MB 101_Bloomberg Answers - Economic Indicators | MB101_Bloomberg Answers - Economic Indicators

MB 101_Bloomberg Answers - Economic Indicators Bloomberg Answers Economic Indicators The Primacy of GDP (30 min.) Knowledge Check 1 How accurately do GDP statistics portray the economy and why?  Inaccurately because the scope of GDP measurements can change. Knowledge Check 2 Consider the formula GDP = C + I + (X-M). A country is undergoing a boom in consumption of domestic and foreign luxury goods. In one year, the dollar growth in imports is greater than the dollar growth in domestic consumption. Assuming nothing else has changed, what happened to GDP?  It went down. Knowledge Check 3 Here is the most important economic data for Australia and Sweden. Which economy did better year-over-year (YOY) in the fourth quarter of 2013 compared to the fourth quarter of 2012? Use the two charts to investigate.  Sweden performed better. Knowledge Check 4 In the US, why is there a strong correlation between unemployment and GDP?  Consumer spending accounts for two-thirds of the U.S. economy. When the number of unemployed consumers rises, there is less consumer spending. SECTION QUIZ 1.1. Here is a chart showing both nominal GDP growth and real GDP growth for a country. Which of the following can be a true statement at the time the chart was captured? a. The country has deflation. The bottom line is nominal growth and the top line is real growth. 2.2. Which of the following lines is the best leading economic factor? a. PMI 3.3. The “misery index” is often cited in the media as a way to measure consumer pain. It is defined as the inflation rate plus the unemployment rate. Review and identify the country with the highest “misery index.” a. Argentina 4.4. What typically happens to nonfarm payrolls, the PMI indicator, and housing starts at the onset of a recession in the United States? a. Nonfarm payrolls go DOWN, the PMI indicator goes DOWN, the housing starts goes DOWN.Monitoring GDP (10 min.) SECTION QUIZ 1. Which of the following qualities of economic indicators do investors prize the most? a. Timeliness of release. 2. Why is the release of GDP statistics less interesting to investors than the release of other economic indicators? a. Because GDP statistics are released well after other economic indicators. 3. Which of the following important U.S. economic indicators is only available on a quarterly basis? a. GDP 4. Which economic indicator is most directly linked to unemployment? a. Nonfarm payrolls. Forecasting GDP (20 min.) Knowledge Check 1 Here is the economic calendar for the UK for August 2013. Examine indicators like PMI, house prices, industrial production, employment, retail sales, and GDP. Based on these major indicators, how did the UK economy perform overall?  Above Expectations Knowledge Check 2 This chart was captured in mid-2014. At that point in time, which of the following terms would have described the growth in the Chinese economy predicted in this pop-out table?  Deceleration Knowledge Check 3 How have economic forecasts for this economy evolved?  Minimal Change SECTION QUIZ 1. These charts show data for four countries as of early 2016. For each country, the purple line denotes historic real GDP growth. The white line denotes the consensus estimated real GDP growth. The red line denotes the most pessimistic analyst forecast. The green line denotes the most optimistic analyst forecast. For which country is there the most controversy among the analyst community about 2016 growth? a. RUSSIA 2. What is the main reason that investment banks create estimates of economic indicators? a. To know when specific economic data points are a positive or negative surprise. 3. Which of the following is the biggest pitfall of economic indicators? a. They do not consistently presage turning points. 4. Here is a chart displaying estimates of the initial jobless claims indicator, one of the main unemployment statistics in the U.S. It measures the number of new applicants for unemployment benefits. What was the level of the analyst with the most optimistic outlook? a. 260Currencies Currency Market Mechanics (25 min.) Knowledge Check 1 Which country is both the fourth biggest importer and exporter?  JAPAN Knowledge Check 2 In 1994, the Mexican peso declined against the U.S. dollar during the so-called “Tequila Crisis”. What exacerbating factor did Mexico’s “Tequila Crisis” have in common with the Argentine crisis of 2002?  Both countries had large dollar-denominated debts. Knowledge Check 3 Using the given chart, how many New Zealand dollars (NZD) can you buy with 100 Australian dollars (AUD)?  107.89 SECTION QUIZ 1. Allison lives in America and has just retired. It is early 2016. She has long had dreams of cruising the fjords on the west coast of Norway, visiting Buckingham Palace in the United Kingdom, seeing the cherry blossoms in Japan, and going to the top of the Eiffel Tower in France. She last considered all four options on New Year’s Day 2008. She would like to select the trip to go on based on which country’s currency has subsequently weakened the most against the U.S. dollar. Where should she go on vacation? a. NORWAY 2. Review the currency pair charts for the Barbadian dollar against the Jamaican dollar, the Czech koruna against the Polish zloty, the Nigerian naira against the Ghanaian cedi, and the Hong Kong dollar against the Macanese pataca. Which pair is pegged. a. The Hong Kong dollar against the Macanese pataca 3. Which of the following is NOT an example of a failed peg? a. Hong Kong dollar against the U.S. dollar in 1997. 4. Use the chart below to answer the question. How many Danish crowns (DKK) will buy 100 Japanese yet (JPY)? a. 5.360 Currency Valuation (20 min.) Knowledge Check 1 According to this Big Mac index screen, which of the following four countries’ currency is the most undervalued?  ChinaKnowledge Check 2 What generally happens when a central bank unexpectedly increases interest rates?  The currency strengthens - - - - - - - - - - - - - - - - - - - - - - - - - - Knowledge Check 2 At its peak at the end of 1999, Microsoft had a market cap of $600B. PC sales were booming and most PCs ran on Microsoft software. Revenue was growing 30% per year. The P/E ratio peaked at nearly 80.0X in 1999. Looking at this chart, what happened in the subsequent 15 years?  The decline in the P/E ratio more than offset earnings growth and this pushed the market cap down.Knowledge Check 3 What is one possible weakness of this peer approach to valuation?  The estimated growth can be dramatically wrong. Knowledge Check 4 What may be a problem of comparing the P/E of a stock to the P/E of the overall market?  A stock’s P/E ratio can remain above or below market average for extended periods. SECTION QUIZ 1. Here is a chart of the NASDAQ Composite, the world’s main technology index. It peaked in the dotcom bubble on March 10, 2000. The P/E ratio later peaked above 500. In hindsight, this is widely agreed to have been a bubble. In March 2015, the index value for the first time since then surpassed the peak. Why might some investors at that point have argued “this time it’s different”? a. Earnings grew substantially, meaning that the P/E ratio in early 2015 was only around 30.3x. 2. The World Equity Index function shown contains two valuation metrics for the S&P 500. The Nike description contains the same two valuation metrics. How does Nike’s valuation compare to that of the S&P 500? a. Nike is more expensive than the S&P 500 on both a P/E and dividend yield basis. 3. If the earnings per share of a company is $1 and the earnings yield is 2%, what is the price per share? a. $50.00 4. This chart shows a scatterplot with the x-axis being the estimated sales growth and the y-axis being the estimated P/E multiple. Given this data alone, which of the following companies may warrant further analysis by a portfolio manager looking to buy an insurance company for her portfolio? a. Chubb