What does the Big Mac index show?
a) How the law of one price is true of consumer products
b) How currencies may be overvalued or undervalued
c) How
... [Show More] interest rates and inflation affect trade
d) How The Economist magazine estimates inflation
Which of these headlines could move a currency pair
a) U.S. Stocks Rally on Fed’s Surprise Reduction of Interest Rate
b) Railroad Rate Hikes Drive Dichotomy of Necessary
c) Hong Kong ‘Firmly Committed’ to Dollar Peg, John Tsang Says
d) Grade Inflation: Devaluing B-Schools’ Currency
What is the most common target inflation rate for an advanced economy?
a) 1%
b) 2%
c) 3%
d) 0%
What was the primary goal of Abenomics?
a) To reduce inflation by increasing unemployment
b) To reign in GDP by reducing business confidence
c) To halt the vicious cycle of deflation
d) To strengthen the yen to foster consumption of luxury goods
Were the two oil crises in the 1970s linked to deflation or inflation?
a) Deflation
b) Inflation
c) Both
d) Neither
On June 23, 2016, the UK voted to leave the European Union. The white line shows the UK’s main equity index, the FTSE 100, from the start of 2016 to the date on which the UK government notified the European Union of its intent to buy one pound sterling. The Uk is a net importer, meaning the value of imports exceedsthe value of exports. We can be reasonabky surmised from the chart about large UK corporations?
a) Their CEOs probably voted toremain in the E.U.
b) Their CEOs probably voted to leave the E.U.
c) They are probably heavy exporters
d) They are probably heavy Importers
In early 2016, the same Germany machinery company has interest from four prospective clients from engineering markets: Indonesia, Brazil, Russia, and South Africa. They all want to buy ten machines, but the factory can only produce ten in time. Therefore, the company has to choose only one client. Given the volatility of the domestic currencies of the four prospective clients, the CEO would like to choose the client which is least likely to cancel the order due to currency volatility. The invoice comes due on June 30, 2016.
According to historical currency volatility alone, which prospective client would be least likely to cancel the order (see chart 1)?
a) Indonesia
b) Brazil
c) Russia
d) South Africa
Imagine you are a Dutch diamond dealer who sources diamonds from South Africa. […] You check the forward rates on offer on the Bloomberg FRD function. You have two options. Exchange euros today at today’s exchange rate to pay him on million rands now, or lock in a forward agreement to convert euros to one million rands in one year’s time and share the forward agreement with him. If you were to do the forward instead of exchanging euros for rands today, approximately how much more or less would you end up with in a year? (see chart 2)
a) EUR 4,717 more
b) EUR 4,717 fewer
c) ZAR 4,717 more
d) ZAR 4,717 fewer
Legendary investor Warren Buffet said: “Gold gets dug out of the ground…. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head.” Based on this quotation, what quality of gold is he referring to?
a) Its durability
b) Its scarcity
c) Its physical attractiveness
d) Its storage costs
Here is a chart showing both nominal GDP growth and real GDP growth for a country. Which of the following can be a true statement at the time the chart was captured?
a) The country has inflation. The top line is nominal growth and the bottom line is real growth.
b) The country has inflation. The bottom line is nominal growth and the top line is real growth.
c) The country has deflation. The top line is nominal growth and the bottom line is real growth.
d) The country has deflation. The bottom line is nominal growth and the top line is real growth.
Which of the following lines is the best leading economic indicator?
a) PMI
b) Nonfarm payrolls
c) Real GDP growth
d) U.S. auto sales
The “misery index” is often cited in the media as a way to measure consumer pain. It is defined as the inflation rate plus the unemployment rate. Identify the country with the highest “misery index.”
a) Argentina
b) India
c) France
d) Italy
What tipically happens to nonfarm payrolls, the PMI indicator, and housing starts at the onset of a recession in the United States?
a) Nonfarm payrolls go UP, the PMI indicator goes DOWN, the housing starts goes DOWN
b) Nonfarm payrolls go DOWN, the PMI indicator goes DOWN, the housing starts goes DOWN
c) Nonfarm payrolls go DOWN, the PMI indicator goes UP, the housing starts goes UP
d) Nonfarm payrolls go UP, the PMI indicator goes UP, the housing starts goes UP
Which of the following qualities of economic indicators do investors prize the most?
a) Rigor
b) Sample size
c) Timeliness of release
d) Government sponsorship
Why is the release of GDP statistics less interesting to investors than the release of other economic indicators?
a) Because governments consistently alter their GDP measurement methods
b) Because the formula for GDP includes not only private investment but also other irrelevant factors
c) Because GDP is not official government data
d) Because GDP statistics are released well after other economic indicators
Which of the following important U.S. economic indicators is only available on a quarterly basis?
a) Nonfarm payrolls
b) CPI
c) GDP
d) PMI
Which economic indicator is most directly linked to unemployment?
