1. How accurately do GDP statistics portray the economy and why?
2. 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?
3. 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
4. In the United States, why is there a strong correlation between unemployment and GDP?
5. Here is a chart showing both nominal and real GDP growth for a country. Which of the following can be a true statement?
6. The white line denotes GDP growth. Which of the following lines is the best leading economic indicator?
7. 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. Review the chart and identify the country with the highest “misery index.”
8. What type of indicators are unemployment and business confidence?
9. Which of the following qualities of economic indicators do investors prize most?
10. Why is the release of GDP statistics less interesting to investors than other indicators?
11. Which of the following important U.S. economic indicators is only available on a quarterly basis?
12. Which economic indicator is most directly linked to unemployment?
13. Here is the economic calendar for the United Kingdom for August 2013. Explore indicators like PMI, house prices, industrial production, employment, retail sales, and GDP. How was performance overall?
14. This chart was captured in mid-2014. At that point in time, which of the following terms would have described the growth predicted in this pop-out table?
15. How have economic forecasts for this country evolved?
16. 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 there the most controversy among the analyst community about 2016 growth
17. What is the main reason that investment banks create estimates of economic indicators?
18. Which of the following is the biggest pitfall of economic indicators?
19. Here is a chart displaying economic estimates of the initial jobless claims economic indicator, one of the main unemployment statistics in the U.S. It measures the number of new applicants for unemployment benefits. What was the level of the analyst with the most optimistic outlook
1. Of the visible countries, which is the fourth biggest exporter and fourth biggest importer?
2. In 1994, the Mexican peso declined against the U.S. dollar by 37% during the so-called Tequila Crisis. Use the article to answer this question: What exacerbating factor did Mexico's Tequila Crisis have in common with the Argentine crisis of 2002?
3. How many New Zealand dollars (NZD) can you buy with 100 Australian dollars (AUD)?
4. Allison lives in America and has just retired. It is early 2016. She has long had dreams of going to the top of the Eiffel Tower in France, visiting Buckingham Palace in the United Kingdom, seeing the cherry blossoms in Japan, and cruising the fjords on the west coast of Norway. She last considered all four options on New Year's Day 2008. She would like to select the trip to go on based on which country's currency has subsequently weakened the most against the U.S. dollar. Where will she go on vacation
5. Review the four currency pair charts for the Barbadian dollar against the Jamaican dollar, the Czech koruna against the Polish zloty, the Nigerian naira against the Ghanaian cedi, and the Hong Kong dollar against the Macanese pataca. Which pair is pegged
6. Which of the following is NOT an example of a failed peg?
7. Use the chart below to answer the question. How many Danish crowns (DKK) will buy 100 Japanese yen (JPY)?
8. According to this Big Mac index screen, which of the following countries' currency is the most undervalued?
9. What generally happens when a central bank unexpectedly increases interest rates?
10. Which driver weakened the Swiss franc from one euro per Swiss franc to 0.83 euro per Swiss franc?
11. What does the Big Mac index show?
12. What are the three main short-term drivers of currency valuation?
13. By what mechanism do interest rates affect currency values?
14. Which of these headlines could move a currency pair?
15. What is the most common target inflation rate for an advanced economy?
16. What was the primary goal of Abenomics?
17. Here is the vicious deflationary cycle. What step connects the lower left gray arrow to the upper right blue arrow?
18. Was the Great Depression in the U.S. linked to inflation or deflation?
19. Why is there a mirror image between the yen weakness and stock market strength on the chart shown?
20. In early 2016, the same Germany machinery company has interest from four prospective clients from emerging markets Brazil, Indonesia, Russia, and South Africa. They all want to buy ten machines. The company will bill them in euros but the CFO is worried that the client may cancel the order if his currency declines when the invoice comes due on June 30, 2016. According to historical currency volatility alone, the client from which country would be most likely to pay his invoice?
21. What is the median estimate for the number of U.S. dollars per British sterling for calendar year 2015?
22. What is the difference between Citigroup and JPMorgan Chase’s estimate for the U.S. dollar/British sterling currency pair for the end of Q1 2015?
23. You are a Dutch diamond dealer who sources diamonds from South Africa. You believe that the
African continent is set to boom, and so you believe that the South African rand will strengthen
against the world’s major currencies. Therefore, you are worried about your ability to afford South
African diamonds in the future.
A new mine is being dug in South Africa and you have agreed with the miner to buy 1 million South
African rands' worth of diamonds a year from today. Therefore, you will need 1 million rands in cash
in one year’s time. Currently, the exchange rate is 17.1261 rands to the euro. You believe that the
rand will strengthen to 16 rand to the euro in one year’s time. You speak to some currency dealers
and they let you know that they would agree today to convert your euros into rands in one year’s time
at the rate of 18.654182.
Assume that you converted some of your euros into 1 million rands at today’s prevailing rate and
stored the rands in a safe. How many more or fewer euros would you have in one year’s time if you
were to agree today to the forward agreement instead of simply purchasing the million rands today
24. Why would Jack Welch suggest putting all company plants on barges?
25. Samsung is based in South Korea and reports in South Korean won. Samsung sells its products around the world and the geographic breakdown of its 2015 revenues are in the first chart. The second chart shows how some major world currencies moved against the South Korean won through the course of 2015. Of the currencies shown, which currency movement held back Samsung's revenue growth the most?
26. 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?
27. Of the following options, what is the best way for investors to manage currency risk?
1. What does it signify when the bars are green at the bottom?
2. According to the table on the right, which country owns 2.9% of U.S. debt?
3. What quality of U.S. government bonds causes investors to buy them when market volatility rises?
4. Why is fixed income called fixed income?
5. Which is the biggest??
6. What is one reason why foreign governments lend to the U.S. government?
7. What does one yellow bar depict in this debt distribution diagram?
8. Which one of the following actors benefits when interest rates go up?
9. When investors doubt the creditworthiness of a borrower, how do they alter their calculation of the bond yield to take into account these doubts
10. As a general rule, what percentage of debt to GDP will make a government’s bond yields spike?
11. What is true of both the U.K. and the U.S.?
12. Which would you prefer?
13. Which would you prefer?
14. What is the primary reason for U.S. government bond yields to ripple through the bond market?
15. A rise in which of the following measures would typically send a government bond price up?
16. Which of the countries shown makes the greatest relative use of short-term government financing?
17. How do investors compare bonds?
18. Which of the following is the strongest driver of inflation?
19. This chart shows the output gap in the U.S. as of the end of 1973. What was likely the Fed interest rate policy at the end of 1973
20. Here is a chart from the ILBE function displaying U.S. 10-year inflation expectations as of early 2016. At the point in time shown, where is the country's 10-year inflation expectation in relation to the Central Bank's inflation target
21. Investors who fear rising inflation may buy Treasury Inflation Protected Securities (TIPS). How do TIPS shield lenders from inflation
22. What is the Federal Reserve's favorite inflation gauge?
23. Here is the output gap in the U.S. in early 1975. What was likely the Fed interest rate policy?
24. Why does the yield curve naturally slope upwards?
25. Why did the corporate spread significantly widen during the 2008 market crash?
26. What impact will a tightening of the corporate spread most likely have on a company?
27. The U.S. yield curve affects which of the following entities?
28. What is the 10-year to 3-month term premium of the following yield curve?
29. Which of these purchases is most likely to be affected by interest rates?
30. What is the primary driver of the left-hand end of the yield curve?
31. Which yield curve is most likely linked to a booming economy?
32. The two yield curves in the chart are from September 10, 2001 (yellow line) and from October 10, 2001 (green line). What do you think the Federal Reserve did with interest rates in the month following the terrorist attacks of September 11, 2001
33. Why does the yield curve tend to invert shortly before a recession?
1. Why do companies do IPOs?
2. Why do company manager-owners smile when they ring the stock exchange bell at their IPO?
3. Here are 22 of the 30 members of the Dow Jones Industrial Average Index as of late March 2015. 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
4. In 1999, James Glassman and Kevin Hassett published a book called “Dow 36,000.” At the time, the Dow Jones Industrial Average Index was just under 12,000. Which of the following is a potential substitute for the book title
5. 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. One has clearly outperformed the other. Over this period, there was a technology boom and an oil crash. Here are pie charts showing the early 2015 index compositions by industry for both the S&P 500 and the FTSE 100. Which index outperformed
6. What is the prime reason that Jenny's discretionary income is more volatile than her salary?
7. A wedding planning company has a high fixed-cost base and a lot of debt. Who would you rather be?
8. 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 from the trough of March of 2009 to the end of 2013, ignoring dividends
9. The brown line stood at 2639 at the end of 2013. According to the chart, what would the approximate return be on the S&P 500 including dividends from the trough level in March 2009 of 945 to the end of 2013
10. Why are equities volatile?
11. Which of the following statements is true?
12. In the example highlighting the differences between bond holders and shareholders, surgeon Jenny is the shareholder. Which row of the budget planning table shows the amount to which she as a shareholder is entitled
13. You buy the stock of four consumer goods companies at the end of 2004 and hold them until August 2010. Here are the TRA (Total Return) charts from Bloomberg for all four stocks. The “Buy Price” in the top left-hand corner is the price you paid for each stock. The price of the stock in August 2010 is noted in the chart's legend. The legend also states the Dividend Adjusted Value of the stock in 2010, the value of the reinvested dividends over the holding period. For which stock did the bulk of the total return come from dividends?
