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CSC Chapter 13 Questions and Answers
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CSC Chapter 13 Questions and Answers
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CSC Chapter 13 Questions and AnswersFundamental Analysis - answer - Assesses short,med,long prospects of different
industries and companies
- studying capital market conditions
- national economy
- trade
- studying everything
Things that effect securities value - answer - macroeconomic factors
- industry conditions
- company financial conditions
- management performance
- trade
- economy
- Most Important: actual or expected profitability
Technical Analysis - answer - study of historical stock prices
- study of stock market behaviour
- recurring patterns
- mass investor psychology
Random Walk Theory - answer - new information is disseminated randomly over
time
- price changes are random
- past will not help us learn more about what will happen in the future
- against technical analysis
Efficient Market Hypothesis - answer - market price of security fully reflects all
available information
- difficult if not impossible to consistently outperform the market
- stock price cannot remain at disequilibrium for long
- against fundamental analysis
Rational Expectations theory - answer - People are rational, make intelligent
economic decisions
- have all available data
- investor will choose highest return and lowest risk
- against psychological factors
Market efficiency - answer - market is not 100% efficient
- new information not always received at same time
- psychological motivations
, Fiscal Policy - answer - Effect overall economic performance
- influence profitability of individual industries
- government expenditures and taxation
- used to achieve government policy goals
Fiscal policy Tax - answer - can alter spending power of individuals and businesses
- increase in tax means less disposable income, less spending
- lower tax, higher spending
- time lag
Time Lag - answer - Spending does not immediately drop when taxation occurs
- lengthly time required to get parliamentary approval for tax changes
Government spending - answer - increasing or decreasing government spending on
goods, services, and capital programs
- increase in government spending stimulates the economy
- decrease causes economy to contract
Government Debt - answer - impact on monetary policy options
- more indebted the more governments hands are tied with fiscal and monetary options
Monetary Policy Impact - answer - Interest Rates
- Bond Market
- yield curve
- flow of funds
- inflation
- bank of Canada's role
Monetary Policy and Bond Market - answer - bond yields increase in times of
economic growth
- then a rise in interest rates (in response to rise in inflation) causes long term bond
yield to decrease
Monetary Policy and Yield Curve - answer - long-term bond yields fall while short-
term rates rise = inverted or tilted yield curve
-S&P/TSX Composite Index and S&P500 are sensitive to tilting yield curve
- decline in long-term rates reduced competition between equities and bonds
- higher real bond yields over time increase degree of competition
Inverted Yield Curve Process - answer - rising bond yields cause decline in bond
prices
- short-term interest rates rise, bond yields are still rising but at slower pace
- economy usually slows
- bond prices begin to stabilize, briefly fall less than equities
- with each short term interest rate increase, long-term yield begins to fall
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