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Series 65 Prep > Economic Factors and Business Information > Flashcards

Economic Factors and Business Information Flashcards

1
Q

What is the Gross Domestic Product (GDP)?

A

the total national output of goods and services

= consumer spending + government spending + investments + exports - imports

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2
Q

What is the Consumer Price Index (CPI)?

A

measures the cost of a weighted basket of selected consumer goods

tracked on a monthly basis

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3
Q

What is Fiscal Policy?

A

involves the president and Congress passing bills that influence the economic activity

Federal taxation & spending are the primary tools

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4
Q

What is Keynesian Theory?

A

economic theory that advocates for using Fiscal Policy to jump-start the economy to full employment

it’s the government’s responsibility to stimulate the economy by increasing spending

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5
Q

What is supply-side economics?

A

theory that says that as long as the government does NOT meddle with the economy, business will take care of itself

uses monetary policy & tax cuts and deregulation to increase growth

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6
Q

What is Monetary Policy?

A

controlled by the Federal Reserve Board

an attempt to control the supply of money and credit in the economy

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7
Q

What is the discount rate?

A

the rate the central Federal Reserve Bank in NY charges member banks for loans to meet their overnight reserve requirement

the lowest interest rate

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8
Q

What does borrowing at the discount window by a member bank indicate?

A

Indicates that the borrower is experiencing financial trouble

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9
Q

What is the federal funds rate?

A

the interest rate assessed when member banks loan to each other

not set by the Federal Reserve Board but by the member banks themselves

the most volatile interest rate in the US economy

can change overnight

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10
Q

What is the Federal Open Market Operations (FOMO)?

A

the FRB tool used the most often

refers to when a central bank buys or sells short-term Treasuries & other securities in the open market in order to influence money supply

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11
Q

How does buying securities in the Federal Open Market Operations impact the economy?

A

buying securities adds money to the system, making loans easier to obtain and interest rates decline

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12
Q

How does selling securities in the Federal Open Market Operations (FOMO) impact the economy?

A

selling securities from the central bank’s balance sheet removes money from the system, making loans more expensive and increasing rates

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13
Q

What is M1?

A

the money supply that is composed of currency, demand deposits, other liquid deposits

includes the most liquid portions of the money supply

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14
Q

What is M1?

A

the money supply that is composed of currency, demand deposits, other liquid deposits

includes the most liquid portions of the money supply

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15
Q

What are the types of money market instruments?

A

Repurchase Agreements
Commercial Paper
Bankers’ Acceptances
Negotiable or Jumbo CDs

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16
Q

What are repurchase agreements (or repos)?

A

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

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17
Q

What is a commercial paper?

A

an unsecured corporate note with a maturity ranging from 30 to 270 days

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18
Q

What are bankers’ acceptances?

A

a form of payment that is guaranteed by a bank rather than an individual account holder

guarantees payment at a later time

used most frequently in international trade to finalize transactions with little risk to either party

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19
Q

What is currency valuation?

A

the process of determining exchange rates between currencies

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20
Q

What does it mean when a currency is “appreciating”?

A

if the currency value rises on the foreign exchange market

it buys more units of foreign currency

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21
Q

What does it mean when a currency “depreciates”?

A

a currency falls in value on the foreign exchange market

it will buy fewer units of foreign currencies

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22
Q

What is the interbank system?

A

an international, decentralized, and unregulated market

a high risk market

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23
Q

What is a trade deficit?

A

when you are buying more from an outside country than you are selling

occurs when a country imports more goods than it exports

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24
Q

What is a trade surplus?

A

when exports exceed imports

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25
Q

What is disintermediation?

A

large-scale investor movement into long term debt instruments

often happens when there is an inverted yield curve

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26
Q

What happens to bonds when interest rates rise?

A

bond yields rise

bond prices fall

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27
Q

What is a credit spread?

A

the difference in the returns of two bonds with the same maturity but different credit ratings

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28
Q

What is a basis point?