14. What does the release of earnings announcements have in common with the release of economic indicators?
15. The number at the bottom right of each supplier's box shows the portion of Boeing's total costs in the last year which go to that supplier. The number at the bottom right of each customer's box shows the portion of the customer's capital expenditure (money spent on high value purchases) in the last year which goes to Boeing. For which company shown was Boeing the primary plane supplier in the last year?
16. Which company is most exposed to the ups and downs of the aircraft engine industry?
17. Engines are the most expensive, heavy component on an aircraft and are designed with detailed specifications. Which of the following would likely be the best theme for a Rolls-Royce analyst research note to help a portfolio manager decide between investing in Rolls-Royce or United Technologies
18. You are building a financial model of a bifocal lens manufacturer. Which of the following is the best driver to use
19. Here is a table from the Bloomberg Intelligence aluminum dashboard which shows the different end-uses of aluminum in China. Which of the following Bloomberg headlines would be of most interest to an aluminum trader in China
20. When an analyst is looking at a company for the first time, which of the following four activities does he do first
21. Here is a table from the Bloomberg Intelligence copper dashboard which shows the different endusers of the “red metal.” Which of the following Bloomberg headlines would likely be of most interest to a copper trader
22. Here is a breakdown of post-it note inventor 3M's revenue by industry. Which of the following industry drivers should be of most interest to a prospective investor of 3M
23. Company X was expected to have earnings per share of $0.52 for the upcoming quarter. On the day of the results, the company reported earnings per share of $0.83. What happened to the share price when the stock market opened
24. Which company is worth more, Coca-Cola or Pepsi?
25. Widget Co has a market capitalization of $100M. It does a 10-for-1 stock split. It then does a 1- for-16 reverse stock split. Finally, it does a 35-for-1 stock split. Nothing else changes. What’s the new market cap
26. What input do both absolute valuation and relative valuation require?
27. Which of the following is most likely to be the most challenging part of this first step of the absolute valuation process
28. What is a reason one discounts future cashflows as part of the absolute valuation process?
29. What role does beta play in absolute valuation?
30. What part of the $42.03 share price (to the nearest dollar) is represented by cash?
31. How is enterprise value calculated?
32. Which of the following stocks is most sensitive to the movement of the overall stock market?
33. Which of the following ascribes the same relative weightings to short-term and long-term outcomes as the absolute valuation process
34. Here is the WACC function for U.S. drug company Pfizer. The WACC calculation has been hidden. What is the WACC
35. A rise in which of the following inputs will increase an absolute valuation?
36. How do earnings yields differ from bond yields?
37. At its peak at the end of 1999, Microsoft had a market cap of $600B. It was the Apple of its day as PC sales were booming and most ran Microsoft software. Revenue was growing 30% per year. The P/E ratio peaked at 70.0x. Looking at this chart, what happened in the subsequent 15 years?
38. What is one possible weakness of this peer approach to valuation?
39. Let’s compare McDonald’s to the market. Here we can see that the S&P 500’s P/E ratio is 18.5x. McDonald’s has a price to earnings ratio of 19.3x, meaning that it trades roughly “in line” with the U.S. market. Investors will look at how the P/E of the company has trended in comparison to the P/E of the market. Any material deviation may pique investors’ interest. Here we can see that since the late 1980s, the P/E of McDonald’s has moved loosely in line with the P/E of the market
40. Here is a chart of the Nasdaq Composite, the world’s main technology index. It peaked in the dotcom bubble on March 10, 2000. The P/E ratio later peaked above 500. In hindsight, this is widely agreed to have been a bubble. In March 2015, the index value for the first time since then surpassed the peak. Why might some investors at that point have argued “this time it’s different
41. The World Equity Index function show contains two valuation metrics for the S&P 500. The Nike description page contains the same two valuation metrics. How does Nike's valuation compare to that of the S&P 500
42. If the earnings per share of a company is $1 and the earnings yield is 2%, what is the price per share?
43. This chart shows a scatterplot with the x-axis being the estimated sales growth and the y-axis being the estimated P/E multiple. Given this data alone, which of the following companies may warrant further analysis by a portfolio manager looking to buy an insurance company for her portfolio
1. How accurately do GDP statistics portray the economy and why?
2. 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?
3. 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
4. In the United States, why is there a strong correlation between unemployment and GDP?
5. Here is a chart showing both nominal and real GDP growth for a country. Which of the following can be a true statement?
6. The white line denotes GDP growth. Which of the following lines is the best leading economic indicator?
7. 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. Review the chart and identify the country with the highest “misery index.”
8. What type of indicators are unemployment and business confidence?
9. Which of the following qualities of economic indicators do investors prize most?
10. Why is the release of GDP statistics less interesting to investors than other indicators?
11. Which of the following important U.S. economic indicators is only available on a quarterly basis?
12. Which economic indicator is most directly linked to unemployment?
13. Here is the economic calendar for the United Kingdom for August 2013. Explore indicators like PMI, house prices, industrial production, employment, retail sales, and GDP. How was performance overall?
14. This chart was captured in mid-2014. At that point in time, which of the following terms would have described the growth predicted in this pop-out table?
15. How have economic forecasts for this country evolved?
16. 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 there the most controversy among the analyst community about 2016 growth
17. What is the main reason that investment banks create estimates of economic indicators?
18. Which of the following is the biggest pitfall of economic indicators?
19. Here is a chart displaying economic estimates of the initial jobless claims economic indicator, one of the main unemployment statistics in the U.S. It measures the number of new applicants for unemployment benefits. What was the level of the analyst with the most optimistic outlook
1. Of the visible countries, which is the fourth biggest exporter and fourth biggest importer?
2. In 1994, the Mexican peso declined against the U.S. dollar by 37% during the so-called Tequila Crisis. Use the article to answer this question: What exacerbating factor did Mexico's Tequila Crisis have in common with the Argentine crisis of 2002?
3. How many New Zealand dollars (NZD) can you buy with 100 Australian dollars (AUD)?
4. Allison lives in America and has just retired. It is early 2016. She has long had dreams of going to the top of the Eiffel Tower in France, visiting Buckingham Palace in the United Kingdom, seeing the cherry blossoms in Japan, and cruising the fjords on the west coast of Norway. She last considered all four options on New Year's Day 2008. She would like to select the trip to go on based on which country's currency has subsequently weakened the most against the U.S. dollar. Where will she go on vacation
5. Review the four currency pair charts for the Barbadian dollar against the Jamaican dollar, the Czech koruna against the Polish zloty, the Nigerian naira against the Ghanaian cedi, and the Hong Kong dollar against the Macanese pataca. Which pair is pegged
6. Which of the following is NOT an example of a failed peg?
7. Use the chart below to answer the question. How many Danish crowns (DKK) will buy 100 Japanese yen (JPY)?
8. According to this Big Mac index screen, which of the following countries' currency is the most undervalued?
9. What generally happens when a central bank unexpectedly increases interest rates?
10. Which driver weakened the Swiss franc from one euro per Swiss franc to 0.83 euro per Swiss franc?
11. What does the Big Mac index show?
12. What are the three main short-term drivers of currency valuation?
13. By what mechanism do interest rates affect currency values?
14. Which of these headlines could move a currency pair?
15. What is the most common target inflation rate for an advanced economy?
16. What was the primary goal of Abenomics?
17. Here is the vicious deflationary cycle. What step connects the lower left gray arrow to the upper right blue arrow?
18. Was the Great Depression in the U.S. linked to inflation or deflation?
19. Why is there a mirror image between the yen weakness and stock market strength on the chart shown?
20. In early 2016, the same Germany machinery company has interest from four prospective clients from emerging markets Brazil, Indonesia, Russia, and South Africa. They all want to buy ten machines. The company will bill them in euros but the CFO is worried that the client may cancel the order if his currency declines when the invoice comes due on June 30, 2016. According to historical currency volatility alone, the client from which country would be most likely to pay his invoice?
