BMC Answers (Bloomberg) 2020 2021, Complete solutions (A+ guide) University of Massachusetts, Lowell

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  ch 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  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.

Which of the following lines is the best leading economic factor?

  a. PMI

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

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.        260

Currencies

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?

• China

Knowledge Check 2

What generally happens when a central bank unexpectedly increases interest rates?

• The currency strengthens

Knowledge Check 3

Which driver weakened the Swiss franc?

• A surprise change in inflation expectations

SECTION QUIZ

1.        What does the Big Mac index show?

a.                How currencies may be overvalued or undervalued

2.        Which of the following are short-term drivers of currency valuation?

a.                Surprise changes in interest rates, inflation, and trade 3.           By what mechanism do interest rates affect currency values?

a.    Global investors are attracted by higher bond yields in high interest rate countries

          4.         Which of these headlines could move a currency pair?

                              a.         U.S. Stocks Rally on Fed’s Surprise Reduction of the Interest Rate

Central Banks and Currencies (15 min.)

SECTION QUIZ

1.        What is the most common target inflation rate for an advanced economy?

a.        2%

2.        What was the primary goal of Abenomics?

a.        To halt the vicious cycle of deflation

3.        Here is the deflationary cycle. What steps connect the lower left gray arrow to the upper right blue arrow?

a.        Prices Decline

4.        Were the two oil crises in the 1970s linked to deflation or inflation?

a.        Inflation

Currency Risk (15 min.)

Knowledge Check 1

On June 23, 2016, the UK voted to leave the European Union. The white line shows the UK’s main equity index, the FTSE 100, from the start of 2016 of the date on which the UK government notified the European Union of its intent to leave. The orange line shows the number the number of dollars it takes to buy one pound sterling. The UK is a net importer, meaning the value of imports exceed the value of exports. What can be reasonably surmised from the chart about large UK corporations?

• They are probably heavy exporters

Knowledge Check 2

In early 2016, the same Germany machinery company has interest from four prospective clients from emerging markets: Indonesia, Brazil, Russia and South Africa. They all want to buy ten machines, but the factory can only produce ten in time. Therefore, the company has to choose only one client. Given the volatility of the domestic currencies of the four prospective clients, the CFO would like to choose the client which is least likely to cancel the order due to currency volatility. The invoice comes due on June 30, 2016. According to historical currency volatility alone, which prospective client would be least likely to cancel the order?

• Indonesia

Knowledge Check 3

What is the median estimate for the number of Japanese yen per euro for calendar year 2020?

• 126

Knowledge Check 4

What is the different between Nomura and RBC’s estimate for the Japanese yen/euro currency pair for the end of Q1 2018?

• 40 yen

Knowledge Check 5

Imagine you are a Dutch diamond dealer who sources diamonds from South Africa. It is March 2016. A new mine is being dug in South Africa and you have agreed with the miner to buy one million South African rands’ worth of diamond a year from today. Therefore, you will need one million rands in cash in one year’s time. The miner wants you to demonstrate your commitment by either giving him a million rands now or providing that you have an FX forward contract for the full amount. Currently, the exchange rate is 17.1 rands to the euro. You check the forward rates on offer on the Bloomberg FRD function.

You have two options. Exchange euros today at today’s exchange rate to pay him one million rands now, or lock in a forward agreement to convert euros to one million rands in one year’s time and share the forward agreement with him. If you were to do the forward instead of exchanging euros for rands today, approximately how much more or less would you end up with in a year?

• EUR 4,717 more