Series 65 – Uniform Investment Adviser Law Exam Economic Factors and Business Information 2 — Questions and Answers
Question 1: Monetary policy is primarily controlled by which entity in the United States?
- U.S. Treasury
- Congress
- The Federal Reserve (Correct answer)
- The President
Correct answer: The Federal Reserve
The Federal Reserve (the Fed) is the central bank of the United States and controls monetary policy through tools like interest rates and open market operations.
Question 2: Which of the following is an example of fiscal policy?
- The Federal Reserve lowering interest rates
- Congress passing a tax cut (Correct answer)
- The Fed purchasing Treasury securities
- Lowering the reserve requirement
Correct answer: Congress passing a tax cut
Fiscal policy involves government spending and taxation decisions made by Congress and the executive branch, such as enacting tax cuts.
Question 3: What does GDP measure?
- Total stock market capitalization
- Total value of all goods and services produced within a country in a given period (Correct answer)
- Total government spending
- Total corporate profits
Correct answer: Total value of all goods and services produced within a country in a given period
Gross Domestic Product (GDP) measures the total monetary value of all finished goods and services produced within a country's borders in a specific time period.
Question 4: A company with a current ratio of 2.0 means:
- It has twice as many liabilities as assets
- Its current assets are twice its current liabilities (Correct answer)
- Its revenue is twice its expenses
- Its stock price is double its book value
Correct answer: Its current assets are twice its current liabilities
A current ratio of 2.0 means the company has $2 in current assets for every $1 in current liabilities, indicating good short-term liquidity.
Question 5: Which type of risk refers to the possibility that a country's political or economic instability will negatively impact investments?
- Inflation risk
- Credit risk
- Country risk (Correct answer)
- Liquidity risk
Correct answer: Country risk
Country risk (also called political or sovereign risk) is the risk that a foreign government's political instability or economic conditions will adversely affect investments.
Question 6: What is the relationship between inflation and purchasing power?
- Inflation increases purchasing power
- Inflation decreases purchasing power (Correct answer)
- Inflation has no effect on purchasing power
- Inflation only affects foreign purchasing power
Correct answer: Inflation decreases purchasing power
Inflation erodes purchasing power because the same amount of money buys fewer goods and services as prices rise.
Series 65 – Uniform Investment Adviser Law Exam Economic Factors and Business Information 2
Monetary policy is primarily controlled by which entity in the United States?