21. What is the median estimate for the number of U.S. dollars per British sterling for calendar year 2015?
22. What is the difference between Citigroup and JPMorgan Chase’s estimate for the U.S. dollar/British sterling currency pair for the end of Q1 2015?
23. You are a Dutch diamond dealer who sources diamonds from South Africa. You believe that the
African continent is set to boom, and so you believe that the South African rand will strengthen
against the world’s major currencies. Therefore, you are worried about your ability to afford South
African diamonds in the future.
A new mine is being dug in South Africa and you have agreed with the miner to buy 1 million South
African rands' worth of diamonds a year from today. Therefore, you will need 1 million rands in cash
in one year’s time. Currently, the exchange rate is 17.1261 rands to the euro. You believe that the
rand will strengthen to 16 rand to the euro in one year’s time. You speak to some currency dealers
and they let you know that they would agree today to convert your euros into rands in one year’s time
at the rate of 18.654182.
Assume that you converted some of your euros into 1 million rands at today’s prevailing rate and
stored the rands in a safe. How many more or fewer euros would you have in one year’s time if you
were to agree today to the forward agreement instead of simply purchasing the million rands today
24. Why would Jack Welch suggest putting all company plants on barges?
25. Samsung is based in South Korea and reports in South Korean won. Samsung sells its products around the world and the geographic breakdown of its 2015 revenues are in the first chart. The second chart shows how some major world currencies moved against the South Korean won through the course of 2015. Of the currencies shown, which currency movement held back Samsung's revenue growth the most?
26. 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?
27. Of the following options, what is the best way for investors to manage currency risk?
1. What does it signify when the bars are green at the bottom?
2. According to the table on the right, which country owns 2.9% of U.S. debt?
3. What quality of U.S. government bonds causes investors to buy them when market volatility rises?
4. Why is fixed income called fixed income?
5. Which is the biggest??
6. What is one reason why foreign governments lend to the U.S. government?
7. What does one yellow bar depict in this debt distribution diagram?
8. Which one of the following actors benefits when interest rates go up?
9. When investors doubt the creditworthiness of a borrower, how do they alter their calculation of the bond yield to take into account these doubts
10. As a general rule, what percentage of debt to GDP will make a government’s bond yields spike?
11. What is true of both the U.K. and the U.S.?
12. Which would you prefer?
13. Which would you prefer?
14. What is the primary reason for U.S. government bond yields to ripple through the bond market?
15. A rise in which of the following measures would typically send a government bond price up?
16. Which of the countries shown makes the greatest relative use of short-term government financing?
17. How do investors compare bonds?
18. Which of the following is the strongest driver of inflation?
19. This chart shows the output gap in the U.S. as of the end of 1973. What was likely the Fed interest rate policy at the end of 1973
20. Here is a chart from the ILBE function displaying U.S. 10-year inflation expectations as of early 2016. At the point in time shown, where is the country's 10-year inflation expectation in relation to the Central Bank's inflation target
21. Investors who fear rising inflation may buy Treasury Inflation Protected Securities (TIPS). How do TIPS shield lenders from inflation
22. What is the Federal Reserve's favorite inflation gauge?
23. Here is the output gap in the U.S. in early 1975. What was likely the Fed interest rate policy?
24. Why does the yield curve naturally slope upwards?
25. Why did the corporate spread significantly widen during the 2008 market crash?
26. What impact will a tightening of the corporate spread most likely have on a company?
27. The U.S. yield curve affects which of the following entities?
28. What is the 10-year to 3-month term premium of the following yield curve?
29. Which of these purchases is most likely to be affected by interest rates?
30. What is the primary driver of the left-hand end of the yield curve?
31. Which yield curve is most likely linked to a booming economy?
32. The two yield curves in the chart are from September 10, 2001 (yellow line) and from October 10, 2001 (green line). What do you think the Federal Reserve did with interest rates in the month following the terrorist attacks of September 11, 2001
33. Why does the yield curve tend to invert shortly before a recession?
1. Why do companies do IPOs?
2. Why do company manager-owners smile when they ring the stock exchange bell at their IPO?
3. Here are 22 of the 30 members of the Dow Jones Industrial Average Index as of late March 2015. 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
4. In 1999, James Glassman and Kevin Hassett published a book called “Dow 36,000.” At the time, the Dow Jones Industrial Average Index was just under 12,000. Which of the following is a potential substitute for the book title
5. 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. One has clearly outperformed the other. Over this period, there was a technology boom and an oil crash. Here are pie charts showing the early 2015 index compositions by industry for both the S&P 500 and the FTSE 100. Which index outperformed
6. What is the prime reason that Jenny's discretionary income is more volatile than her salary?
7. A wedding planning company has a high fixed-cost base and a lot of debt. Who would you rather be?
8. 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 from the trough of March of 2009 to the end of 2013, ignoring dividends
9. The brown line stood at 2639 at the end of 2013. According to the chart, what would the approximate return be on the S&P 500 including dividends from the trough level in March 2009 of 945 to the end of 2013
10. Why are equities volatile?
11. Which of the following statements is true?
12. In the example highlighting the differences between bond holders and shareholders, surgeon Jenny is the shareholder. Which row of the budget planning table shows the amount to which she as a shareholder is entitled
13. You buy the stock of four consumer goods companies at the end of 2004 and hold them until August 2010. Here are the TRA (Total Return) charts from Bloomberg for all four stocks. The “Buy Price” in the top left-hand corner is the price you paid for each stock. The price of the stock in August 2010 is noted in the chart's legend. The legend also states the Dividend Adjusted Value of the stock in 2010, the value of the reinvested dividends over the holding period. For which stock did the bulk of the total return come from dividends?
14. What does the release of earnings announcements have in common with the release of economic indicators?
15. The number at the bottom right of each supplier's box shows the portion of Boeing's total costs in the last year which go to that supplier. The number at the bottom right of each customer's box shows the portion of the customer's capital expenditure (money spent on high value purchases) in the last year which goes to Boeing. For which company shown was Boeing the primary plane supplier in the last year?
16. Which company is most exposed to the ups and downs of the aircraft engine industry?
17. Engines are the most expensive, heavy component on an aircraft and are designed with detailed specifications. Which of the following would likely be the best theme for a Rolls-Royce analyst research note to help a portfolio manager decide between investing in Rolls-Royce or United Technologies
18. You are building a financial model of a bifocal lens manufacturer. Which of the following is the best driver to use
19. Here is a table from the Bloomberg Intelligence aluminum dashboard which shows the different end-uses of aluminum in China. Which of the following Bloomberg headlines would be of most interest to an aluminum trader in China
20. When an analyst is looking at a company for the first time, which of the following four activities does he do first
21. Here is a table from the Bloomberg Intelligence copper dashboard which shows the different endusers of the “red metal.” Which of the following Bloomberg headlines would likely be of most interest to a copper trader
22. Here is a breakdown of post-it note inventor 3M's revenue by industry. Which of the following industry drivers should be of most interest to a prospective investor of 3M
23. Company X was expected to have earnings per share of $0.52 for the upcoming quarter. On the day of the results, the company reported earnings per share of $0.83. What happened to the share price when the stock market opened
24. Which company is worth more, Coca-Cola or Pepsi?
25. Widget Co has a market capitalization of $100M. It does a 10-for-1 stock split. It then does a 1- for-16 reverse stock split. Finally, it does a 35-for-1 stock split. Nothing else changes. What’s the new market cap
26. What input do both absolute valuation and relative valuation require?
27. Which of the following is most likely to be the most challenging part of this first step of the absolute valuation process
28. What is a reason one discounts future cashflows as part of the absolute valuation process?
29. What role does beta play in absolute valuation?
30. What part of the $42.03 share price (to the nearest dollar) is represented by cash?
31. How is enterprise value calculated?
32. Which of the following stocks is most sensitive to the movement of the overall stock market?
33. Which of the following ascribes the same relative weightings to short-term and long-term outcomes as the absolute valuation process
34. Here is the WACC function for U.S. drug company Pfizer. The WACC calculation has been hidden. What is the WACC
35. A rise in which of the following inputs will increase an absolute valuation?
36. How do earnings yields differ from bond yields?
37. At its peak at the end of 1999, Microsoft had a market cap of $600B. It was the Apple of its day as PC sales were booming and most ran Microsoft software. Revenue was growing 30% per year. The P/E ratio peaked at 70.0x. Looking at this chart, what happened in the subsequent 15 years?