A

equal to $0.10 of a yield

equal to 1% of par ($1000)

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29
Q

How do corporations raise capital?

A

Issuing two types of securities - stocks and bonds

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30
Q

What is the balance sheet equation? (also Net Worth)

A

Net Worth = assets - liabilities

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31
Q

What is a dividend?

A

the part of a corporations earnings that are distributed regularly to shareholders - typically paid quarterly

32
Q

What is cash flow?

A

actual money leftover after all expenses are paid

to calculate, only money that was actually paid out is deducted from revenues

33
Q

What is the cash accounting system?

A

a system where revenue is not booked until cash is received, and expenses are not booked until paid

34
Q

What is an accrual accounting system?

A

accounting system where revenue is booked when billed and expenses are booked when received

35
Q

What is form 10k?

A

the form filed by publicly traded companies 1x a year

annual report about the company’s financial performance - contains more detail than the annual report sent to shareholders

required by the SEC

Filing deadlines for the 10-K vary based on the size of the company

36
Q

What is form 10Q?

A

a comprehensive report of financial performance that must be submitted quarterly by all public companies to the SEC

contains financial statements, management discussion and analysis, disclosures, and internal controls for the previous quarter

Companies must file their 10-Qs 40 or 45 days after the end of their quarters, depending on the size of their public float

Form 10-Q is not an audited statement, unlike the annual Form 10-K companies are also required to file

37
Q

What is Schedule 13D?

A

long form used to report beneficial ownership changes

filed when a person or a group acquires 5% or more of a company’s voting shares

Schedule 13D must be filed within 10 days of the filer reaching a 5% stake

38
Q

What is Schedule 13G?

A

short form used to report beneficial ownership changes

used to report a party’s ownership of stock which exceeds 5% of a company’s total stock issue

Schedule 13G can be filed in lieu of the SEC Schedule 13D form as long as the filer meets one of several exemptions

may be filed within 45 days of the end of the calendar year in which the beneficial ownership of a security met the guidelines

39
Q

What is Form 13F?

A

a form used to disclose the holding of discretionary accounts

a form that must be submitted to the SEC within 45 days after the end of each calendar quarter

every institutional investment manager who maintains investment discretion over accounts holding equity of a nationally traded security have a fair market value of at least $100 million must file

40
Q

What are the financial ratios that fundamental analysts use to examine issues like solvency, debt levels, and share value?

A 
Net Working Capital
Current Ratio
Quick Ratio
Current Yield
Cash Flow
Debt to Equity Ratio
41
Q

What is form 8k?

A

a form that reports any information changes with a company- like a change of name, 10% ownership, or home office address

required to be filed within 4 business days from the reportable event

42
Q

What is EDGAR or Electronic Data Gathering Analysis and Retrieval System?

A

the SEC’s online system that is accessible to the public to provide free, immediate access to issuer information and to enhance market transparency

43
Q

What is the trading spread?

A

the difference between the bid price and the offer price

a narrower (smaller) spread indicates active trading & a wider (larger) spread indicates sluggish or thin trading

44
Q

What is a market order?

A

an order to immediately buy or sell a specified amount of a security at the most advantageous price possible

45
Q

What is a limit order?

A

an order to trade a security at a given price or better

it means to buy at or below a specified price, or to self a stock at or above a specified price

order is only executed if the market reaches or betters that limit price

46
Q

What is a stop order?

A

a frozen or suspended order that become live orders when triggered

becomes a live market order when triggered

47
Q

What is a stop limit order?

A

an order that becomes a live limit order when triggered

48
Q

Where is a sell stop order placed?

A

below the market price

the investor only wants to sell if the market price starts falling, therefore the order is a frozen stop order waiting to be triggered by the falling market price

49
Q

Where is a buy stop order placed?

A

above the current market price

the investor only wants to buy the stock if it begins to rise, therefore the order is entered as a frozen buy stop

often used to protect a short position

50
Q

Where is a sell stop limit placed?

