BMC questions and answers rated A+

BMC questions and answers rated A+ Which driver weakened the Swiss franc? (C) a) A surprise change in net export expectations b)A surprise change in interest rates expectations c)A surprise change in inflation expectations d)A surprise change in valuation expectations How accurately do GDP portray the economy and why? Inaccurately because the scope of GDP measurements can change. Consider the formula GDP = C+I+G+(X-M). A country is undergoing a boom in consumption of domestic and foreign luxury goods. In one year, the dollar growth in imports is greater than the dollar growth in domestic consumption. Assuming nothing else has changed, what happened to GDP? It went down Here is the most important economic data for Australia and Sweden. which economy did better year-over-year (YOY) in the fourth quarter of 2013 compared to the fourth quarter of 2012? Use the two charts to investigate. Sweden performed better In the United States, why is there a strong correlation between unemployment and GDP? Consumer spending accounts for two-thirds of the U.S. economy when the number of unemployed consumers rises, there is less consumer spending. 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? 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? PMI 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..... Argentina What typically happens to nonfarm payrolls, the PMI indicator, and housing starts at the onset of a recession in the United States? Nonfarm payrolls go down, the PMI indicator goes DOWN, the housing starts goes down. Which of the following qualities of economic indicators do investors prize the most? Timeliness of release Why is the release of GDP statistics less interesting to investors than the release of other economic indicators? 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? GDP Which economic indicator is most directly linked to unemployment? nonfarm payrolls Here is the economic calendar for the UK for august 2013. Examine indicators like PMI,...... Above expectations This chart was captured in mid-2014. At that point in time, which of the following terms..... Deceleration How have economic forecasts for this county evolved? Minimal Change These charts show data for four countries as of early 2016. For each country, the purple line.... Russia What is the main reason that investment banks create estimates of economic indicators? To know when specific economic data points are a positive or negative surprise. Which of the following is the biggest pitfall of economic indicators? They do not consistently presage turning points. Here is a chart displaying estimates of the initial jobless claims indicator, one of the main unemployment.... 260 Which country is the fourth biggest importer and exporter? Japan In 1994, the Mexican peso declined against the US dollar during so-called "Tequila Crisis.".... Both countries had large dollar-denominated debts Using the chart given, how many NZD can you buy with 100 AUD? 107.89 Allison lives in America and has just retired. It is early 2016..... Norway Review the currency pair charts for the Barbadian dollar agains the Jamaican dollar...... Hong Kong dollar against the Macanese pataca Which of the following is not an example of a failed peg? Hong Kong dollar against the U.S. dollar in 1997. Use the cart below to answer the question. How many Danish crown (DKK) will buy 100 (JPY) 5.360 According to the Big Mac index screen, which of the following four countries' currency is the most undervalued? China What generally happens when a central bank unexpectedly increases interest rates? The currency strengthens. Which driver weakened the Swiss franc? A surprise change in inflation expectations What does the Big Mac index show? How currencies may be overvalued or undervalued. Which of the following are short-term drivers of currency valuation? Surprise changes in interest rates, inflation, and trade By what mechanism do interest rates affect currency values? Global investors are attracted by higher bond yields in high interest rate countries. Which of these headlines could move a currency pair? U.S. Stocks rally on Fed's Surprise reduction of Interest Rate. What is the most common target inflation rate for an advanced economy? 2% What was the primary goal of Abenomics? To halt the vicious cycle of deflation Here is the vicious deflationary cycle. What step connects the lower left gray arrow to the upper right blue arrow? prices decline Were the two oil crises in the 1970s linked to deflation or inflation? Inflation on June 23. 2016, the UK voted to leave the EU..... They are probably heavy exporters In early 2016, the same Germany machinery company has interest from four prospective clients..... Indonesia What is the median estimate for the number of Japanese yen per euro for calendar year 2020? 