average

B. , average

C. , above-average

D. , Since growth is expected to be slow, sensitivity to economic conditions is not an issue.

A. , below-average

49

36., Which of the following affects a firm's sensitivity of its earnings to the business cycle?

I. Financial leverage
II. Operating leverage
III. Type of product


A. , II only

B. , I and II only

C. , I and III only

D. , I, II, and III

D. , I, II, and III

50

4., You estimate that the present value of a firm's cash flow is valued at $15 million. The break up value of the firm if you were to sell the major assets and divisions separately would be $20 million. This is an example of what Peter Lynch would call ___________.


A. , a stalwart

B. , slow growth

C. , a star

D. , an asset play

D. , an asset play

51

10., Which of the following industries would most analysts classify as mature?


A. , Internet service providers

B. , Biotechnology

C. , Wireless communication

D. , Auto manufacturing

D. , Auto manufacturing

52

18., Portfolio manager Peter Lynch would classify Coca-Cola as _________.


A. , an asset play

B. , a slow grower

C. , a stalwart

D. , a turnaround

C. , a stalwart

53

21., Which of the following companies is the best example of a turnaround?


A. , Coca-Cola

B. , Microsoft

C. , ExxonMobil

D. , Kmart

D. , Kmart

54

38., An example of a highly cyclical industry is the _________.


A. , automobile industry

B. , tobacco industry

C. , pharmaceutical industry

D. , utility industry

A. , automobile industry

55

42., Pharmaceuticals, food, and other necessities would be good performers during the ____ stage of the business cycle.


A. , peak

B. , contraction

C. , trough

D. , expansion

B. , contraction

56

43., Capital goods industries such as industrial equipment, transportation, and construction would be good investments during the _____ stage of the business cycle.


A. , peak

B. , contraction

C. , trough

D. , expansion

C. , trough

57

45., If the economy is going into a recession, a good industry to invest in would be the __________ industry.


A. , automobile

B. , banking

C. , construction

D. , medical services

D. , medical services

58

47., A firm in the early stages of its industry life cycle will likely have _________.


A. , low dividend payout rates

B. , low rates of investment

C. , low rates of return on investment

D. , low R&D spending

A. , low dividend payout rates

59

58., Order the following stages in the industry life cycle from the earliest to latest to occur after the start-up phase:

I. Maturity
II. Relative decline
III. Consolidation


A. , III, I, II

B. , I, III, II

C. , III, II, I

D. , I, II, III

A. , III, I, II

60

59., An investment strategy that entails shifting the portfolio into industry sectors that are expected to outperform others based on macroeconomic forecasts is termed ______________.


A. , sector rotation

B. , contraction/expansion analysis

C. , life-cycle analysis

D. , business-cycle shifting

A. , sector rotation

61

65., An industry analysis for manufacturers of a small personal care gadget observed the following characteristics:

1. Industry sales have grown at 15%-20% per year in recent years and are expected to grow at 10%-15% per year over the next 3 years, still well above the economic growth rate.
2. Some U.S. manufacturers are attempting to enter fast-growing non-U.S. markets, which remain largely unexploited.
3. Some manufacturers have created a new niche in the industry by selling directly to customers through mail order. Sales for this industry segment are growing at 40% per year.
4. The current penetration rate in the United States is 60% of households and will be difficult to increase.
5. Manufacturers compete fiercely on the basis of price, and price wars within the industry are common.
6. Some manufacturers are able to develop new, unexploited niche markets in the United States based on company reputation, quality, and service.
7. Several manufacturers have recently merged, and it is expected that consolidation in the industry will increase.
8. New manufacturers continue to enter the market.

Characteristics 4 and 5 would indicate that the industry is in the _________ stage.


A. , start-up

B. , consolidation

C. , maturity

D. , relative decline

C. , maturity

62

66., An industry analysis for manufacturers of a small personal care gadget observed the following characteristics:

1. Industry sales have grown at 15%-20% per year in recent years and are expected to grow at 10%-15% per year over the next 3 years, still well above the economic growth rate.
2. Some U.S. manufacturers are attempting to enter fast-growing non-U.S. markets, which remain largely unexploited.
3. Some manufacturers have created a new niche in the industry by selling directly to customers through mail order. Sales for this industry segment are growing at 40% per year.
4. The current penetration rate in the United States is 60% of households and will be difficult to increase.
5. Manufacturers compete fiercely on the basis of price, and price wars within the industry are common.
6. Some manufacturers are able to develop new, unexploited niche markets in the United States based on company reputation, quality, and service.
7. Several manufacturers have recently merged, and it is expected that consolidation in the industry will increase.
8. New manufacturers continue to enter the market.

