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    Question

    A SEBI-registered portfolio manager is tracking several

    macroeconomic variables to predict a potential downturn in the Indian economy. Which of the following is correctly classified as a Leading Indicator?
    A Corporate Profits: Because they only rise after the economy has fully recovered. Correct Answer Incorrect Answer
    B Unemployment Rate: Because it usually peaks only after a recession has already begun. Correct Answer Incorrect Answer
    C Stock Market Prices: Because they typically reflect investor expectations about the future and shift before the actual economy. Correct Answer Incorrect Answer
    D Gross Domestic Product (GDP): Because it measures the current state of production in real-time. Correct Answer Incorrect Answer
    E Interest Rates: Because they are adjusted by the RBI only after observing the inflation data of the previous quarter Correct Answer Incorrect Answer

    Solution

    Leading indicators are predictive, measurable, and proactive metrics that signal future economic, business, or performance trends before they occur. Unlike lagging indicators which confirm past results, leading indicators help forecast turning points in cycles, allowing stakeholders to adjust strategies in advance.    Examples of leading indicator include Stock market performance, consumer confidence index, purchasing managers' index (PMI), and bond yields, new housing starts, manufacturing orders, etc.   Other types of indicators are:

    • Coincident Indicators: Change at the same time as the economy (e.g., GDP, Personal Income).
    • Lagging Indicators: Change only after the economy has already moved (e.g., Unemployment rate, CPI, Interest rates).

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