126 What is the difference between Norma and RBC's estimate for the Japanese yen/euro... 40 yen Imagine you are a Dutch diamond dealer who sources diamonds from south africa EUR 4,717 more Why would Jack Welch suggest putting all company plants on barges? To respond quickly to changes in the currency markets. Samsung is based in South Korea and reports in South Korean won.... Dollar Legendary investor Warren Buffett 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? Its storage costs Which of the following options is the best way for investors to manage currency risk? By locking in forward rates for known foreign payments. What does the Big Mac index show? (A) a) How currencies may be overvalued or undervalued b) How the Economist magazine estimates inflation c)How the law of one price is true of consumer products d)How interest rates and inflation affect value Which of the following are short-term drivers of currency valuation? (A) a)Surprise charges in interest rates, inflation, and trade b)Surprise changes in interest rates, inflation, and gold c)Surprise changes in relative prices, trade, and gold d)Surprise changes in relative prices, inflation, and trade By what mechanism do interest rates affect currency values? (C) a)High interest rates slow an economy and make it less attractive to investors b)Changes in interest rates directly influence the value at which a currency is pegged c)Global investors are attracted by higher bond yields in high interest rate countries d)High interest rates make the currency safer According to the Big Mac index screen, which of the following four countries' currency is the most undervalued? (D) a)United States b)Thailand c)Brazil d)China What generally happens when a central bank unexpectedly increases interest rates? (D) a)The currency weakens, then strengthens. b)The currency strengthens, then weakens. c)The currency weakens d)The currency strengthens What is the most common target inflation rate for an advanced economy? (C) a) 3% b) 1% c) 2% d) 0% What is the median estimate for the number of Japanese yen per euro for Calendar year 2020? (D) a)115 b)163 c)132 d)126 What is the primary goal of Abenomics? (B) a)To strengthen the yen to foster consumption of luxury goods b)To halt the vicious cycle of deflation c)To reduce inflation by increasing unemployment d)To reign in GDP by reducing business confidence Here is the vicious deflationary cycle. What step connects the lower left gray arrow to the upper right blue arrow? (B) a)Workers demand pay increases b)Prices decline c)Employment declines d)Workers expect prices to increase Were the two oil crises in the 1970s linked to deflation or inflation? (C) a)Deflation b)Both deflation and inflation c)Inflation d)Neither deflation nor inflation On June 23, 2016, the United Kingdom voted to leave the European Union...... (D) a)They are probably heavy importers b)Their CEOs probably voted to leave the EU c)Their CEOs probably voted to remaining the EU d)They are probably heavy exporters In the early 2016, the same Germany machinery company has interest from four prospective clients from emerging markets: Indonesia, Brazil, Russia, and South Africa..... (C) a)South Africa b)Russia c)Indonesia d)Brazil What is the difference between Nomura and RBC's estimate for the Japanese yen/euro currency pair for the end of Q1 2018? (D) a)40 percent b)40 dollars c)40 euros d)40 yen Imagine you are a Dutch diamond dealer who sources diamonds from South Africa...... (A) a) EUR 4,717 more b) EUR 4,717 fewer c) ZAR 4,717 more d) ZAR 4,717 fewer Why would Jack Welch suggest putting all company plants on barges? (A) a)To respond quickly to changes in the currency markets b) To avoid using any domestic currencies c) To locate the cost base in the most favorable tax regimes d) To purchase materials for the plant more quickly Samsung is based in South Korea and reports in South Korean won.... (A) a) Dollar b) Euro c) Real d) Yuan Legendary investor Warren Buffett 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) a) Its storage costs b) Its durability c) Its Scarcity d) Its physical attractiveness Which of the following options is the best way for investors to manage currency risk? (D) a)By investing purely in ver large stocks in their home market b)By investing in pegged currencies c)By vacationing each year in a country with a weak currency d)By locking in forward rates for known foreign payments What do the green bars at the bottom signify? (B) a) High revenue b) Surplus c) Growth d) Deficit According to the table, who owns approximately 1.3% of actively trades US debt? (D) a) Canada b) Russia c) India d) Taiwan What quality of U.S. government bonds causes investors to buy them when market volatility rises? (C) a) US Government bonds are denominated in dollars b) US Government bonds are stored in bank vaults c) US Government bonds are considered low risk d) US Government bonds are underwritten by global taxpayers Why is fixed income called Fixed income? Because the repayment amounts and timings are fixed for ordinary bonds Why does the United States have a strong reputation for