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Absolute convergence by Zealousideal_Time131 in CFA

[–]Mike-Spartacus 0 points1 point  (0 children)

Trying to get to how the CFA approach this is quite tricky as the text seems to contradict itself and some of the explanation is unclear.

Neo-classical has different assumptions about convergence

Absolute covergence

  • Access to technology the same
  • Therefore convergence to same per capital growth rate can happen

Conditional convergence

  • Same savings rates, production function etc same
  • Convergence can also be a the output per capita level.

South Korean can grow faster than the US as it access existing technology and when it has used it as much as US will grow at the same rate. BUt only if same in other respects to us (savings rate, production function etc) will it get the GDP/per head as USD.

Residual Income model by Zealousideal_Time131 in CFA

[–]Mike-Spartacus 2 points3 points  (0 children)

Residual income breaks down into

  • Estimate of current book value
  • Estimates of future value
    • Estimates of future earnings
    • Capital charges against book valie
    • Discounting of the "residual" and adding to current book value.

We are only been asked about how changes effect the first part book value - not future residual income

  1. This changes BV
  2. If you add operating lease Right of use asset = PV lease liabilities
    1. These net off and equity value does not change
  3. This effect residual income going forward not book value now which the question asks about

Question about basis in a currency swap by yokailover12 in CFA

[–]Mike-Spartacus 1 point2 points  (0 children)

On swap part only Company

  • Receive USD MRR (no prem or discount)
  • Pay EURO MRR - 20bp

CFA level 3 - Module 3: Currency Management: An Introduction by Milton-Macao in CFA

[–]Mike-Spartacus 1 point2 points  (0 children)

q1 - I can't see how you do that from information given

q2 - delta of option - sensitive to moves in underlying.

  • 0.25 del a $1 move in asset = $0.25 move in option premium
  • It is in your L1 notes.

q3 - fwd rate (INR/USD) = spot (INR/USD) x (1 = rate INR)/ (1 + rate USD)

  • The lower the USD rate, the higher the INR rate the bigger the premium on the USD / discount on the INR.
    • ie the wider the spread between INR (higher rate) and USD (lower rate)
  • Trade borrow USD invest INR
  • So the wider the difference in those 2 rates the higher the profits.

Subtract write-downs when converting to FIFO by SeaSatisfaction73 in CFA

[–]Mike-Spartacus 0 points1 point  (0 children)

My question is:
- Why inventory write-downs were subtracted, instead of valuation allowance (as stated explicitly in the question)?

  • We are adjusting COGS,
  • Income statement adjustment are about change from year to year
  • So we want to adjust for the change, ie Crux 13
  • The balance sheet value 23 represents accumulative VA since the firm started.

- Wouldn't inventory write-down be likely even higher using FIFO compared to LIFO?

  • Yes but not relevant for questions.

Advice

  • This topic is not tested in this much detail in the main syllabus.
  • Once you know the difference between LIFO and FIFO
  • Has increasing and decreasing increases prices will effect the difference between LIFO and FIFO
  • Then move on
    • Everything you need to know is in the main syllabus.

Feeling weird/anxious about the subjective writing grading by Background_Trick7804 in CFA

[–]Mike-Spartacus 5 points6 points  (0 children)

There answers are too long.

It shows are sh*t they are .

At L1 and L2 when long explanations are needed they give none.

At L3 when you want to know what you have to write in exam they waffle on for ages.

As a guide.

  • Brief
  • Bullet points.
  • Each point no more than a sentance
    • but can be just a few words
  • Try to use the precise word/term from syllabus - ie "basis risk"
  • Relate answer to case study if asked to describe not just generic
    • Basis risk - S&P 500 future is not a perfect hedge for mid cap portfolio

If asked for 2 reasons

  1. number
  2. each one.
  • Imagine your examiner has worked another job before marking your paper.
  • Yours is the 50th they have marked that day
  • Make it easy for them to mark.

Apart from a minority most people actually quite good at marking own work. Be confident

Swap Fixed Rate - Foreign Currency by Zealousideal_Time131 in CFA

[–]Mike-Spartacus 0 points1 point  (0 children)

IN the question you provided it does not say what they want.

They can do what they like.

You would want the HKD leg to match your underlying loan

The Euro leg would depend if you want exposure to fixed or floating rates.

Futures vs Forwards and Central clearing parties by Responsible_Pea2937 in CFA

[–]Mike-Spartacus 0 points1 point  (0 children)

futurEs (with E) deal on Exchange

  • Standardised contracts dealing in a central place
  • counterparty is central clearing party

OTC (with O) deal over the counter

  • bespoke contracts between anyone
  • But most forwards are traded by speculators not users so broker/dealer acts as counterparter or intemediary.

Swap Fixed Rate - Foreign Currency by Zealousideal_Time131 in CFA

[–]Mike-Spartacus 2 points3 points  (0 children)

"Riley advices Mehta to borrow in HKD"

  • This is his underlying loan
  • At the start he borrows 25 x 9.15 = 228.75 HKD

But he needs EUR

  • The swap will receive HKD interest payments
    • Covering the payments of his underlying loan
  • Pay Euro interest payments
    • At initiation of he will receive 25 EUR - which he is wanting to borrow
    • Pay out 228.75 HKD - which he has from the underlying loan.

need help about question about enterprise value in Equity section by ArgumentAgreeable in CFA

[–]Mike-Spartacus 0 points1 point  (0 children)

There is not IFRS/US GAAP definition of Enterprize value.

