5 Written questions
5 Multiple choice questions
- if the earnings yield is lower than the yield on the 10-year TSY, the investor would shift their money into the less risky TSY
- let past disasters or dramatic events weigh too heavily on their forecasts
- Explains why currencies may diverge from equilibrium values for extended periods. If investment is greater than domestic savings, then capital must flow into the country from abroad to finance the investment. At the same time the country will have a current account deficit, which would normally indiciate that a currency will weaken, but not in this instance.
- r_target = r_neutral + [0.5(GDP_exp - GDP_trend) + 0.5(i_exp - i_target)]
- 1. determine those needed
2. investigate historical performance
3. identify valuation model
4. collect good data
5. use judgment to interpret current investment conditions
6. formulate capital market expectations
7. monitor performance/refine process
4 True/False questions
inventory cycle → often measured using the inventory to sales ratio
Six questions for emerging market investors: → 1. Responsible fiscal and monetary policies?
2. What is the expected growth?
3. Does the country have reasonable currency values and current account deficits?
4. Is the country too highly levered?
5. What is the level of foreign exchange reserves relative to short-term debt?
6. What is the government's stance regarding structural reform?
beta research → formulating capital market expectations, related to systematic risk
alpha research → concerned with earning excess returns through the use of specific strategies within specific asset groups