38. What is one possible weakness of this peer approach to valuation?
39. Let’s compare McDonald’s to the market. Here we can see that the S&P 500’s P/E ratio is 18.5x. McDonald’s has a price to earnings ratio of 19.3x, meaning that it trades roughly “in line” with the U.S. market. Investors will look at how the P/E of the company has trended in comparison to the P/E of the market. Any material deviation may pique investors’ interest. Here we can see that since the late 1980s, the P/E of McDonald’s has moved loosely in line with the P/E of the market
40. Here is a chart of the Nasdaq Composite, the world’s main technology index. It peaked in the dotcom bubble on March 10, 2000. The P/E ratio later peaked above 500. In hindsight, this is widely agreed to have been a bubble. In March 2015, the index value for the first time since then surpassed the peak. Why might some investors at that point have argued “this time it’s different
41. The World Equity Index function show contains two valuation metrics for the S&P 500. The Nike description page contains the same two valuation metrics. How does Nike's valuation compare to that of the S&P 500
42. If the earnings per share of a company is $1 and the earnings yield is 2%, what is the price per share?
43. This chart shows a scatterplot with the x-axis being the estimated sales growth and the y-axis being the estimated P/E multiple. Given this data alone, which of the following companies may warrant further analysis by a portfolio manager looking to buy an insurance company for her portfolio
1. How accurately do GDP statistics portray the economy and why?
2. 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?
3. 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
4. In the United States, why is there a strong correlation between unemployment and GDP?
5. Here is a chart showing both nominal and real GDP growth for a country. Which of the following can be a true statement?
6. The white line denotes GDP growth. Which of the following lines is the best leading economic indicator?
7. 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. Review the chart and identify the country with the highest “misery index.”
8. What type of indicators are unemployment and business confidence?
9. Which of the following qualities of economic indicators do investors prize most?
10. Why is the release of GDP statistics less interesting to investors than other indicators?
11. Which of the following important U.S. economic indicators is only available on a quarterly basis?
12. Which economic indicator is most directly linked to unemployment?
13. Here is the economic calendar for the United Kingdom for August 2013. Explore indicators like PMI, house prices, industrial production, employment, retail sales, and GDP. How was performance overall?
14. This chart was captured in mid-2014. At that point in time, which of the following terms would have described the growth predicted in this pop-out table?
15. How have economic forecasts for this country evolved?
16. 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 there the most controversy among the analyst community about 2016 growth
17. What is the main reason that investment banks create estimates of economic indicators?
18. Which of the following is the biggest pitfall of economic indicators?
19. Here is a chart displaying economic estimates of the initial jobless claims economic indicator, one of the main unemployment statistics in the U.S. It measures the number of new applicants for unemployment benefits. What was the level of the analyst with the most optimistic outlook
1. Of the visible countries, which is the fourth biggest exporter and fourth biggest importer?
2. In 1994, the Mexican peso declined against the U.S. dollar by 37% during the so-called Tequila Crisis. Use the article to answer this question: What exacerbating factor did Mexico's Tequila Crisis have in common with the Argentine crisis of 2002?
3. How many New Zealand dollars (NZD) can you buy with 100 Australian dollars (AUD)?
4. Allison lives in America and has just retired. It is early 2016. She has long had dreams of going to the top of the Eiffel Tower in France, visiting Buckingham Palace in the United Kingdom, seeing the cherry blossoms in Japan, and cruising the fjords on the west coast of Norway. She last considered all four options on New Year's Day 2008. She would like to select the trip to go on based on which country's currency has subsequently weakened the most against the U.S. dollar. Where will she go on vacation
5. Review the four currency pair charts for the Barbadian dollar against the Jamaican dollar, the Czech koruna against the Polish zloty, the Nigerian naira against the Ghanaian cedi, and the Hong Kong dollar against the Macanese pataca. Which pair is pegged
6. Which of the following is NOT an example of a failed peg?
7. Use the chart below to answer the question. How many Danish crowns (DKK) will buy 100 Japanese yen (JPY)?
8. According to this Big Mac index screen, which of the following countries' currency is the most undervalued?
9. What generally happens when a central bank unexpectedly increases interest rates?
10. Which driver weakened the Swiss franc from one euro per Swiss franc to 0.83 euro per Swiss franc?
11. What does the Big Mac index show?
12. What are the three main short-term drivers of currency valuation?
13. By what mechanism do interest rates affect currency values?
14. Which of these headlines could move a currency pair?
15. What is the most common target inflation rate for an advanced economy?
16. What was the primary goal of Abenomics?
17. Here is the vicious deflationary cycle. What step connects the lower left gray arrow to the upper right blue arrow?
18. Was the Great Depression in the U.S. linked to inflation or deflation?
19. Why is there a mirror image between the yen weakness and stock market strength on the chart shown?
20. In early 2016, the same Germany machinery company has interest from four prospective clients from emerging markets Brazil, Indonesia, Russia, and South Africa. They all want to buy ten machines. The company will bill them in euros but the CFO is worried that the client may cancel the order if his currency declines when the invoice comes due on June 30, 2016. According to historical currency volatility alone, the client from which country would be most likely to pay his invoice?
21. What is the median estimate for the number of U.S. dollars per British sterling for calendar year 2015?
22. What is the difference between Citigroup and JPMorgan Chase’s estimate for the U.S. dollar/British sterling currency pair for the end of Q1 2015?
23. You are a Dutch diamond dealer who sources diamonds from South Africa. You believe that the
African continent is set to boom, and so you believe that the South African rand will strengthen
against the world’s major currencies. Therefore, you are worried about your ability to afford South
African diamonds in the future.
A new mine is being dug in South Africa and you have agreed with the miner to buy 1 million South
African rands' worth of diamonds a year from today. Therefore, you will need 1 million rands in cash
in one year’s time. Currently, the exchange rate is 17.1261 rands to the euro. You believe that the
rand will strengthen to 16 rand to the euro in one year’s time. You speak to some currency dealers
and they let you know that they would agree today to convert your euros into rands in one year’s time
at the rate of 18.654182.
Assume that you converted some of your euros into 1 million rands at today’s prevailing rate and
stored the rands in a safe. How many more or fewer euros would you have in one year’s time if you
were to agree today to the forward agreement instead of simply purchasing the million rands today
24. Why would Jack Welch suggest putting all company plants on barges?
25. Samsung is based in South Korea and reports in South Korean won. Samsung sells its products around the world and the geographic breakdown of its 2015 revenues are in the first chart. The second chart shows how some major world currencies moved against the South Korean won through the course of 2015. Of the currencies shown, which currency movement held back Samsung's revenue growth the most?
26. 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?
27. Of the following options, what is the best way for investors to manage currency risk?
1. What does it signify when the bars are green at the bottom?
2. According to the table on the right, which country owns 2.9% of U.S. debt?
3. What quality of U.S. government bonds causes investors to buy them when market volatility rises?
4. Why is fixed income called fixed income?
5. Which is the biggest??
6. What is one reason why foreign governments lend to the U.S. government?
7. What does one yellow bar depict in this debt distribution diagram?
8. Which one of the following actors benefits when interest rates go up?
9. When investors doubt the creditworthiness of a borrower, how do they alter their calculation of the bond yield to take into account these doubts
10. As a general rule, what percentage of debt to GDP will make a government’s bond yields spike?
11. What is true of both the U.K. and the U.S.?
12. Which would you prefer?
13. Which would you prefer?
14. What is the primary reason for U.S. government bond yields to ripple through the bond market?
15. A rise in which of the following measures would typically send a government bond price up?
16. Which of the countries shown makes the greatest relative use of short-term government financing?
17. How do investors compare bonds?
18. Which of the following is the strongest driver of inflation?
19. This chart shows the output gap in the U.S. as of the end of 1973. What was likely the Fed interest rate policy at the end of 1973
20. Here is a chart from the ILBE function displaying U.S. 10-year inflation expectations as of early 2016. At the point in time shown, where is the country's 10-year inflation expectation in relation to the Central Bank's inflation target
21. Investors who fear rising inflation may buy Treasury Inflation Protected Securities (TIPS). How do TIPS shield lenders from inflation
