IAR Economics & Economic Indicators 3

Question 1

Quantitative easing (QE) is a monetary policy in which a central bank:

Accepted Answer

Purchases large quantities of securities to inject liquidity into the economy

Answer

Quantitative easing involves the central bank buying financial assets (typically government bonds) to increase the money supply and stimulate lending and investment when conventional tools are insufficient.

Question 2

Which of the following best describes the concept of purchasing power parity (PPP)?

Accepted Answer

The theory that exchange rates between currencies should adjust so that identical goods cost the same in different countries

Answer

Purchasing power parity holds that in the long run, exchange rates should adjust until the same basket of goods costs the same amount in different countries when measured in a common currency.

Question 3

An investment adviser notes that the economy is in the expansion phase of the business cycle. Which asset class has historically tended to perform best during this phase?

Accepted Answer

Equities (stocks)

Answer

Equities tend to perform best during economic expansions as corporate earnings grow, consumer spending increases, and investor confidence rises.

Question 4

The current account of a country's balance of payments records:

Accepted Answer

Trade in goods and services, investment income, and current transfers

Answer

The current account records the flow of goods and services (trade balance), income from investments abroad, and unilateral transfers such as foreign aid.

Question 5

A client is concerned about inflationary risk in their portfolio. Which of the following investments has historically provided the best hedge against unexpected inflation?

Accepted Answer

Treasury Inflation-Protected Securities (TIPS)

Answer

TIPS have principal values that are adjusted upward with CPI inflation, so both the principal and interest payments rise with inflation, providing a direct hedge.

IAR - Investment Advisory Representative Certification Practice Test

IAR - Investment Advisory Representative Certification Practice Test

IAR Economics & Economic Indicators 3