CIC Economic & Financial Analysis 2

Question 1

Which economic indicator is considered a LEADING indicator of future economic activity?

Accepted Answer

Building permits issued

Answer

Building permits are a leading indicator because they signal future construction activity before it occurs.

Question 2

When the yield curve inverts, it typically signals:

Accepted Answer

A potential recession in the next 12-18 months

Answer

An inverted yield curve, where short-term rates exceed long-term rates, has historically preceded recessions by 12-18 months.

Question 3

Which ratio best measures a company's ability to cover short-term obligations using only its most liquid assets?

Accepted Answer

Cash ratio

Answer

The cash ratio (cash and equivalents divided by current liabilities) is the most conservative liquidity measure, excluding receivables and inventory.

Question 4

A country's current account deficit means it is:

Accepted Answer

Spending more on imports than it earns from exports of goods, services, and transfers

Answer

A current account deficit means the country imports more goods, services, and transfer payments than it exports, requiring foreign financing.

Question 5

In the DuPont analysis framework, Return on Equity (ROE) is decomposed into which three components?

Accepted Answer

Net profit margin, asset turnover, and equity multiplier

Answer

DuPont decomposes ROE into net profit margin (profitability) × asset turnover (efficiency) × equity multiplier (leverage).

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