a) Nonfarm payrolls
b) CPI
c) GDP
d) PMI
These charts show data for four countries as of early 2016. For each country, the purple line denotes historic real GDP growth. The white line denotes the consensus estimated real GDP growth. The red line denotes the most pessimistic analyst forecast. The green line denotes the most optimistic analyst forecast. For which country is the most controversy among the analyst community about 2016 growth? (see chart 3)
a) Albania
b) Dominican Republic
c) Russia
d) Germany
What is the main reason that investment banks create estimates of economic indicators?
a) To determine in which countries the banks should operate
b) To increase real GDP growth by exporting their intellectual property to foreign investors
c) To hold governments accountable for management of their economies
d) To know when specific economic data points are a positive or negative surprise
Which of the following is the biggest pitfall of economic indicators?
a) They do not take into account seasonality
b) They are not sufficiently timely to make investment decisions
c) They only serve as proxies for economic activities
d) They do not consistently presage turning points
Here is a chart displaying estimates of the initial jobless claims indicator, one of the main unemployment statistics in the US. It measures the number of new applicants for unemployment benefits. What was the level of the analyst with the most optimistic outlook? (see chart 4)
a) 260
b) 274
c) 277
d) 290
Which of the following countries represent 1.3% of total activity traded US debt? (see chart 5)
a) Taiwan
b) Canada
c) Russia
d) India
What quality of US government bonds causes investors to buy them when market volatility rises?
a) US government bonds are denominated in dollars
b) US government bonds are stored in bank vaults
c) US government bonds are underwritten by global taxpayers
d) US government bonds are considered low risk?
Why does the US have a strong reputation for creditworthiness?
a) Because no country has a many taxable states as the United States
b) Because America’s wealth means that it does not have to borrow
c) Because it has the right to tax the wealthiest population on earth
d) Because dollars are backed by the gold at Fort Knox
What is one reason why foreign governments lend to the US government?
a) To enhance diplomatic relations
b) To build liquid FX reserves
c) To benefit from the price and yield going up
d) To pay for the US budget deficit
What does one yellow bar depict in this debt distribution diagram? (see chart 6)
a) Coupon repayment
b) Principal repayment
c) Yield repayment
d) Distribution repayment
Which one of the following actors benefits when interest rates go up?
a) A company with a fixed-rate loan?
b) A company about to secure a fixed-rate loan?
c) An investor who already owns bonds
d) An investor who is about to buy bonds
Which percentage of GDP represented by government debt is an indicator that yields will spike?
a) 50%
b) 90%
c) 150%
d) There is no general rule
What is true of both the UK and the US?
a) Both countries print world reserve currencies
b) Both countries are highly creditworthy
c) Both currencies are used equally in the world FX markets
d) Both countries are heavily reliant on long-term borrowing
Which would you prefer?
a) A 3% annual yield on an investment in 10-year US government bonds?
b) A 4% annual yield on a credit risk-free 10-y government bond from the mythical country of Utopia
c) A 2% annual yield on an investment in 10-y US government bonds
d) A 3% annual yield on a credit risk-free government bond from the mythical country of Utopia.
Which would you prefer?
a) A 5% annual yield on an investment in 10-y US government bonds
b) A 3% annual yield on a risk-free 10-y government bond from the mythical country of Utopia
c) A 4% annual yield on an investment in 10-y US government bonds
d) A 2% annual yield on a risk-free 10-y government bond from the mythical country of Utopia
What is the primary reason for US government bond yields to ripple through the bond market?
a) Bond prices move in lockstep in order for the yields to match government bond yields
b) The large government bond market competes for investors’ attention via yields
c) All governments mandate interest rates as part of their economic policy
d) Non-government borrowers are slightly less safe and therefore must offer slightly lower yields
A rise in which of the following measures would typically send a government bond price up?
a) Creditworthiness
b) Inflation
c) Interest rates
d) Government borrowing
Which of the countries shown makes the greatest relative use of short-term government financing? (see chart 7)
a) Australia
b) Switzerland
c) Norway
d) Germany
How do investors compare bonds?
a) By comparing the total amounts of principal and interest outstanding
b) By comparing the prices of single bonds
c) By comparing the total amounts borrowed to the repayment amounts
d) By comparing the yields of single bonds
Which of the following is the strongest driver of inflation?
a) Consumers deferring purchases in hopes of a better deal
b) Wartime activities
c) A rise in the price of gold
d) High interest rates
What was the output gap in 1973? (see chart 8) a) +3%
b) +160
c) -3.2%
d) -80
At the point in time shown, where is the country’s 10-y inflation expectation in relation to the central Bank’s inflation target?
a) 2.0239% above b)
c) 0.0239% above
d) 0.4761 below
Investors who fear rising inflation may buy Treasury Inflation Protected securities (TIPS). How do TIPS shield lenders from inflation?
a) By disbursing gold bullion
b) By offsetting the inflation with deflation
c) By triggering an insurance payout
d) By compensating investors for inflation
What is the federal Reserve’s favorite inflation gauge?
a) Core PCE
b) GDP deflator
c) CPI
d) Household income
What was likely the Fed interest rate policy?