A

below the current market price

triggered when the stock price trades at or below the stop price, then becomes a live limit order

51
Q

Where is a buy stop limit order placed?

A

above the current market value

triggered at or above the stop price, then becomes a live limit order to be executed at or below the limit price

52
Q

What happens to the market price of a stock when a dividend is paid?

A

the stock’s price is adjusted downward to reflect payment

this adjustment might result in unintentional execution of special orders that are entered below current market value - therefore orders placed below market value are also administratively adjusted downward along with the stock’s price

53
Q

What is a not held order?

A

a market order that gives the floor trader time and price flexibility

they may fill the order at any time throughout the day that they think is best, but it is NOT a discretionary order

54
Q

What is shorting (short selling)?

A

when you borrow and sell a security that the seller does not own but is committed to repurchasing eventually

used to take advantage of an expected decline in the security’s price AKA Bearish Outlook

investor has unlimited risk

55
Q

What is a cash account?

A

traditional brokerage account

the investor must pay in full for all purchases by the settlement date

56
Q

What is a margin account?

A

an account that allows investors to purchase securities on credit and/or take out loans against securities that they own in the account

all short sales must occur in a margin account

57
Q

What is the hypothecation?

A

the pledging of full-paid securities as collateral for a loan

58
Q

What is the agreement investors must sign to open a margin account?

A

the hypothecation agreement

59
Q

What is a dark pool of liquidity?

A

where the public cannot see the number of shares traded, nor can they see the price per share

lack transparency

60
Q

Where do options on listed securities trade?

A

Chicago Board Options Exchange as well as other exchanges

61
Q

What are the hours of the New York Stock Exchange?

A

9:30am to 4pm EST

62
Q

What are the hours of the Chicago Board Options Exchange?

A

9:30am to 4pm EST

mirror the NYSE hours

63
Q

What is the OTC/Unlisted/Second Market?

A

a decentralized, global, 24-hour market that takes place over the telephone and the internet

64
Q

What is a market maker?

A

an individual participant or member firm of an exchange that buys and sells securities for its own account

provide the market with liquidity and depth while profiting from the difference in the bid-ask spread

65
Q

What is a specialist?

A

this is the old term used by the NYSE to refer to a member of the exchange who acted as the market maker to facilitate the trading of a given stock

now referred to as designated market makers

66
Q

What is a designated market maker?

A

used to be called specialists on the NYSE

individual that has been selected by the exchange as the primary market maker for a given security

responsible for maintaining quotes and facilitating buy and sell transactions

67
Q

What is a floor broker?

A

executes orders for his clients out of his firm or for the firm’s own account

68
Q

What is the ex-dividend date?

A

the date in which a stock trades without the right to receive a dividend

69
Q

What is a reverse stock split?

A

a stock split that reduces the number of shares and raises the price per share proportionately

70
Q

What is a markup/markdown?

A

the firm’s compensation in a principal trade - trading from its inventory

71
Q

What is a commission?

A

the fee charged by the broker/dealer for acting on behalf of others in executing buy or sell orders

72
Q

What is systematic risk?

A

known as market risk

the risk that the entire market declines at once, causing investors to sustain losses

diversification does NOT protect against market risk

73
Q

What is interest rate risk?

A

the threat of suffering a loss due to a change in the interest rate

longer maturities have greater risk that shorter maturities
the lower the bond’s stated interest rate, the more volatile

74
Q

What is inflation risk?

A

known as purchasing power risk or constant dollar risk

created by too many dollars chasing too few goods, which causes the cost of goods to rise

the risk that an investment’s value is negatively affected by inflation

75
Q

What is business risk?

A

also known as credit risk or default risk

the risk that the issuer may become unable to meet interest or principal payments on its bonds

76
Q

What is regulatory risk?

A

also known as legislative risk

the risk that changes in laws will negatively impact the value of a security

77
Q

What is liquidity risk?

A

the risk that an asset cannot be sold quickly, or that selling quickly will result in a substantial loss

Series 65 Prep (7 decks)

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