22. What is the Federal Reserve's favorite inflation gauge?
23. Here is the output gap in the U.S. in early 1975. What was likely the Fed interest rate policy?
24. Why does the yield curve naturally slope upwards?
25. Why did the corporate spread significantly widen during the 2008 market crash?
26. What impact will a tightening of the corporate spread most likely have on a company?
27. The U.S. yield curve affects which of the following entities?
28. What is the 10-year to 3-month term premium of the following yield curve?
29. Which of these purchases is most likely to be affected by interest rates?
30. What is the primary driver of the left-hand end of the yield curve?
31. Which yield curve is most likely linked to a booming economy?
32. The two yield curves in the chart are from September 10, 2001 (yellow line) and from October 10, 2001 (green line). What do you think the Federal Reserve did with interest rates in the month following the terrorist attacks of September 11, 2001
33. Why does the yield curve tend to invert shortly before a recession?
1. Why do companies do IPOs?
2. Why do company manager-owners smile when they ring the stock exchange bell at their IPO?
3. Here are 22 of the 30 members of the Dow Jones Industrial Average Index as of late March 2015. 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
4. In 1999, James Glassman and Kevin Hassett published a book called “Dow 36,000.” At the time, the Dow Jones Industrial Average Index was just under 12,000. Which of the following is a potential substitute for the book title
5. 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. One has clearly outperformed the other. Over this period, there was a technology boom and an oil crash. Here are pie charts showing the early 2015 index compositions by industry for both the S&P 500 and the FTSE 100. Which index outperformed
6. What is the prime reason that Jenny's discretionary income is more volatile than her salary?
7. A wedding planning company has a high fixed-cost base and a lot of debt. Who would you rather be?
8. 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 from the trough of March of 2009 to the end of 2013, ignoring dividends
9. The brown line stood at 2639 at the end of 2013. According to the chart, what would the approximate return be on the S&P 500 including dividends from the trough level in March 2009 of 945 to the end of 2013
10. Why are equities volatile?
11. Which of the following statements is true?
12. In the example highlighting the differences between bond holders and shareholders, surgeon Jenny is the shareholder. Which row of the budget planning table shows the amount to which she as a shareholder is entitled
13. You buy the stock of four consumer goods companies at the end of 2004 and hold them until August 2010. Here are the TRA (Total Return) charts from Bloomberg for all four stocks. The “Buy Price” in the top left-hand corner is the price you paid for each stock. The price of the stock in August 2010 is noted in the chart's legend. The legend also states the Dividend Adjusted Value of the stock in 2010, the value of the reinvested dividends over the holding period. For which stock did the bulk of the total return come from dividends?
14. What does the release of earnings announcements have in common with the release of economic indicators?
15. The number at the bottom right of each supplier's box shows the portion of Boeing's total costs in the last year which go to that supplier. The number at the bottom right of each customer's box shows the portion of the customer's capital expenditure (money spent on high value purchases) in the last year which goes to Boeing. For which company shown was Boeing the primary plane supplier in the last year?
16. Which company is most exposed to the ups and downs of the aircraft engine industry?
17. Engines are the most expensive, heavy component on an aircraft and are designed with detailed specifications. Which of the following would likely be the best theme for a Rolls-Royce analyst research note to help a portfolio manager decide between investing in Rolls-Royce or United Technologies
18. You are building a financial model of a bifocal lens manufacturer. Which of the following is the best driver to use
19. Here is a table from the Bloomberg Intelligence aluminum dashboard which shows the different end-uses of aluminum in China. Which of the following Bloomberg headlines would be of most interest to an aluminum trader in China
20. When an analyst is looking at a company for the first time, which of the following four activities does he do first
21. Here is a table from the Bloomberg Intelligence copper dashboard which shows the different endusers of the “red metal.” Which of the following Bloomberg headlines would likely be of most interest to a copper trader
22. Here is a breakdown of post-it note inventor 3M's revenue by industry. Which of the following industry drivers should be of most interest to a prospective investor of 3M
23. Company X was expected to have earnings per share of $0.52 for the upcoming quarter. On the day of the results, the company reported earnings per share of $0.83. What happened to the share price when the stock market opened
24. Which company is worth more, Coca-Cola or Pepsi?
25. Widget Co has a market capitalization of $100M. It does a 10-for-1 stock split. It then does a 1- for-16 reverse stock split. Finally, it does a 35-for-1 stock split. Nothing else changes. What’s the new market cap
26. What input do both absolute valuation and relative valuation require?
27. Which of the following is most likely to be the most challenging part of this first step of the absolute valuation process
28. What is a reason one discounts future cashflows as part of the absolute valuation process?
29. What role does beta play in absolute valuation?
30. What part of the $42.03 share price (to the nearest dollar) is represented by cash?
31. How is enterprise value calculated?
32. Which of the following stocks is most sensitive to the movement of the overall stock market?
33. Which of the following ascribes the same relative weightings to short-term and long-term outcomes as the absolute valuation process
34. Here is the WACC function for U.S. drug company Pfizer. The WACC calculation has been hidden. What is the WACC
35. A rise in which of the following inputs will increase an absolute valuation?
36. How do earnings yields differ from bond yields?
37. At its peak at the end of 1999, Microsoft had a market cap of $600B. It was the Apple of its day as PC sales were booming and most ran Microsoft software. Revenue was growing 30% per year. The P/E ratio peaked at 70.0x. Looking at this chart, what happened in the subsequent 15 years?
38. What is one possible weakness of this peer approach to valuation?
39. Let’s compare McDonald’s to the market. Here we can see that the S&P 500’s P/E ratio is 18.5x. McDonald’s has a price to earnings ratio of 19.3x, meaning that it trades roughly “in line” with the U.S. market. Investors will look at how the P/E of the company has trended in comparison to the P/E of the market. Any material deviation may pique investors’ interest. Here we can see that since the late 1980s, the P/E of McDonald’s has moved loosely in line with the P/E of the market
40. Here is a chart of the Nasdaq Composite, the world’s main technology index. It peaked in the dotcom bubble on March 10, 2000. The P/E ratio later peaked above 500. In hindsight, this is widely agreed to have been a bubble. In March 2015, the index value for the first time since then surpassed the peak. Why might some investors at that point have argued “this time it’s different
41. The World Equity Index function show contains two valuation metrics for the S&P 500. The Nike description page contains the same two valuation metrics. How does Nike's valuation compare to that of the S&P 500
42. If the earnings per share of a company is $1 and the earnings yield is 2%, what is the price per share?
43. This chart shows a scatterplot with the x-axis being the estimated sales growth and the y-axis being the estimated P/E multiple. Given this data alone, which of the following companies may warrant further analysis by a portfolio manager looking to buy an insurance company for her portfolio
1. How accurately do GDP statistics portray the economy and why?
1. How accurately do GDP statistics portray the economy and why?
2. 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?
2. 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?
3. 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
3. 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
4. In the United States, why is there a strong correlation between unemployment and GDP?
4. In the United States, why is there a strong correlation between unemployment and GDP?
5. Here is a chart showing both nominal and real GDP growth for a country. Which of the following can be a true statement?
5. Here is a chart showing both nominal and real GDP growth for a country. Which of the following can be a true statement?
6. The white line denotes GDP growth. Which of the following lines is the best leading economic indicator?
6. The white line denotes GDP growth. Which of the following lines is the best leading economic indicator?
7. 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. Review the chart and identify the country with the highest “misery index.”
7. 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. Review the chart and identify the country with the highest “misery index.”
8. What type of indicators are unemployment and business confidence?
8. What type of indicators are unemployment and business confidence?
9. Which of the following qualities of economic indicators do investors prize most?
9. Which of the following qualities of economic indicators do investors prize most?
10. Why is the release of GDP statistics less interesting to investors than other indicators?
10. Why is the release of GDP statistics less interesting to investors than other indicators?
11. Which of the following important U.S. economic indicators is only available on a quarterly basis?
11. Which of the following important U.S. economic indicators is only available on a quarterly basis?
12. Which economic indicator is most directly linked to unemployment?
12. Which economic indicator is most directly linked to unemployment?
13. Here is the economic calendar for the United Kingdom for August 2013. Explore indicators like PMI, house prices, industrial production, employment, retail sales, and GDP. How was performance overall?
13. Here is the economic calendar for the United Kingdom for August 2013. Explore indicators like PMI, house prices, industrial production, employment, retail sales, and GDP. How was performance overall?