a) To maintain high interest rates
b) To maintain low interest rates
c) To hike interest rates
d) To cut interest rates
Why does the yield curve naturally slope upwards?
a) To compensate lenders for the greater risk of short-term loans compared to long- term loans
b) To compensate lenders for the greater risk of long-term loans compared to short- term loans
c) To compensate borrowers for the greater risk of short-term loans compared to long- term loans
d) To compensate borrowers for the greater risk of long-term loans compared to short- term loans
Why did the corporate spread significantly widen during the 2008 market crash?
a) Corporate bonds issuers go bankrupt more frequently than governments, as they do not have a tax base to fall back on in hard times
b) Corporate bonds went up as investors rotated out of equities into all forms of safer bonds
c) Corporations were viewed as safer than governments; therefore, the corporate bonds went up and the government bonds went down.
d) A slowdown in economic activity led to fears of rising inflation
What impact will a tightening of the corporate spread most likely have on a company?
a) A tendency to restrict the borrowing capacity of the company
b) A tendency to expand the borrowing capacity of the company
c) A tendency to make borrowing more expensive
d) A tendency to make the company more prone to bankruptcy
What are the three main transmission mechanisms by which the yield curve affects the economy?
a) Housing rental impact, corporate impact, consumer impact
b) Global impact, consumer impact, trade impact
c) Corporate impact, global impact, consumer impact
d) Trade impact, corporate impact, housing rental impact
What was the percentage of a) 2.421%
b) 0.023%
c) 2.398%
d) 2.332%
The purchase of which of the following products is most affected by interest rates?
a) A yacht
b) An automobile
c) A house
d) A safari
What is the primary driver of the left-hand end of the yield curve?
a) Inflation
b) Central bank interest rates
c) GDP growth estimates
d) Bond trading
Which yield curve is most likely linked to a booming economy? (see chart 9)
a) A
b) B
c) C
d) D
What do you think the Federal Reserve did with interest rates in the month following the attacks of September 11, 2001
a) Steepened the interest rates
b) Kept interest rates the same
c) Increased interest rates
d) Cut interest rates
Why does the yield curve tend to invert shortly before recession?
a) Recessions tend to send prices down and this includes the price of term premiums
b) The fact that the yield curve inverted before many recessions in recent history is purely coincidental
c) The term premium tends to be very positive before a recession due to impending interest rate hikes
d) An inverted yield curve means that bond traders are predicting interest rate cuts, and interest rate cuts happen in response to a recession
Why do companies do IPOs?
a) When companies go bankrupt, they must delist
b) Company management gets to ring the bell on the stock exchange floor
c) Companies with revenue above a certain threshold must be publicly listed by law
d) IPOs incentivize entrepreneurs to innovate as IPOs provide a way for entrepreneurs to monetize their work
Why do company manager-owners smile when they ring the stock exchange bell at their IPO?
a) Manager-owners receive their first stake in the company at an IPO
b) Money raised from an IPO solely compensates manger-owners
c) Manager-owners are freed of the burden of managing their company
d) An IPO crystallizes the value of the manager-owners’ stake
If all the shares went up by 5%, which share on the screen shown would have the biggest contribution to an upward movement in the Index? (see chart 10)
a) General electric
b) Goldman Sachs
c) Apple
d) Exxon Mobil
In 1999, JG and KH published a book called ‘’Dow 36,000’’. At the time, the Dow Jones Industrial Average Index was just below 12,000. Which of the following is a potential substitute for the book title?
a) The Total Market Cap of the Stock Market Will Go Down 36,000 points
b) The Average Retirement Account of an Industrial Worker Will Triple
c) The sum of the Market Caps of All 30 Dow Jones Members Will Triple
d) The Sum of the Share Prices of All 30 Dow Jones Members Will Triple
Here is a chart of the index value for S&P 500 and the UK’s main equity index, the FTSE 100, from the end of 2008 to early 2015. One index has clearly outperformed the other. Which one?
a) S&P 500 Index
b) FTSE 100 Index
c) UK Index
d) WEI Index
What is the prime reason that Jenny’s discretionary income is more volatile than her salary?
a) Her tax rate remains 30%
b) Her mortgage pmts and necessities are fixed
c) Her discretionary income and salary are equally volatile
d) Her cost of living is affected by high inflation in the neighborhood
A wedding planning company has a high fixed-cost base and a lot of debt. Who would you rather be?
a) A shareholder in a booming economy
b) A shareholder in a stagnant economy
c) A bond holder in a booming economy
d) A bond holder in a stagnant economy
According to the chart, what would be the approximate return be on the S&P 500 from the through of March 2009 to the end of 2013, ignoring dividends? (see chart 11)
a) 170%
b) 100%
c) 270%
d) 200%
Assume that an investor in the S&P 500 reinvests his dividends. According to the chart, what approximate return would this investor have reaped from the early 2009 through the endpoint of the chart? (see chart 12)
a) 167%
b) 200%
c) 300%
d) 100% [Show Less]