Economic & Financial Concepts Flashcards

When a central bank engages in quantitative easing (QE), it primarily:

Answer: Purchases longer-term securities to inject money into the economy

QE involves a central bank buying longer-term financial assets from commercial banks to increase money supply and stimulate lending and investment.

A bond trading at a price ABOVE its par value is said to be trading at a:

Answer: Premium

When a bond's market price exceeds its face (par) value, the bond is trading at a premium, which typically means its coupon rate is above current market yields.

In portfolio theory, the 'efficient frontier' represents:

Answer: The set of portfolios offering the highest expected return for each level of risk

The efficient frontier, from Modern Portfolio Theory, plots portfolios that maximize return for a given level of risk, or minimize risk for a given return.

The price-to-earnings (P/E) ratio is calculated as:

Answer: Market price per share divided by earnings per share

The P/E ratio divides the current market price per share by earnings per share, indicating how much investors pay per dollar of earnings.

Which economic concept describes the additional output gained from employing one more unit of a production input, holding all other inputs constant?

Answer: Marginal product

Marginal product measures the change in total output resulting from adding one additional unit of a single input while keeping all other inputs fixed.

Which of the following best describes 'fiscal policy'?

Answer: Government decisions on taxation and public spending to influence the economy

Fiscal policy refers to the use of government spending and taxation decisions to influence macroeconomic conditions such as growth, employment, and inflation.

When evaluating fixed-income securities, 'duration' primarily measures:

Answer: A bond's sensitivity to changes in interest rates

Duration measures a bond's price sensitivity to interest rate changes; higher duration means greater price volatility when rates move.