14. This chart was captured in mid-2014. At that point in time, which of the following terms would have described the growth predicted in this pop-out table?
14. This chart was captured in mid-2014. At that point in time, which of the following terms would have described the growth predicted in this pop-out table?
15. How have economic forecasts for this country evolved?
15. How have economic forecasts for this country evolved?
16. 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 there the most controversy among the analyst community about 2016 growth
16. 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 there the most controversy among the analyst community about 2016 growth
17. What is the main reason that investment banks create estimates of economic indicators?
17. What is the main reason that investment banks create estimates of economic indicators?
18. Which of the following is the biggest pitfall of economic indicators?
18. Which of the following is the biggest pitfall of economic indicators?
19. Here is a chart displaying economic estimates of the initial jobless claims economic indicator, one of the main unemployment statistics in the U.S. It measures the number of new applicants for unemployment benefits. What was the level of the analyst with the most optimistic outlook
19. Here is a chart displaying economic estimates of the initial jobless claims economic indicator, one of the main unemployment statistics in the U.S. It measures the number of new applicants for unemployment benefits. What was the level of the analyst with the most optimistic outlook
1. Of the visible countries, which is the fourth biggest exporter and fourth biggest importer?
1. Of the visible countries, which is the fourth biggest exporter and fourth biggest importer?
2. In 1994, the Mexican peso declined against the U.S. dollar by 37% during the so-called Tequila Crisis. Use the article to answer this question: What exacerbating factor did Mexico's Tequila Crisis have in common with the Argentine crisis of 2002?
2. In 1994, the Mexican peso declined against the U.S. dollar by 37% during the so-called Tequila Crisis. Use the article to answer this question: What exacerbating factor did Mexico's Tequila Crisis have in common with the Argentine crisis of 2002?
3. How many New Zealand dollars (NZD) can you buy with 100 Australian dollars (AUD)?
3. How many New Zealand dollars (NZD) can you buy with 100 Australian dollars (AUD)?
4. Allison lives in America and has just retired. It is early 2016. She has long had dreams of going to the top of the Eiffel Tower in France, visiting Buckingham Palace in the United Kingdom, seeing the cherry blossoms in Japan, and cruising the fjords on the west coast of Norway. She last considered all four options on New Year's Day 2008. She would like to select the trip to go on based on which country's currency has subsequently weakened the most against the U.S. dollar. Where will she go on vacation
4. Allison lives in America and has just retired. It is early 2016. She has long had dreams of going to the top of the Eiffel Tower in France, visiting Buckingham Palace in the United Kingdom, seeing the cherry blossoms in Japan, and cruising the fjords on the west coast of Norway. She last considered all four options on New Year's Day 2008. She would like to select the trip to go on based on which country's currency has subsequently weakened the most against the U.S. dollar. Where will she go on vacation
5. Review the four currency pair charts for the Barbadian dollar against the Jamaican dollar, the Czech koruna against the Polish zloty, the Nigerian naira against the Ghanaian cedi, and the Hong Kong dollar against the Macanese pataca. Which pair is pegged
5. Review the four currency pair charts for the Barbadian dollar against the Jamaican dollar, the Czech koruna against the Polish zloty, the Nigerian naira against the Ghanaian cedi, and the Hong Kong dollar against the Macanese pataca. Which pair is pegged
6. Which of the following is NOT an example of a failed peg?
6. Which of the following is NOT an example of a failed peg?
7. Use the chart below to answer the question. How many Danish crowns (DKK) will buy 100 Japanese yen (JPY)?
7. Use the chart below to answer the question. How many Danish crowns (DKK) will buy 100 Japanese yen (JPY)?
8. According to this Big Mac index screen, which of the following countries' currency is the most undervalued?
8. According to this Big Mac index screen, which of the following countries' currency is the most undervalued?
9. What generally happens when a central bank unexpectedly increases interest rates?
9. What generally happens when a central bank unexpectedly increases interest rates?
10. Which driver weakened the Swiss franc from one euro per Swiss franc to 0.83 euro per Swiss franc?
10. Which driver weakened the Swiss franc from one euro per Swiss franc to 0.83 euro per Swiss franc?
11. What does the Big Mac index show?
11. What does the Big Mac index show?
12. What are the three main short-term drivers of currency valuation?
12. What are the three main short-term drivers of currency valuation?
13. By what mechanism do interest rates affect currency values?
13. By what mechanism do interest rates affect currency values?
14. Which of these headlines could move a currency pair?
14. Which of these headlines could move a currency pair?
15. What is the most common target inflation rate for an advanced economy?
15. What is the most common target inflation rate for an advanced economy?
16. What was the primary goal of Abenomics?
16. What was the primary goal of Abenomics?
17. Here is the vicious deflationary cycle. What step connects the lower left gray arrow to the upper right blue arrow?
17. Here is the vicious deflationary cycle. What step connects the lower left gray arrow to the upper right blue arrow?
18. Was the Great Depression in the U.S. linked to inflation or deflation?
18. Was the Great Depression in the U.S. linked to inflation or deflation?
19. Why is there a mirror image between the yen weakness and stock market strength on the chart shown?
19. Why is there a mirror image between the yen weakness and stock market strength on the chart shown?
20. In early 2016, the same Germany machinery company has interest from four prospective clients from emerging markets Brazil, Indonesia, Russia, and South Africa. They all want to buy ten machines. The company will bill them in euros but the CFO is worried that the client may cancel the order if his currency declines when the invoice comes due on June 30, 2016. According to historical currency volatility alone, the client from which country would be most likely to pay his invoice?
20. In early 2016, the same Germany machinery company has interest from four prospective clients from emerging markets Brazil, Indonesia, Russia, and South Africa. They all want to buy ten machines. The company will bill them in euros but the CFO is worried that the client may cancel the order if his currency declines when the invoice comes due on June 30, 2016. According to historical currency volatility alone, the client from which country would be most likely to pay his invoice?
21. What is the median estimate for the number of U.S. dollars per British sterling for calendar year 2015?
21. What is the median estimate for the number of U.S. dollars per British sterling for calendar year 2015?
22. What is the difference between Citigroup and JPMorgan Chase’s estimate for the U.S. dollar/British sterling currency pair for the end of Q1 2015?
22. What is the difference between Citigroup and JPMorgan Chase’s estimate for the U.S. dollar/British sterling currency pair for the end of Q1 2015?
23. You are a Dutch diamond dealer who sources diamonds from South Africa. You believe that the
23. You are a Dutch diamond dealer who sources diamonds from South Africa. You believe that the
African continent is set to boom, and so you believe that the South African rand will strengthen
African continent is set to boom, and so you believe that the South African rand will strengthen
against the world’s major currencies. Therefore, you are worried about your ability to afford South
against the world’s major currencies. Therefore, you are worried about your ability to afford South
African diamonds in the future.
African diamonds in the future.
A new mine is being dug in South Africa and you have agreed with the miner to buy 1 million South
A new mine is being dug in South Africa and you have agreed with the miner to buy 1 million South
African rands' worth of diamonds a year from today. Therefore, you will need 1 million rands in cash
African rands' worth of diamonds a year from today. Therefore, you will need 1 million rands in cash
in one year’s time. Currently, the exchange rate is 17.1261 rands to the euro. You believe that the
in one year’s time. Currently, the exchange rate is 17.1261 rands to the euro. You believe that the
rand will strengthen to 16 rand to the euro in one year’s time. You speak to some currency dealers
rand will strengthen to 16 rand to the euro in one year’s time. You speak to some currency dealers
and they let you know that they would agree today to convert your euros into rands in one year’s time
and they let you know that they would agree today to convert your euros into rands in one year’s time
at the rate of 18.654182.
at the rate of 18.654182.
Assume that you converted some of your euros into 1 million rands at today’s prevailing rate and
Assume that you converted some of your euros into 1 million rands at today’s prevailing rate and
stored the rands in a safe. How many more or fewer euros would you have in one year’s time if you
stored the rands in a safe. How many more or fewer euros would you have in one year’s time if you
were to agree today to the forward agreement instead of simply purchasing the million rands today
were to agree today to the forward agreement instead of simply purchasing the million rands today
24. Why would Jack Welch suggest putting all company plants on barges?
24. Why would Jack Welch suggest putting all company plants on barges?
25. Samsung is based in South Korea and reports in South Korean won. Samsung sells its products around the world and the geographic breakdown of its 2015 revenues are in the first chart. The second chart shows how some major world currencies moved against the South Korean won through the course of 2015. Of the currencies shown, which currency movement held back Samsung's revenue growth the most?
