Q&A Hero

Q: When studying an industry, it is difficult to determine the "best-" and "and" worst-performing companies in that industry.

Q: When analyzing an industry, individual companies seem to stand out for their superior performance.

Q: Most industries are similarly affected by the cyclical swings in the economy.

Q: Analysis of various industries gives the investor insights into the comparative performance of the entire economy.

Q: Porter's five competitive forces vary from industry to industry, and directly affect the return on assets and return on equity.

Q: Intense rivalry between competitors has a different impact on the competitors than a new entrant in the market.

Q: Competitive strategies of individual firms have an immediate impact on the structure of the industry.

Q: Firms such as WalMart and McDonald's have a low level of bargaining power over their suppliers.

Q: Companies that have a strong ability to control suppliers enjoy a competitive advantage.

Q: Competitive strategies of individual firms do not have an impact on the outlook for the industry as a whole.

Q: The relative importance of each of the five basic competitive forces is the same for almost every industry.

Q: The impact of intense rivalry within industries is similar to the threat of new entrants.

Q: Firms are most able to raise prices on products for which many substitute goods exist.

Q: Firms in industries with low barriers to entry are limited in their ability to raise prices.

Q: The lack of barriers to entry tends to help established firms by giving them power to increase prices and profits.

Q: Ascertaining the competitive structure of an industry can help the analyst to determine the long-term profitability and outlook for that industry.

Q: When monopolies exist, they are almost always found in mature industries.

Q: Companies that do not have a differentiated product and compete on price are probably in purely competitive industries.

Q: Pure competition in manufacturing is common in the United States.

Q: Competition can be intense in oligopolies due to price wars and international competition.

Q: Oligopolistic industries are characterized by many competitors and few barriers to entry.

Q: The structure of competition in an industry, and how freely companies can compete with each other, is irrelevant for the analysis of companies.

Q: Analyzing the structure of an industry can help an investor to determine the profitability of the companies in that industry.

Q: It is always a safe bet to invest in companies in growing industries.

Q: If an industry is in the mature phase, this means that all companies in that industry will also be in the mature phase.

Q: One way of maintaining growth when domestic markets have become saturated is to expand into markets overseas.

Q: Dividend payout ratios in declining industries can often reach 100% of earnings.

Q: Industries in the decline stage suffer from shrinking sales because product innovation has not increased the product base over the years.

Q: Companies in mature industries still have a dramatic need for internal cash flows to finance future growth.

Q: The growth rate of the companies that make up the S&P 500 is an excellent proxy for the growth of mature companies.

Q: The grocery industry shows a fairly constant relationship between grocery store sales versus real GDP data.

Q: The S&P 500 Index and Gross Domestic Product (GDP) seem to have similar long-term growth paths.

Q: An industry reaches the maturity stage when its sales growth matches the rate of growth of the economy.

Q: Stock prices plummet as industries move across the crossover point, because price-earnings ratios collapse as analysts lower growth expectations.

Q: Stock prices increase as companies reach the crossover point, since the company's earnings are now more predictable.

Q: The crossover point on the life cycle curve is the point where companies sell stock in an initial public offering (IPO).

Q: The presence of cash dividends increases the ability of some institutional investors to invest in companies.

Q: Since late 2002, the Bush administration has followed a weak dollar policy, and A.the euro has fallen against the dollar. B.the euro has risen against the dollar. C.the Chinese renminbi has declined against the dollar. D.None of the above happened

Q: In 2004, the World Trade Organization admitted: A.China. B.Poland. C.The Czech Republic. D.Turkey.

Q: In the comparative international arena of real GDP growth rates, which country has had the highest growth in real GDP over the years 1993 to 2005? A.The United States B.Japan C.China D.Germany

Q: Capacity utilization measures current manufacturing output against potential output. Which of the following statements is correct? A.When capacity utilization is low, companies use their most productive and efficient plants and equipment. B.As capacity utilization increases, companies bring less efficient plants and equipment on line. C.When the capacity utilization rate moves above 80%, inflationary pressures may start to build in the economy. D.All of the above are true

Q: The quantity theory of money holds that, as the supply of money increases relative to the demand for money, people will adjust their portfolios of assets by adding: A.bonds first, then stocks, then real assets. B.stocks first, then bonds, then real assets. C.real assets first, then stocks, then bonds. D.bonds first, then real assets, then stocks.

