Module 2: Economics Flashcards by Savipra Gorospe

Compute for the real interest rate if the economy grew at 6%, inflation rate is 3%, and the nominal interest rate is 10%.

A. 4%
B. 7%
C. 10%
D. 13%

B. 7%

Real return = Interest rate – inflation rate

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Who is not required to provide customer identification?

A. Individual who buys and sells stocks
B. Broker firm who performs on behalf of individual
C. Beneficiary of trust
D. All of the above

C. Beneficiary of trust

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An efficient market believer rejects which of the following notions:

A. The market reacts to new information
B. Investor’s reactions are random
C. It is useless to study past price movements
D. None of the above

B. Investor’s reactions are random

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Which of the following statements are true regarding regional exchange?

A. A company can be listed on both national and regional exchange
B. Regional exchanges allow the trading of shares of a company which are not big enough to qualify on a national exchange
C. All of the above
D. None of the above

C. All of the above

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For accounting purposes, shares of stock are recorded using:

A. Book Value
B. Market value
C. Par value
D. None of the above

C. Par value

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Which of the following services provided by external auditors can impair independence?

A. Consultancy
B. Bookkeeping
C. Accounting
D. All of the above

D. All of the above

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The following can be seen in the Balance Sheet except:

A. Cash
B. Inventory
C. Net Income
D. Liabilities

C. Net Income

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Which of the following is incorrect about markets?

A. Markets are where buyers and sellers execute trades
B. Markets require no physical space
C. Money market is for short term instruments
D. Capital market is for long term instruments

B. Markets require no physical space

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M2 includes ______

A. Savings
B. Time deposits
C. M1 + Savings and time deposits
D. Savings, time deposits, assets and liabilities of financial institutions

C. M1 + Savings and time deposits

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Fixed income earners are most affected during:

A. Inflation
B. Recession
C. Depression
D. Deflation

A. Inflation

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If a client wants to know the corporation’s business performance, he will refer to:

A. Cash flow Statement
B. Profit and loss statement
C. Investment statement
D. Corporation’s position in the industry

B. Profit and loss statement

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Which of the following rate is fixed:

A. Nominal yield
B. Current yield
C. Yield to market
D. None of the above

A. Nominal yield

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Who should be the most aggressive in their investment?

A. 22-year old fresh graduate
B. 31-year old single
C. 50-year old with no dependents
D. All of them should be aggressive in their investment

A. 22-year old fresh graduate

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Which of the following do not earn interest?

I. Corporate bonds
II. US treasury bills
III. PH government bonds
IV. Zero coupon bonds
V. Bank tier 2 capital

A. II only
B. II and IV
C. IV only
D. All of the above

B. II and IV

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Which of the following will have the highest gains or the biggest loss due to fluctuations of interest rate?

A. 81 days treasury notes
B. 3-year bonds
C. 7-year FXTNs
D. 1 –year commercial paper

C. 7-year FXTNs

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The following statements describe an OTC market?

I. Centralized Market
II. Decentralized Market
III. Conducted on a double-auction basis
IV. Conducted on a negotiated basis

A. I and III
B. I and IV
C. II and III
D. II and IV

D. II and IV

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Current earnings giving more earnings:

A. Compounding
B. Investing
C. Saving
D. None of the above

A. Compounding

Which of the following is not a characteristic of a good market?

A. Transparent
B. Liquid
C. Efficient
D. Inflated

D. Inflated

Which should be considered when creating an investment plan?

A. Age of investor
B. Current work of investor
C. Risk tolerance
D. All of the above

D. All of the above

Expansionary monetary policy is accomplished by:

A. Increasing reserve requirements, buying government securities and increasing interest rates
B. Increasing reserve requirements, selling government securities and increasing interest rates
C. Decreasing reserve requirements, selling government securities and decreasing interest rates
D. Decreasing reserve requirements, buying government securities and decreasing interest rates

D. Decreasing reserve requirements, buying government securities and decreasing interest rates

TIP:
Restrictive - Increase, Sell, Increase
Expansionary - Decrease, Buy, Decrease

The money supply as measured by M1 includes which of the following:

I. Time Deposits
II. Demand Deposits
III. Travelers’ Checks
IV. Coins

A. II only
B. I and II only
C. I, II and III
D. II. III and IV

D. II. III and IV

This market involves dealers and brokers who trade shares that are listed on an exchange away from the exchange:

A. Primary market
B. Secondary market
C. Third market
D. Fourth market

C. Third market

Measures the company’s solvency or ability to meet short-term obligations:

A. Liquidity ratio
B. Activity ratio
C. Profitability ratio
D. Coverage ratio

A. Liquidity ratio

If most analysts expect inflation to be at 8% but government announces that it is 5%, other things being equal, what is the likely effect on stock prices?