25. Samsung is based in South Korea and reports in South Korean won. Samsung sells its products around the world and the geographic breakdown of its 2015 revenues are in the first chart. The second chart shows how some major world currencies moved against the South Korean won through the course of 2015. Of the currencies shown, which currency movement held back Samsung's revenue growth the most?
26. 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?
26. 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?
27. Of the following options, what is the best way for investors to manage currency risk?
27. Of the following options, what is the best way for investors to manage currency risk?
1. What does it signify when the bars are green at the bottom?
1. What does it signify when the bars are green at the bottom?
2. According to the table on the right, which country owns 2.9% of U.S. debt?
2. According to the table on the right, which country owns 2.9% of U.S. debt?
3. What quality of U.S. government bonds causes investors to buy them when market volatility rises?
3. What quality of U.S. government bonds causes investors to buy them when market volatility rises?
4. Why is fixed income called fixed income?
4. Why is fixed income called fixed income?
5. Which is the biggest??
5. Which is the biggest??
6. What is one reason why foreign governments lend to the U.S. government?
6. What is one reason why foreign governments lend to the U.S. government?
7. What does one yellow bar depict in this debt distribution diagram?
7. What does one yellow bar depict in this debt distribution diagram?
8. Which one of the following actors benefits when interest rates go up?
8. Which one of the following actors benefits when interest rates go up?
9. When investors doubt the creditworthiness of a borrower, how do they alter their calculation of the bond yield to take into account these doubts
9. When investors doubt the creditworthiness of a borrower, how do they alter their calculation of the bond yield to take into account these doubts
10. As a general rule, what percentage of debt to GDP will make a government’s bond yields spike?
10. As a general rule, what percentage of debt to GDP will make a government’s bond yields spike?
11. What is true of both the U.K. and the U.S.?
11. What is true of both the U.K. and the U.S.?
12. Which would you prefer?
12. Which would you prefer?
13. Which would you prefer?
13. Which would you prefer?
14. What is the primary reason for U.S. government bond yields to ripple through the bond market?
14. What is the primary reason for U.S. government bond yields to ripple through the bond market?
15. A rise in which of the following measures would typically send a government bond price up?
15. A rise in which of the following measures would typically send a government bond price up?
16. Which of the countries shown makes the greatest relative use of short-term government financing?
16. Which of the countries shown makes the greatest relative use of short-term government financing?
17. How do investors compare bonds?
17. How do investors compare bonds?
18. Which of the following is the strongest driver of inflation?
18. Which of the following is the strongest driver of inflation?
19. This chart shows the output gap in the U.S. as of the end of 1973. What was likely the Fed interest rate policy at the end of 1973
19. This chart shows the output gap in the U.S. as of the end of 1973. What was likely the Fed interest rate policy at the end of 1973
20. Here is a chart from the ILBE function displaying U.S. 10-year inflation expectations as of early 2016. At the point in time shown, where is the country's 10-year inflation expectation in relation to the Central Bank's inflation target
20. Here is a chart from the ILBE function displaying U.S. 10-year inflation expectations as of early 2016. At the point in time shown, where is the country's 10-year inflation expectation in relation to the Central Bank's inflation target
21. Investors who fear rising inflation may buy Treasury Inflation Protected Securities (TIPS). How do TIPS shield lenders from inflation
21. Investors who fear rising inflation may buy Treasury Inflation Protected Securities (TIPS). How do TIPS shield lenders from inflation
22. What is the Federal Reserve's favorite inflation gauge?
22. What is the Federal Reserve's favorite inflation gauge?
23. Here is the output gap in the U.S. in early 1975. What was likely the Fed interest rate policy?
23. Here is the output gap in the U.S. in early 1975. What was likely the Fed interest rate policy?
24. Why does the yield curve naturally slope upwards?
24. Why does the yield curve naturally slope upwards?
25. Why did the corporate spread significantly widen during the 2008 market crash?
25. Why did the corporate spread significantly widen during the 2008 market crash?
26. What impact will a tightening of the corporate spread most likely have on a company?
26. What impact will a tightening of the corporate spread most likely have on a company?
27. The U.S. yield curve affects which of the following entities?
27. The U.S. yield curve affects which of the following entities?
28. What is the 10-year to 3-month term premium of the following yield curve?
28. What is the 10-year to 3-month term premium of the following yield curve?
29. Which of these purchases is most likely to be affected by interest rates?
29. Which of these purchases is most likely to be affected by interest rates?
30. What is the primary driver of the left-hand end of the yield curve?
30. What is the primary driver of the left-hand end of the yield curve?
31. Which yield curve is most likely linked to a booming economy?
31. Which yield curve is most likely linked to a booming economy?
32. The two yield curves in the chart are from September 10, 2001 (yellow line) and from October 10, 2001 (green line). What do you think the Federal Reserve did with interest rates in the month following the terrorist attacks of September 11, 2001
32. The two yield curves in the chart are from September 10, 2001 (yellow line) and from October 10, 2001 (green line). What do you think the Federal Reserve did with interest rates in the month following the terrorist attacks of September 11, 2001
33. Why does the yield curve tend to invert shortly before a recession?
33. Why does the yield curve tend to invert shortly before a recession?
1. Why do companies do IPOs?
1. Why do companies do IPOs?
2. Why do company manager-owners smile when they ring the stock exchange bell at their IPO?
2. Why do company manager-owners smile when they ring the stock exchange bell at their IPO?
3. Here are 22 of the 30 members of the Dow Jones Industrial Average Index as of late March 2015. 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
3. Here are 22 of the 30 members of the Dow Jones Industrial Average Index as of late March 2015. 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
4. In 1999, James Glassman and Kevin Hassett published a book called “Dow 36,000.” At the time, the Dow Jones Industrial Average Index was just under 12,000. Which of the following is a potential substitute for the book title
4. In 1999, James Glassman and Kevin Hassett published a book called “Dow 36,000.” At the time, the Dow Jones Industrial Average Index was just under 12,000. Which of the following is a potential substitute for the book title
5. 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. One has clearly outperformed the other. Over this period, there was a technology boom and an oil crash. Here are pie charts showing the early 2015 index compositions by industry for both the S&P 500 and the FTSE 100. Which index outperformed
5. 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. One has clearly outperformed the other. Over this period, there was a technology boom and an oil crash. Here are pie charts showing the early 2015 index compositions by industry for both the S&P 500 and the FTSE 100. Which index outperformed
6. What is the prime reason that Jenny's discretionary income is more volatile than her salary?
6. What is the prime reason that Jenny's discretionary income is more volatile than her salary?
7. A wedding planning company has a high fixed-cost base and a lot of debt. Who would you rather be?
7. A wedding planning company has a high fixed-cost base and a lot of debt. Who would you rather be?
8. 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 from the trough of March of 2009 to the end of 2013, ignoring dividends
8. 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 from the trough of March of 2009 to the end of 2013, ignoring dividends
9. The brown line stood at 2639 at the end of 2013. According to the chart, what would the approximate return be on the S&P 500 including dividends from the trough level in March 2009 of 945 to the end of 2013
9. The brown line stood at 2639 at the end of 2013. According to the chart, what would the approximate return be on the S&P 500 including dividends from the trough level in March 2009 of 945 to the end of 2013
10. Why are equities volatile?
10. Why are equities volatile?
11. Which of the following statements is true?
11. Which of the following statements is true?
12. In the example highlighting the differences between bond holders and shareholders, surgeon Jenny is the shareholder. Which row of the budget planning table shows the amount to which she as a shareholder is entitled
12. In the example highlighting the differences between bond holders and shareholders, surgeon Jenny is the shareholder. Which row of the budget planning table shows the amount to which she as a shareholder is entitled
13. You buy the stock of four consumer goods companies at the end of 2004 and hold them until August 2010. Here are the TRA (Total Return) charts from Bloomberg for all four stocks. The “Buy Price” in the top left-hand corner is the price you paid for each stock. The price of the stock in August 2010 is noted in the chart's legend. The legend also states the Dividend Adjusted Value of the stock in 2010, the value of the reinvested dividends over the holding period. For which stock did the bulk of the total return come from dividends?
