Chartered Institute for Securities & Investment (CISI) Qualifications Economics and the Financial Markets Environment Syllabus

Economics and the Financial Markets Environment syllabus — full chapter and topic list

Expand any chapter to see its topics and sub-topics. This is the whole examinable outline for Economics and the Financial Markets Environment in Chartered Institute for Securities & Investment (CISI) Qualifications, not a summary of it.

1. 1

   Macroeconomics and Policy

   4 topics

   • Measuring economic activity
     • GDP, output gap and the economic cycle
     • Inflation: CPI, RPI and measurement
     • Unemployment and the labour market
     • Balance of payments and current account
   • Monetary policy
     • Bank of England MPC and the inflation target
     • Interest rates and quantitative easing/tightening
   • Fiscal policy
     • Government spending, taxation and the deficit
     • Automatic stabilisers and fiscal rules
   • Supply and demand fundamentals
2. 2

   Globalisation and International Trade

   4 topics

   • Comparative advantage and free trade
   • Exchange rate systems and determination
   • Emerging markets and capital flows
   • International institutions: IMF, World Bank, WTO
3. 3

   The Role and Function of Financial Markets

   4 topics

   • Primary and secondary markets
     • Capital raising and the role of issuers
     • Liquidity provision and price discovery
   • Market participants
     • Retail and institutional investors
     • Market makers, brokers and dealers
   • Exchanges, OTC markets and MTFs
   • Efficient markets hypothesis and behavioural critiques

Economics and the Financial Markets Environment flashcards for Chartered Institute for Securities & Investment (CISI) Qualifications

19 of 51 cards from the Economics and the Financial Markets Environment deck — real questions with worked answers.

1. What is Gross Domestic Product (GDP)?

   The total market value of all final goods and services produced within a country's borders over a given period (usually a year). It measures output produced domestically, regardless of producer nationality.

2. How does Gross National Product (GNP) / Gross National Income (GNI) differ from GDP?

   GNP/GNI measures output by a country's residents/nationals wherever located, equal to GDP plus net income from abroad. GDP is location-based (within borders); GNI is ownership/nationality-based.

3. What is the difference between nominal GDP and real GDP?

   Nominal GDP is measured at current market prices; real GDP is adjusted for inflation (measured at constant base-year prices). Real GDP shows changes in actual output volume, removing price-level effects.

4. What is the GDP deflator and how is it calculated?

   A broad measure of the price level of all goods in GDP. $$\text{GDP deflator} = \frac{\text{Nominal GDP}}{\text{Real GDP}} \times 100$$

5. What are the three approaches to measuring GDP, and why should they be equal?

   Output (production), Income, and Expenditure approaches. They are equal because one person's spending is another's income, and that income is generated by producing output — measuring the same flow three ways.

6. State the expenditure (GDP) identity and its components.

   $$GDP = C + I + G + (X - M)$$ where $C$ = consumption, $I$ = investment, $G$ = government spending, $X$ = exports, $M$ = imports (so $X-M$ is net exports).

7. How are the four phases of the economic (business) cycle classified?

   Expansion (recovery/boom), Peak, Contraction (slowdown/recession), and Trough. Output, employment and demand rise then fall cyclically around the long-run trend.

8. What is the technical definition of a recession?

   Two consecutive quarters of negative real GDP growth (a falling level of real output).

9. What is the difference between CPI and RPI as inflation measures?

   Both track changes in a basket of consumer prices. RPI (Retail Prices Index) includes housing costs such as mortgage interest and council tax and uses an arithmetic mean; CPI (Consumer Prices Index) excludes most housing costs and uses a geometric mean, so CPI is usually lower.

10. Define monetary policy and name its primary objective in most developed economies.

    Monetary policy is central-bank management of the money supply and interest rates to influence economic activity. Its primary objective is typically price stability (e.g., the UK's 2% CPI inflation target).

11. What is the main conventional tool of monetary policy and how does raising it cool the economy?

    The official policy interest rate (e.g., Bank Rate). Raising it increases borrowing costs and rewards saving, reducing consumption and investment, which lowers aggregate demand and inflation.

12. What is quantitative easing (QE)?

    An unconventional monetary policy in which a central bank creates new money to buy financial assets (mainly government bonds), raising their prices, lowering long-term yields and increasing the money supply and liquidity to stimulate the economy.

13. Distinguish expansionary from contractionary (tight) monetary policy.

    Expansionary (loose) policy lowers interest rates / increases money supply to boost demand and combat recession. Contractionary (tight) policy raises rates / reduces money supply to slow demand and curb inflation.

14. What does it mean for a central bank to be 'independent', and give an example?

    The central bank sets interest rates free from direct day-to-day government control to meet a mandated target, improving credibility and reducing political manipulation. Example: the Bank of England's Monetary Policy Committee (MPC).

15. Define fiscal policy.

    Government use of taxation and public spending (and borrowing) to influence the level and distribution of economic activity and aggregate demand.

16. What is the difference between a budget deficit and the national debt?

    A budget deficit is the shortfall in a single period when government spending exceeds revenue (a flow). The national debt is the cumulative total of all past borrowing outstanding (a stock).

17. What is the difference between direct and indirect taxes?

    Direct taxes are levied on income or wealth and paid directly by the bearer (e.g., income tax, corporation tax). Indirect taxes are levied on spending/transactions and collected via intermediaries (e.g., VAT, duties).

18. Distinguish automatic stabilisers from discretionary fiscal policy.

    Automatic stabilisers adjust spending/taxes without new decisions (e.g., unemployment benefits rise and tax receipts fall in a downturn). Discretionary policy involves deliberate new tax or spending changes by the government.

19. What is the fiscal multiplier?

    The ratio of the change in national income to the change in autonomous fiscal spending. An initial injection generates further rounds of spending: $$\text{Multiplier} = \frac{1}{1 - MPC}$$ where $MPC$ is the marginal propensity to consume.

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