Characteristics _______ would be typical of an industry that is in the start-up stage.


A. , 4 and 7

B. , 1 and 4

C. , 2 and 5

D. , none of these options

D. , none of these options

63

67., An industry analysis for manufacturers of a small personal care gadget observed the following characteristics:

1. Industry sales have grown at 15%-20% per year in recent years and are expected to grow at 10%-15% per year over the next 3 years, still well above the economic growth rate.
2. Some U.S. manufacturers are attempting to enter fast-growing non-U.S. markets, which remain largely unexploited.
3. Some manufacturers have created a new niche in the industry by selling directly to customers through mail order. Sales for this industry segment are growing at 40% per year.
4. The current penetration rate in the United States is 60% of households and will be difficult to increase.
5. Manufacturers compete fiercely on the basis of price, and price wars within the industry are common.
6. Some manufacturers are able to develop new, unexploited niche markets in the United States based on company reputation, quality, and service.
7. Several manufacturers have recently merged, and it is expected that consolidation in the industry will increase.
8. New manufacturers continue to enter the market.

Characteristics ____ would be typical of an industry that is in the consolidation stage.


A. , 6 and 7

B. , 1 and 4

C. , 5 and 6

D. , 2 and 8


A. , 6 and 7

64

68., An industry analysis for manufacturers of a small personal care gadget observed the following characteristics:

1. Industry sales have grown at 15%-20% per year in recent years and are expected to grow at 10%-15% per year over the next 3 years, still well above the economic growth rate.
2. Some U.S. manufacturers are attempting to enter fast-growing non-U.S. markets, which remain largely unexploited.
3. Some manufacturers have created a new niche in the industry by selling directly to customers through mail order. Sales for this industry segment are growing at 40% per year.
4. The current penetration rate in the United States is 60% of households and will be difficult to increase.
5. Manufacturers compete fiercely on the basis of price, and price wars within the industry are common.
6. Some manufacturers are able to develop new, unexploited niche markets in the United States based on company reputation, quality, and service.
7. Several manufacturers have recently merged, and it is expected that consolidation in the industry will increase.
8. New manufacturers continue to enter the market.

Which of the characteristics would be typical of an industry that is in the maturity stage?


A. , 1, 2, and 3

B. , 4 and 5

C. , 6, 7, and 8

D. , all of these options

B. , 4 and 5

65

73., Which of the following are examples of cyclical industries?

I. Maytag
II. Computer chip manufacturers
III. Kellogg's Frosted Flakes
IV. Pfizer


A. , I and II only

B. , I, II, and III only

C. , II, III, and IV only

D. , I, II, III, and IV

A. , I and II only

66

74., You would expect the beta of cyclical industries to be ______ and the beta of defensive industries to be ______.


A. , greater than 1; less than 1

B. , less than 1; less than 1

C. , less than 1; greater than 1

D. , greater than 1; greater than 1

A. , greater than 1; less than 1

67

84., Items that are ____________ and product purchases for which ________ is not important tend to be less cyclical in nature.


A. , necessities; income

B. , luxuries; leverage

C. , discretionary goods; time of purchase

D. , produced with high fixed costs; entertainment

A. , necessities; income

68

85., Cash cows are typically found in the _________ stage of the industry life cycle.


A. , start-up

B. , consolidation

C. , maturity

D. , relative decline

C. , maturity

69

86., At what point in the industry life cycle are inefficiencies in competitors most likely to be removed?


A. , Start-up stage

B. , Consolidation stage

C. , Maturity stage

D. , Relative decline stage


B. , Consolidation stage

70

87., Stalwarts are typically found in the _________ stage of the industry life cycle.


A. , start-up

B. , consolidation

C. , maturity

D. , relative decline

B. , consolidation

71

88., Large-growth companies generally emerge in the __________ stage.


A. , start-up

B. , consolidation

C. , maturity

D. , relative decline

B. , consolidation

72

89., Which of the following are barriers to entry?

I. Large economies of scale required to be profitable
II. Established brand loyalty
III. Patent protection for the firm's product
IV. Rapid industry growth


A. , I and II only

B. , I, II, and III only

C. , II, III, and IV only

D. , III and IV only

B. , I, II, and III only