A. Stock prices would go up to 3%
B. Stock prices would go down 3%
C. Stock prices will go up
D. Stock prices will go down

C. Stock prices will go up

Which of the following is considered an institutional account? A. Bank B. Insurance Company C. Entity with total assets if PHP 1.20B D. All of the above

D. All of the above

What constitutes a trade surplus? A. Merchandise exports < Merchandise imports B. Merchandise exports > Merchandise imports C. Difference between the value of a country’s imports and exports for a given period D. None of the above

B. Merchandise exports > Merchandise imports

All are descriptions of a market maker except: A. Acts as both broker and dealer B. Buy and sell shares for his own account C. Also called specialist D. None of the above

D. None of the above

If the equilibrium price of a product is PHP 85.00 and it is selling at PHP 108.00, what could have happened? A. There is excess demand relative to supply B. There is excess supply relative to demand C. Supply and demand are in a state of balance D. It has nothing to do with supply and demand

A. There is excess demand relative to supply

GNP refers to the value of goods and services produced by: A. Citizen B. Resident C. Both D. None of the above

A. Citizen

What is the main consideration for determining what works best for the investor? A. Risk Tolerance B. Individual net worth C. Education D. None of the above

A. Risk Tolerance

Which of the following is a government debt? A. Sovereign Debt B. Public Debt C. National Debt D. All of the above

D. All of the above

Business owner wants to know if he can pay his debts maturing in twelve (12) months: A. Current Ratio B. Debt to equity ratio C. Return to common equity D. Times interest earned

A. Current Ratio

Assuming that XYZ Company is planning to pay out a cash dividend of PHP 0.50/share on EPS of PHP 2.07, and ABC Corp. offered to buy the company for PHP 25.00/share, compute for the PE Ratio. A. 50x B. 24x C. 12x D. 2x

C. 12x P/E Ratio (PER) = Price / EPS = 25.00 / 2.07

Compute for Inventory Turnover given Sales of PHP 4,000.00, Cost of Goods Sold of PHP 1,320.00 and Average Inventory of PHP 750.00. A. 3.6x B. 2.4x C. 1.8x D. 0.5x

C. 1.8x Inventory Turnover = 1,320.00 / 750.00 = 1.76x or 1.8x

This type of financial statement represents the financial condition of a corporation as of a particular date. A. Income Statement B. Balance Sheet C. The Statement of Cash Flows D. The Accumulated Retained Earnings Statement

B. Balance Sheet

Compute for Acid Test Ratio given Receivables of PHP 2,450,000, Cash of PHP 500,000, Marketable Securities of PHP 2,500,000 and Current Liabilities of PHP 3,110,000. A. 1.75 B. 0.95 C. 0.94 D. 5.61

A. 1.75 Quick Ratio = Cash & Equivalents + Marketable Securities + Receivables / Current Liabilities = 500,000 + 2,500,000, 2,450,000 / 3,110,000 = 1.75241158

This type of index computes day-to-day percentage price change for each security in the index and then averages the results: A. Price-Weighted Average B. Market Value-Weighted Index C. Equal-Weighted Index D. Consumer Price Index

C. Equal-Weighted Index

What does Capital Asset Pricing Model (CAPM) consider? A. The expected return on security is equal to the rate of return on a risk-free security B. The additional return required by investors for investing in longer term treasury bonds C. The extra return that investors want when purchasing risky securities D. The fluctuations in a market index

C. The extra return that investors want when purchasing risky securities

Which of the following is NOT a contrarian indicator of market tops? A. Average cash position at all-time low. B. Increasing short interest ratio. C. Retail participation at all-time high D. Rising number of odd lot transactions

C. Retail participation at all-time high Question: Which of the following indicates market tops? Contrarian: opposes or rejects popular opinion Market tops: the highest price of a security over a period of time

Arrange the business cycle in correct sequence: I. Trough II. Expansion III. Contraction IV. Peak A. II, IV, III, I B. II, I, IV, III C. I, II, III, IV D. II, IV, I, III

A. II, IV, III, I E-P-C-T

Restrictive monetary policy is accomplished by: A. Increasing reserve requirements, buying government securities, and increasing interest rates B. Increasing reserve requirements, selling government securities, and increasing interest rates C. Decreasing reserve requirements, selling government securities, and decreasing interest rates D. Decreasing reserve requirements, buying government securities, and decreasing interest rates

B. Increasing reserve requirements, selling government securities, and increasing interest rates TIP: Restrictive - Increase, Sell, Increase Expansionary - Decrease, Buy, Decrease

Price range at which there is an increase in the supply of stock and any price increase will reverse it abruptly: A. Resistance level B. Support level C. Relative strength ratios D. Moving average lines

A. Resistance level