13. You buy the stock of four consumer goods companies at the end of 2004 and hold them until August 2010. Here are the TRA (Total Return) charts from Bloomberg for all four stocks. The “Buy Price” in the top left-hand corner is the price you paid for each stock. The price of the stock in August 2010 is noted in the chart's legend. The legend also states the Dividend Adjusted Value of the stock in 2010, the value of the reinvested dividends over the holding period. For which stock did the bulk of the total return come from dividends?
14. What does the release of earnings announcements have in common with the release of economic indicators?
14. What does the release of earnings announcements have in common with the release of economic indicators?
15. The number at the bottom right of each supplier's box shows the portion of Boeing's total costs in the last year which go to that supplier. The number at the bottom right of each customer's box shows the portion of the customer's capital expenditure (money spent on high value purchases) in the last year which goes to Boeing. For which company shown was Boeing the primary plane supplier in the last year?
15. The number at the bottom right of each supplier's box shows the portion of Boeing's total costs in the last year which go to that supplier. The number at the bottom right of each customer's box shows the portion of the customer's capital expenditure (money spent on high value purchases) in the last year which goes to Boeing. For which company shown was Boeing the primary plane supplier in the last year?
16. Which company is most exposed to the ups and downs of the aircraft engine industry?
16. Which company is most exposed to the ups and downs of the aircraft engine industry?
17. Engines are the most expensive, heavy component on an aircraft and are designed with detailed specifications. Which of the following would likely be the best theme for a Rolls-Royce analyst research note to help a portfolio manager decide between investing in Rolls-Royce or United Technologies
17. Engines are the most expensive, heavy component on an aircraft and are designed with detailed specifications. Which of the following would likely be the best theme for a Rolls-Royce analyst research note to help a portfolio manager decide between investing in Rolls-Royce or United Technologies
18. You are building a financial model of a bifocal lens manufacturer. Which of the following is the best driver to use
18. You are building a financial model of a bifocal lens manufacturer. Which of the following is the best driver to use
19. Here is a table from the Bloomberg Intelligence aluminum dashboard which shows the different end-uses of aluminum in China. Which of the following Bloomberg headlines would be of most interest to an aluminum trader in China
19. Here is a table from the Bloomberg Intelligence aluminum dashboard which shows the different end-uses of aluminum in China. Which of the following Bloomberg headlines would be of most interest to an aluminum trader in China
20. When an analyst is looking at a company for the first time, which of the following four activities does he do first
20. When an analyst is looking at a company for the first time, which of the following four activities does he do first
21. Here is a table from the Bloomberg Intelligence copper dashboard which shows the different endusers of the “red metal.” Which of the following Bloomberg headlines would likely be of most interest to a copper trader
21. Here is a table from the Bloomberg Intelligence copper dashboard which shows the different endusers of the “red metal.” Which of the following Bloomberg headlines would likely be of most interest to a copper trader
22. Here is a breakdown of post-it note inventor 3M's revenue by industry. Which of the following industry drivers should be of most interest to a prospective investor of 3M
22. Here is a breakdown of post-it note inventor 3M's revenue by industry. Which of the following industry drivers should be of most interest to a prospective investor of 3M
23. Company X was expected to have earnings per share of $0.52 for the upcoming quarter. On the day of the results, the company reported earnings per share of $0.83. What happened to the share price when the stock market opened
23. Company X was expected to have earnings per share of $0.52 for the upcoming quarter. On the day of the results, the company reported earnings per share of $0.83. What happened to the share price when the stock market opened
24. Which company is worth more, Coca-Cola or Pepsi?
24. Which company is worth more, Coca-Cola or Pepsi?
25. Widget Co has a market capitalization of $100M. It does a 10-for-1 stock split. It then does a 1- for-16 reverse stock split. Finally, it does a 35-for-1 stock split. Nothing else changes. What’s the new market cap
25. Widget Co has a market capitalization of $100M. It does a 10-for-1 stock split. It then does a 1- for-16 reverse stock split. Finally, it does a 35-for-1 stock split. Nothing else changes. What’s the new market cap
26. What input do both absolute valuation and relative valuation require?
26. What input do both absolute valuation and relative valuation require?
27. Which of the following is most likely to be the most challenging part of this first step of the absolute valuation process
27. Which of the following is most likely to be the most challenging part of this first step of the absolute valuation process
28. What is a reason one discounts future cashflows as part of the absolute valuation process?
28. What is a reason one discounts future cashflows as part of the absolute valuation process?
29. What role does beta play in absolute valuation?
29. What role does beta play in absolute valuation?
30. What part of the $42.03 share price (to the nearest dollar) is represented by cash?
30. What part of the $42.03 share price (to the nearest dollar) is represented by cash?
31. How is enterprise value calculated?
31. How is enterprise value calculated?
32. Which of the following stocks is most sensitive to the movement of the overall stock market?
32. Which of the following stocks is most sensitive to the movement of the overall stock market?
33. Which of the following ascribes the same relative weightings to short-term and long-term outcomes as the absolute valuation process
33. Which of the following ascribes the same relative weightings to short-term and long-term outcomes as the absolute valuation process
34. Here is the WACC function for U.S. drug company Pfizer. The WACC calculation has been hidden. What is the WACC
34. Here is the WACC function for U.S. drug company Pfizer. The WACC calculation has been hidden. What is the WACC
35. A rise in which of the following inputs will increase an absolute valuation?
35. A rise in which of the following inputs will increase an absolute valuation?
36. How do earnings yields differ from bond yields?
36. How do earnings yields differ from bond yields?
37. At its peak at the end of 1999, Microsoft had a market cap of $600B. It was the Apple of its day as PC sales were booming and most ran Microsoft software. Revenue was growing 30% per year. The P/E ratio peaked at 70.0x. Looking at this chart, what happened in the subsequent 15 years?
37. At its peak at the end of 1999, Microsoft had a market cap of $600B. It was the Apple of its day as PC sales were booming and most ran Microsoft software. Revenue was growing 30% per year. The P/E ratio peaked at 70.0x. Looking at this chart, what happened in the subsequent 15 years?
38. What is one possible weakness of this peer approach to valuation?
38. What is one possible weakness of this peer approach to valuation?
39. Let’s compare McDonald’s to the market. Here we can see that the S&P 500’s P/E ratio is 18.5x. McDonald’s has a price to earnings ratio of 19.3x, meaning that it trades roughly “in line” with the U.S. market. Investors will look at how the P/E of the company has trended in comparison to the P/E of the market. Any material deviation may pique investors’ interest. Here we can see that since the late 1980s, the P/E of McDonald’s has moved loosely in line with the P/E of the market
39. Let’s compare McDonald’s to the market. Here we can see that the S&P 500’s P/E ratio is 18.5x. McDonald’s has a price to earnings ratio of 19.3x, meaning that it trades roughly “in line” with the U.S. market. Investors will look at how the P/E of the company has trended in comparison to the P/E of the market. Any material deviation may pique investors’ interest. Here we can see that since the late 1980s, the P/E of McDonald’s has moved loosely in line with the P/E of the market
40. Here is a chart of the Nasdaq Composite, the world’s main technology index. It peaked in the dotcom bubble on March 10, 2000. The P/E ratio later peaked above 500. In hindsight, this is widely agreed to have been a bubble. In March 2015, the index value for the first time since then surpassed the peak. Why might some investors at that point have argued “this time it’s different
40. Here is a chart of the Nasdaq Composite, the world’s main technology index. It peaked in the dotcom bubble on March 10, 2000. The P/E ratio later peaked above 500. In hindsight, this is widely agreed to have been a bubble. In March 2015, the index value for the first time since then surpassed the peak. Why might some investors at that point have argued “this time it’s different
41. The World Equity Index function show contains two valuation metrics for the S&P 500. The Nike description page contains the same two valuation metrics. How does Nike's valuation compare to that of the S&P 500
41. The World Equity Index function show contains two valuation metrics for the S&P 500. The Nike description page contains the same two valuation metrics. How does Nike's valuation compare to that of the S&P 500
42. If the earnings per share of a company is $1 and the earnings yield is 2%, what is the price per share?
42. If the earnings per share of a company is $1 and the earnings yield is 2%, what is the price per share?
43. This chart shows a scatterplot with the x-axis being the estimated sales growth and the y-axis being the estimated P/E multiple. Given this data alone, which of the following companies may warrant further analysis by a portfolio manager looking to buy an insurance company for her portfolio
43. This chart shows a scatterplot with the x-axis being the estimated sales growth and the y-axis being the estimated P/E multiple. Given this data alone, which of the following companies may warrant further analysis by a portfolio manager looking to buy an insurance company for her portfolio
