CFA Practice Question

There are 191 practice questions for this study session.

CFA Practice Question

Which of the following statements is (are) true with the respect to the effects that business cycles will have on various types of industries?

I. Cyclical industries are always in line with the general rate of economic growth.
II. Defensive industries do well primarily when the probability of armed conflict increases.
III. The state of the economic cycle will have little impact on growth industries.
IV. Defensive industries are primarily in the mature phase of their life cycle.
A. III and IV
B. I and IV
C. II and III
Explanation: I is incorrect because sometimes a cyclical industry may lead or follow the general economic cycle; the industry may not be in line with the economy.

II is incorrect because "defensive" industries do not imply military contractors. For instance, utility industries are classified as defensive industries because their prospects are relatively independent of general economic cycles.

User Contributed Comments 5

User Comment
MattNYC Cyclical industries are those "whose earnings track the cycle" #1 is incorrect because of the word "always".
yxten1 And I thought defensive industry means fire-arm producing industry!
Tobias iii looks suspect. I agree economic growth "CAN" have little impact on growth companies but "WILL" sounds too definite. I'm sure there are exceptions.
Hishy III is correct because I think the notes say that a growth company by definition is one that is not affected by the state of the economy
renataa Sentence from the CFA book: ''Growth industries generate growth irrespective of the overall economic conditions, though their growth rates may decline in recessions''. Conclusion: III is correct but tricky
You need to log in first to add your comment.