Q: Leading indicators have the following properties: A.all leading indicators signal at the same time. B.the stock market is the least accurate leading indicator. C.there are 21 indicators that, when combined, give the most accurate signal of future economic activity. D.all leading indicators lead at peaks and troughs.

Q: The breakdown of U.S. Gross Domestic Product into its major categories is usually as which of the following? A.Personal Consumption, Government Purchases, Net Exports B.Personal Consumption, Government Purchases, Gross Private Domestic Investment, Net Exports C.Personal Consumption, Corporate Consumption, Government Consumption D.Domestic Consumption and consumption of foreign goods by U.S. citizens

Q: When inflation increases over the long run (several years), A.consumption will increase at a faster rate in real dollars. B.interest rates will move up with inflation. C.real GDP growth will stabilize at the rate of inflation plus 3% real growth. D.the dollar will usually rise relative to currencies of countries where inflation is growing at a slower rate.

Q: Which of the following are true statements? A.When a country's economy is healthy, its citizens will spend more in general. B.When a country's economy is healthy, its citizens will import more high-priced luxury goods. C.When a country's economy is healthy, its currency rises against its trading partners. D.A and B are both correct

Q: Fiscal policy is implemented by: A.the President of the U.S. B.the Senate. C.the House of Representatives. D.Congress (the House and the Senate). E.the Federal Reserve.

Q: Fiscal policy concerns the implementation of the government's A.spending and taxing plans. B.money supply and interest rate strategy. C.foreign trade policy. D.attitude towards business investment.

Q: Economic analysis is important for investors, because they need to anticipate A.changes in corporate profits due to business cycle impacts. B.growth in various industry segments based on changing economic trends. C.how foreign trade might affect U.S. companies. D.All of the above

Q: The primary tools used to stimulate economic activity are: A.international banking policies. B.monetary and fiscal policies. C.tax policy and interest rates. D.imports and exports.

Q: In order to stimulate the economy out of the 2008-2010 recession, the Federal Reserve Board: A.printed more money than they have in decades. B.did everything they could to see that the federal deficit was reduced as much as possible. C.drove interest rates to their lowest levels in decades. D.lowered taxes.

Q: All of the following are disadvantages of fiscal policy, except: A.a long implementation lag. B.that it may be politically motivated. C.that it may be economically motivated. D.that congress must approve the budgets and develop the tax laws.

Q: All of the following are goals of monetary and fiscal policy, except: A.stable prices. B.business stability at high levels of production. C.sustained economic growth. D.a balance in domestic payments.

Q: Of the predictors of economic patterns and stock market movements, the best is: A.the money supply. B.the level of interest rates. C.the ten leading indicators. D.No one variable is best, as many as possible should be considered

Q: The primary purpose of fundamental stock valuation is: A.to eliminate stocks of those companies that are potential losers from the portfolio. B.to identify for purchase those companies that are fundamentally undervalued. C.to learn to identify peaks and troughs of the business cycle. D.Two of the above.

Q: Since the stock market is the most accurate and reliable of the ten leading indicators, A.investors need indicators which provide more lead time than the stock market. B.investors are able to reduce or eliminate uncertainty about trading stocks. C.investors should use lagging indicators to forecast changes in stock prices. D.None of the above

Q: Some of the major lagging indicators would be: A.money supply (M2), consumer expectations, and stock prices (S&P 500). B.personal income, employees on nonagricultural payrolls, and industrial production. C.average prime rate charged by banks, labor cost per unit of output, and commercial and industrial loans outstanding. D.All of the above are lagging indicators

