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Macroeconomic and Industry Analysis. 12. Bodie, Kane and Marcus Essentials of Investments 9 th Global Edition. 12.1 Global Economy. National Economic Environment Crucial determinant of industry performance Exchange Rate

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slide1

Macroeconomic and Industry Analysis

12

Bodie, Kane and Marcus

Essentials of Investments 9th Global Edition

12 1 global economy
12.1 Global Economy
  • National Economic Environment
    • Crucial determinant of industry performance
  • Exchange Rate
    • Rate at which domestic currency can be converted into foreign currency
12 2 the domestic macroeconomy
12.2 The Domestic Macroeconomy
  • Gross Domestic Product (GDP)
    • Market value of goods and services produced over period of time
  • Unemployment Rate
    • Ratio of number of unemployed to total labor force
  • Inflation
    • Rate at which general level of prices for goods and services is rising
12 2 the domestic macroeconomy1
12.2 The Domestic Macroeconomy
  • Interest Rates
    • High interest rates reduce present value of future cash flows
  • Budget Deficit
    • Government spending in excess of government revenues
  • Sentiment
    • Consumer optimism/pessimism are determinants of economic performance
12 3 interest rates
12.3 Interest Rates
  • Fundamental Factors of Interest Rates
    • Supply of funds from savers
    • Demand for funds from borrowers
    • Government’s net supply/demand for funds, modified by Federal Reserve
    • Expected rate of inflation
12 4 demand and supply shocks
12.4 Demand and Supply Shocks
  • Demand Shock
    • Event that affects demand for goods and services in economy
  • Supply Shock
    • Event that influences production capacity and costs in economy
12 4 demand and supply shocks1
12.4 Demand and Supply Shocks

The price of imported oil fell dramatically in late 2008. What sort of macroeconomic shock would this be considered?

12 5 government policy
12.5 Government Policy
  • Fiscal Policy
    • Use of government spending and taxing for stabilizing economy
  • Monetary Policy
    • Actions taken by the central bank to influence money supply or interest rates
  • Supply-Side Policies
    • Address productive capacity of economy, goal is to induce workers/owners to produce goods
12 6 business cycles
12.6 Business Cycles
  • Business Cycles
    • Recurring cycles of recession and recovery
  • Peak
    • Transition from end of expansion to start of contraction
  • Trough
    • Transition point between recession and recovery
12 6 business cycles1
12.6 Business Cycles
  • Cyclical Industries
    • Industries with above-average sensitivity to state of economy
  • Defensive Industries
    • Industries with below-average sensitivity to state of economy
12 6 business cycles2
12.6 Business Cycles
  • Leading Economic Indicators
    • Economic series that tend to rise or fall in advance of rest of economy
      • Stock-market-price index
      • Money supply
      • Manufacturers’ orders
12 7 industry analysis
12.7 Industry Analysis
  • Defining an Industry
    • NAICS codes in the US
      • Classification of firms into industry groups using numerical codes to identify industries
    • KSE sectors
12 7 industry analysis1
12.7 Industry Analysis
  • Sensitivity to the Business Cycle
      • Sensitivity of sales
        • Necessary product or luxury?
        • Low sensitivity to income
      • Operating leverage
      • Financial leverage
12 7 industry analysis3
12.7 Industry Analysis
  • Sector Rotation
    • Shifting portfolio into industry sectors expected to outperform others based on macroeconomic forecasts
      • Near peak, invest in natural resource extraction and processing firms
      • After peak, defensive industries often better performers
      • In trough, capital goods industries often better performers
      • In expansion, cyclical industries often better
12 7 i ndustry analysis1
12.7 Industry Analysis
  • Industry Life Cycles: Stages Firms Pass Through to Maturity
    • Start-up stage: Often characterized by new technology/product
    • Consolidation stage: Industry leaders begin to emerge
    • Maturity stage: Product has reached potential for use by consumers
    • Relative decline: May grow less than rest of economy or shrink
12 7 industry analysis4
12.7 Industry Analysis
  • Industry Structure and Performance
    • Threat of entry: New entrants to industry pressure price/profits
    • Rivalry between existing competitors: Market share competition pressures price/profits
    • Pressure from substitute products: Firms in related industries can threaten market share
12 7 industry analysis5
12.7 Industry Analysis
  • Industry Structure and Performance
    • Bargaining power of buyers
      • Large-scale buyers have considerable bargaining power
    • Bargaining power of suppliers
      • Large-scale suppliers have considerable bargaining power
my problems
My Problems
  • Basic
    • 4 effect of policy on business conditions (1)
  • Intermediate (6 problems)
    • 17 industry sensitivity (3)
    • 19 industry sensitivity (3)
    • 21 industry life cycle (4)
    • 24 effect of policy on business conditions (1)
  • CFA Problems (2 problems)
    • 2 industry life cycle (4)
    • 4 industry life cycle (4)
  • Webmaster
    • 1