creditworthiness? because it has the right to tax the wealthiest population on earth What is one reason why foreign governments lend to the U.S. government? To build liquid FX reserves What does one yellow bar depict in this debt distribution diagram? Coupon repayment Which one of the following actors benefits when interest rates go up? An investor who is about to buy bonds. When investors doubt the creditworthiness of a borrower, how do they alter their calculation of the bond yield to take into account these doubts? Investors do not after the calculation As a general rule, what percentage of debt to GDP will make a government's bond yields spike? There is no general rule What is true of both the U.K. and the U.S.? Both countries are highly creditworthy. Which would you prefer? A 4% annual yield on a credit risk-free 10-year government bond from the mythical country of Utopia. Which would you prefer? A 5% annual yield on an investment in 10-year U.S. government bonds What is the primary reason for U.S. government bond yields to ripple through the bond market? The large government bond market competes for investors attention via yields A rise in which of the following measures would typically send a government bond price up? Creditworthiness How do investors compare bonds? by comparing the yields of single bonds Which of the following countries shown makes the greatest relative use of short-term government financing? Norway Which of the following is the strongest driver of inflation? wartime activities This chart shows the output gap in the US from 1949 to 1973. What was the output gap in 1973? +3.0% Here is a chart from the ILBE function displaying US 10-year inflation expectations as of early 2017.... 0.0239% above Investors who fear rising inflation may buy Treasury Inflation Protected Securities (TIPS). How do TIPS shield lenders from inflation? By compensating investors for inflation What is the Federal Reserve's favorite inflation gauge? Core PCE Here is the output gap in the US in early 1975. What was likely the fed interest rate policy? To cut interest rates Why does the yield curve naturally slope upwards? To compensate leaders 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? Corporate bond issuers go bankrupt more frequently then governments, as they do no have a tax base to fall back on in hard times What impact will a tightening of the corporate spread most likely have on a company?` A tendency to expand the borrowing capacity of the company. What are the three main transmission mechanisms by which the yield curve affects the economy? Corporate impact, global impact, consumer impact. What is the 10-year to 3-month term premium of the following yield curve? 2.398% The purchase of which of the following products is most affected by interest rates? A house What is the primary driver of the left-hand end of the yield curve? Central bank interest rates Which yield curve is most likely linked to a booming economy B Why does the yield curve tend to invert shortly before a recession? An inverted yield curve means that bond traders are predicting interest rate cuts, and interest rate cuts happen in response to a recession. The two yield curves in the chart are from September 10, 2001 (yellow) and October 10, 2001 (green)...... Cut interest rates Why do companies do IPOs? 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? an IPO crystallizes the value of the manager-owners stake. The Dow Jones industrial average index has an unusual weighting methodology. Unlike the S&P 500, it is weighted by share price..... Goldman Sachs Here is a chart of the index value for the S&P 500 and the United Kingdom's main equity index the FTSE 100, from the end of 2008 to early 2015..... The S&P 500 in 1999, James Glassman and Kevin Hassett published a book called "Dow 36,000".... The sum of the share prices of all 30 Dow Jones Members will triple What is the prime reason that Jenny's discretionary income is more volatile than her salary? Her mortgage payments and necessities are fixed A wedding planning company has a high fixed-cost base and a lot of debt. Who would you rather be? A shareholder in a booming economy. The S&P 500 stood at 1848 at the end of 2013. According to the chart, what would the approximate return be on the S&P 500.... 170% Assuming that an investor in the S&P 500 reinvests his dividends. According to the chart,..... 200% Why are equities volatile? Due to the residual nature of earnings Which of the following statements is true? When you buy an equity, the most you can lose is 100% and your potential gain is unlimited. In the example highlighting the differences between bond holders and shareholders, we equated surgeon Jenny...... D You buy the stock of four consumer goods companies at the end of 2004 and hold them until August 2010..... Procter & Gamble What does the release of earnings announcements have in common with the release of economic indicators? Both are estimated in advance by analysts.