CFM Financial Markets & Economic Indicators 3 — Questions and Answers
Question 1: Which economic indicator is released monthly by the Bureau of Labor Statistics and measures the percentage of the labor force that is unemployed and actively seeking work?
- Labor Force Participation Rate
- Unemployment Rate (Correct answer)
- Employment Cost Index
- Non-Farm Payroll
Correct answer: Unemployment Rate
The unemployment rate, published in the BLS monthly Employment Situation report, measures the fraction of the labor force without jobs but actively searching for employment.
Question 2: In foreign exchange markets, a country's currency appreciates when:
- Its interest rates fall relative to trading partners
- Its inflation rate rises faster than trading partners
- Its interest rates rise relative to trading partners (Correct answer)
- Its trade deficit widens substantially
Correct answer: Its interest rates rise relative to trading partners
Higher domestic interest rates attract foreign capital seeking better returns, increasing demand for the domestic currency and causing appreciation.
Question 3: What is the primary purpose of the Securities and Exchange Commission (SEC) in US financial markets?
- Setting monetary policy and interest rates
- Protecting investors and maintaining fair, orderly markets (Correct answer)
- Insuring bank deposits up to $250,000
- Regulating commodity futures trading
Correct answer: Protecting investors and maintaining fair, orderly markets
The SEC's mission is to protect investors, maintain fair and orderly markets, and facilitate capital formation through enforcement of securities laws.
Question 4: Which term describes the risk that a counterparty in a financial transaction will fail to fulfill its contractual obligations?
- Market risk
- Liquidity risk
- Counterparty risk (Correct answer)
- Operational risk
Correct answer: Counterparty risk
Counterparty risk (also called credit risk) is the probability that the other party in a financial contract defaults on their payment or delivery obligations.
Question 5: When the US dollar strengthens against foreign currencies, what is the typical impact on US multinational corporations?
- Foreign revenues translate to more dollars
- Foreign revenues translate to fewer dollars (Correct answer)
- Export competitiveness improves significantly
- Import costs for materials increase
Correct answer: Foreign revenues translate to fewer dollars
A stronger dollar reduces the dollar value of foreign-currency revenues when repatriated, negatively impacting the reported earnings of US multinationals with significant overseas operations.
Question 6: Which measure represents the total market value of all goods and services produced within a country's borders in a given period?
- Gross National Product (GNP)
- Gross Domestic Product (GDP) (Correct answer)
- Net National Income (NNI)
- Gross National Income (GNI)
Correct answer: Gross Domestic Product (GDP)
GDP measures economic output within a country's geographic borders regardless of producer nationality, distinguishing it from GNP which measures output by a country's nationals.
Question 7: In equity markets, what is the significance of the 'ex-dividend date'?
- The date the dividend is paid to shareholders
- The date after which new buyers are not entitled to the declared dividend (Correct answer)
- The date the board declares a dividend
- The date shareholders must vote to approve the dividend
Correct answer: The date after which new buyers are not entitled to the declared dividend
On and after the ex-dividend date, a stock trades without the value of its next dividend payment; buyers on or after this date do not receive the declared dividend.
CFM Financial Markets & Economic Indicators 3
Which economic indicator is released monthly by the Bureau of Labor Statistics and measures the percentage of the labor force that is unemployed and actively seeking work?