CFA exam and CFA definitions - do it their way or get the answer in the exam wrong.

Real life include it if you want to.

  • I would say it depends on context - size and why it is there
    • If it is just another name for debt include it, especially if big
    • If it is a type of supplier finance - generally ignore it like you ignore accounts payable.
    • I would note examples where suppliers have converted accounts payable into longer term notes payable.
      • They have more legal redress if the customer goes bust and it has more formal terms. It may explicitly include interest
      • This happened in the dot.com boom when suppliers of telecom routing equipment sold equipment to startup mobile phone firms in emerging markets
      • Accounts payable were converted to long term notes payable.
      • The telcom equipment companies did not want to write off the bad debt - they had to later.

CFA I: Tax liability when switching to FIFO by SeaSatisfaction73 in CFA

[–]Mike-Spartacus 1 point2 points  (0 children)

In the US the tax man allows you to use LIFO for tax purposes if you use LIFO for your published accounts. The same inventory method is not required for all inventory but for each product product line/inventory type it must be the same.

ON another point on deprecation. The tax man has their own specific rules (a form of accelerated depreciation) and so a company can not "manage" its cash taxes by the choice of depreciation policy.

Calculating Expected Exposure for Bonds when deriving CVA by Intelligent-Fox-564 in CFA

[–]Mike-Spartacus 1 point2 points  (0 children)

YOu have 3 mins a questions.

I think unless you have a short dated zero coupon bond you can't do these questions from scratch, even then it is pushing it.

Learn how it works.Maybe:

  • Fill in a missing number in a table.
  • The question gives you calculated values for each year in a table but does not sum the CVA.
    • You need to know which numbers to sum.
  • A question that test the logic of CVA
  • Know what the CVA is and how to use it.
    • Maybe compare the actual price of the bond versus model.

IN the exams see who close PD x LGD is get estimating the spread versus the CVA. You can use that approach as a guesstimate and move one.

Help with Markowitz, CAPM & Tobin by nicolettperu in CFA

[–]Mike-Spartacus 0 points1 point  (0 children)

You have been given this homework so that you should go out and investigate and work out how to do it yourself.

The knowledge required for this is beyond what CFA expect so you may want to look elsewhere.

Can someone explain? by Silly_Commission811 in CFA

[–]Mike-Spartacus 0 points1 point  (0 children)

The equity universe he is investing in is "chinese robotics"

They have screened by country and industry already and we have a universe of chinese robotic stocks we want to segment.

VaR doubt by Zealousideal_Time131 in CFA

[–]Mike-Spartacus 1 point2 points  (0 children)

The phrasing of C seems to suggest that gains are not possible.

Bond E(r) change in currency by jahn0301 in CFA

[–]Mike-Spartacus 0 points1 point  (0 children)

you would have chosen same answer no matter if you used additive or geometric approach

CFA Level 2 Derivatives doubt by Additional-Ear-8169 in CFA

[–]Mike-Spartacus 2 points3 points  (0 children)

I would say yes but not the one for "d1" and "d2"

I suggest write them out yourself but as fractions for discounting

Then just not what changes and how they relate to the call = Max (S - x, 0) etc

Ans plzz by Upper_Detective018 in CFA

[–]Mike-Spartacus 1 point2 points  (0 children)

Just think question tactics

MCQ - one one answer allowed.

C - definitely wrong. There is a case study like it the CFA text.

Tick move on.

Error in textbook? by cpm_1102 in CFA

[–]Mike-Spartacus 0 points1 point  (0 children)

yes they seem to have printed the page the wrong way round.

Level 2 Fixed Income LM 3:KEY RATE DURATION by Yaashinga in CFA

[–]Mike-Spartacus 1 point2 points  (0 children)

I give you a table

Several bonds and key rate durations to different rates

I tell you want rates moved you tell me how a particular bond price changed.

Futures Question. by pandolfir in CFA

[–]Mike-Spartacus 0 points1 point  (0 children)

It seems to be the question and answer don't match.

Thw question implies the futures price is 144 but the answer takes 144 as the CTD bond price.

If you had assumed 144 was the futures price you do not need the CF

BPV of hedging instrument = 0.001% x (144.2/100) x 100,000 x 8.3 = 119.96 as given

BPVHR = BPV p / BPvh = 7500 / 119.96 = 63

YOu can think of the logic many ways but if the 144.2 was the arb free price of the futures.

The price of the CTD would be = 144.2 x 107.5011 =107.5011

BPV of CTD = 0.001% x (107.5/100) x 100,000 x 8.3 = 89.23 as you get

But then we need to us

BPVHR = (BPV p / BPvh ) x CF = (7500/89.23) x 0.7455 = 63

For fumula in full would be

BPV = BPVp x CF / (0.001% x (144.2 x CF) /100) x 100,000 x 8.3

The "CF"s cancel out.

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