BLOOMBERG MARKET CONCEPTS
COMPREHENSIVE EXAM STUDY GUIDE
COMPLETE QUESTIONS AND SOLUTIONS
●● nominal GDP vs real GDP
Answer: nominal GDP = $ amount of GDP
real GDP growth = nominal GDP growth - inflation
(isolates increases in production and/or increases in prices of
goods&services)
●● recession
Answer: 2 successive quarters of negative real GDP growth
●● inflation
Answer: general increase in prices of goods&services which diminishes
the purchasing power of money
(a unit of money tomorrow would buy less than the same unit of money
today)
●● primary sources of inflation data
Answer: 1) personal consumption expenditures (PCE)
^^ measure of price changes in consumer goods and services
,^^ shows what consumers are spending their income on
2) consumer price index (CPI)
^^ based on a representative basket of goods&services
^^ difficulties w/ being truly representative bc times, interests, & tech
change
^^ CPI basket is updated @ start of ea yr to reflect previous yr
●● unemployment
Answer: consumer spending is almost purely driven by salaries
^^ economy tends to shrink when more people lose their jobs (depresses
GDP growth)
1) nonfarm payrolls
^^ most important unemployment indicator
^^ measures monthly change in # of US employees
●● business confidence
Answer: businesses make large investments and hire people when they
feel confident there will be additional demand for their goods&services
1) purchasing managers index (PMI)
^^ index of US manufacturing activity
,^^ surveys people in charge of buying goods and services for
corporations
^^ above 50 = optimism, below 50 = pessimism
●● housing
Answer: 1) housing starts
^^ before construction begins, must be confident that future home buyers
can assume 30 yr mortgages
^^ after buying a new house, consumer also purchases appliances,
interior decorations, etc
●● main entities that trade currencies
Answer: 1) financial institutions buying&selling securities in foreign
currencies
2) corporations selling goods&services across borders
3) travelers changing currencies for personal use
●● pegged currencies
Answer: currencies that are linked to another currency with a locked
exchange rate
^^ done to offer impression of certainty
^^ oftentimes difficult to convince others that pegged currency is as
strong as peg
, peg currency using FX reserves
^^ "a stack of cash used to manipulate supply and demand of currency"
^^ USD = most common FX reserve currency bc most liquid
govs also lift interest rates to defend pegs
●● triangular arbitrage
Answer: keeping currency matrix fixed so you can't make money
converting between currencies
●● currency valuation
Answer: change in rate of one currency pair only tells relative value of
those two currencies
^^ use trade-weighted baskets to determine overall strength or weakness
of a currency
(identical goods&services should cost the same, no matter where they're
sold around the world)
●● main currency drivers
Answer: 1) surprise changes in interest rates
^^ rise in interest rates in one country will cause that country's currency
to strengthen relative to another
2) surprise changes in inflation
COMPREHENSIVE EXAM STUDY GUIDE
COMPLETE QUESTIONS AND SOLUTIONS
●● nominal GDP vs real GDP
Answer: nominal GDP = $ amount of GDP
real GDP growth = nominal GDP growth - inflation
(isolates increases in production and/or increases in prices of
goods&services)
●● recession
Answer: 2 successive quarters of negative real GDP growth
●● inflation
Answer: general increase in prices of goods&services which diminishes
the purchasing power of money
(a unit of money tomorrow would buy less than the same unit of money
today)
●● primary sources of inflation data
Answer: 1) personal consumption expenditures (PCE)
^^ measure of price changes in consumer goods and services
,^^ shows what consumers are spending their income on
2) consumer price index (CPI)
^^ based on a representative basket of goods&services
^^ difficulties w/ being truly representative bc times, interests, & tech
change
^^ CPI basket is updated @ start of ea yr to reflect previous yr
●● unemployment
Answer: consumer spending is almost purely driven by salaries
^^ economy tends to shrink when more people lose their jobs (depresses
GDP growth)
1) nonfarm payrolls
^^ most important unemployment indicator
^^ measures monthly change in # of US employees
●● business confidence
Answer: businesses make large investments and hire people when they
feel confident there will be additional demand for their goods&services
1) purchasing managers index (PMI)
^^ index of US manufacturing activity
,^^ surveys people in charge of buying goods and services for
corporations
^^ above 50 = optimism, below 50 = pessimism
●● housing
Answer: 1) housing starts
^^ before construction begins, must be confident that future home buyers
can assume 30 yr mortgages
^^ after buying a new house, consumer also purchases appliances,
interior decorations, etc
●● main entities that trade currencies
Answer: 1) financial institutions buying&selling securities in foreign
currencies
2) corporations selling goods&services across borders
3) travelers changing currencies for personal use
●● pegged currencies
Answer: currencies that are linked to another currency with a locked
exchange rate
^^ done to offer impression of certainty
^^ oftentimes difficult to convince others that pegged currency is as
strong as peg
, peg currency using FX reserves
^^ "a stack of cash used to manipulate supply and demand of currency"
^^ USD = most common FX reserve currency bc most liquid
govs also lift interest rates to defend pegs
●● triangular arbitrage
Answer: keeping currency matrix fixed so you can't make money
converting between currencies
●● currency valuation
Answer: change in rate of one currency pair only tells relative value of
those two currencies
^^ use trade-weighted baskets to determine overall strength or weakness
of a currency
(identical goods&services should cost the same, no matter where they're
sold around the world)
●● main currency drivers
Answer: 1) surprise changes in interest rates
^^ rise in interest rates in one country will cause that country's currency
to strengthen relative to another
2) surprise changes in inflation
