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37 terms

finance 12

fundamental analysis
the analysis of determinants of value such as earning prospects
exchange rate
rate at which domestic currency can be converted into foreign currency
gross domestic product
the measure of the economy's total production of goods and services (market value of g/s produced over a period of time)
unemployment rate
ratio of the number of people classified as unemployed to the total labor force; measured extent to which economy is operating at full capacity
rate at which general level of prices for goods and services is rising
budget deficit
the amount by which government spending exceeds government revenues
beliefs influence how much consumption and investment will be pursued and affect aggregate demand for g/s
factors that determine level of interest rates
supply of funds from savers, demands for funds from business, government's net supply and/or demand for funds, expected rate of inflation
nominal interest rate
add expected inflation rate to equilibrium rate
demand shock
an event that affects the demand for goods and services in the economy
positive demand shocks
reductions in tax rates, increases in money supply, increases in gov't spending, increases in foreign export demand
supply shock
an event that influences production capacity and costs in economy
fiscal policy
the use of government spending and taxing for the specific purpose of stabilizing the economy
monetary policy
actions taken by the Board of Governors of the Federal Reserve System to influence the money supply or interest rates
open market operations
Fed buy/sells Treasury bonds for its own account; tool of monetary policy
discount rate
interest rate the Fed charges banks on short-term loans; tool of monetary policy
reserve requirement
the fraction of deposits that banks must hold as cash on hand or as deposits with the Fed; tool of monetary policy
federal funds rate
interest rate at which banks make short-term, usually overnight, loans to each other; tool of monetary polciy
supply side policies
treat the issues of the productive capacity of the economy, goal is to create env in which wokers and owners of capital have max incentive and ability to produce/develop goods, focus on incentives and marginal tax rates
business cycle
recurring patterns of recession and recovery
transition from the end of an expansion to the start of a contraction
transition point between recession and recovery
cyclical industries
industries with above-average sensitivity to the state of the economy
defensive industries
have little sensitivity to the business cycle
leading economic indicators
economic series that tend to rise or fall in advance of the rest of the economy
coincident indicators
indicators that tend to change directly with the economy
lagging indicators
indicators that tend to follow the lag of economic performance
NAICS codes
classification of firms into industry groups using numerical codes to identify industries
operating leverage
division between fixed and variable costs
financial leverage
use of borrowing
sector rotation
investment strategy that entails shifting the portfolio into industry sectors that are expected to outperform others based on macroeconomic forecasts
industry life cycles
stages through which firms typically pass as they mature
start up stage
rapid and increasing sales growth; new tech or product; difficult to predict which firms will be industry leaders
consolidation stage
stable sales growth, industry leaders emerge, performance of firms will closely track performance of overall industry
maturity stage
product has reached its potential for use by consumers; slowing sales growth; cash cows
relative decline
minimal or negative sales growth
determinants of competition
threat of entry, rivalry between existing competitors, pressure from substitute products, bargaining power of buyers/sellers