Q: Some of the major coincident indicators would be: A.money supply (M2), consumer expectations, and stock prices (S&P 500). B.personal income, employees on nonagricultural payrolls, and industrial production. C.average prime rate charged by banks, labor cost per unit of output, and commercial and industrial loans outstanding. D.All of the above are coincident indicators

Q: Some of the major leading indicators would be: A.money supply (M2), consumer expectations, and stock prices (S&P 500). B.personal income, employees on nonagricultural payrolls, and industrial production. C.average prime rate charged by banks, labor cost per unit of output, and commercial and industrial loans outstanding. D.All of the above are leading indicators

Q: The composite index of leading indicators, made up of ten leading indicators, has historically A.not always preceded changes in the business cycle. B.given roughly the same notice at peaks as at troughs. C.varied widely in its timing of notice at peaks and troughs. D.More than one of the above

Q: The National Bureau of Economic Research publishes information about economic indicators in its monthly Survey of Current Business. The most important indicators to investors are the A.leading indicators. B.coincident indicators. C.lagging indicators. D.market indicators. E.None of the above

Q: The National Bureau of Economic Research revised its definition of a recession in 2001 to read as follows: A recession is A.two or more quarters of negative GDP growth. B.a significant decline in economic activity spread across the economy and lasting more than a few months. C.a decline in industrial production lasting more than one year. D.a decline in the growth rate of real GDP by more than 2% in any one quarter.

Q: According to the traditional definitions, a recession is two or more quarters of: A.negative nominal Gross Domestic Product (GDP) growth. B.negative real GDP growth. C.a rate of inflation which exceeds real GDP growth. D.declining growth in real past GDP.

Q: For the investor's purposes, a normal business cycle (peak to peak or trough to trough) lasts approximately ________, as reported by the National Bureau of Economic Research (based on the last eight peace time business cycles). A.ten months B.eleven months C.forty-six months D.sixty-five to sixty-six months

Q: What is the difference between real GDP and inflation-adjusted GDP? A.Real GDP is stated in current dollars B.Inflation-adjusted, or nominal, GDP reflects output in physical terms C.There is no difference between the two D.None of the above

Q: The most widely used tool of the Federal Reserve is: A.buying and selling securities for its own portfolio. B.changing the interest rate charged to commercial banks on very short-term loans. C.changing reserve requirements on commercial bank time or demand deposits. D.fiscal policy. E.None of the above

Q: Fiscal policy that results in a deficit will cause more inflation when it finances the deficit through: A.international currency exchange. B.the sale of treasury securities to the Federal Reserve. C.the sale of treasury securities to individuals in the private sector. D.None of the above

Q: Which of the following is not a goal of the federal government economic policy as established by the Employment Act of 1946? A.Low inflation B.High levels of employment C.Balanced federal budgets D.Economic growth

Q: The first step in any stock valuation is A.economic analysis. B.an accurate stock market prediction. C.financial analysis. D.industry analysis. E.technical analysis.

Q: The difference between GNP and GDP is that GDP only measures output from U.S. factories and consumption in the U.S.

Q: If the Fed buys securities, the money supply goes down, along with interest rates.

Q: The Federal Reserve Bank's buying and selling of securities for its own portfolio is known as open-market operations.

Q: The quantity theory of money states that as the supply of money increases relative to the demand for money, people will make adjustments in their portfolios of assets. First, they will buy bonds, stocks, and then real assets.

Q: It is estimated that manufacturing accounts for about than 20% of the GDP.

Q: Expansions of economic activity during the nine peace time business cycles from 1945 to 2009 have averaged approximately 55 months.

Q: Based on all recessions since 1945, contractions of economic cycles lasted an average of two years.

Q: Gross Domestic Product (GDP) measures the worldwide production of all U.S. companies, firms, and enterprises.

Q: Gross Domestic Product (GDP) measures only output from U.S. factories and consumption within the United States.

Q: The Federal Open Market Committee (FOMC) determines the monetary policy for the U.S. economy.

Q: High interest rates in the United States relative to foreign interest rates have a tendency to attract foreign investors to the U.S. money markets.