Friday 30 March 2012

At least how many mocks one should give while preparing for the Level II Exam?

As you all know the time is approaching! I guess I don't need to explain what 'time' specifically refers to... Last year I had appeared in 3 mocks but I am a bit confused this year. Level II is way more difficult as compared to Level I which implies that mocks should be at least three of more. Another aspect is that based upon the length of the material, I was able to repeat the material in one week before appearing into the level I exam effectively revising it 3 times in a row. This is literally impossible for me right now! So appearing in mocks without going through the whole readings would seem meaningless to me. Considering this aspect, appearing in 2 mocks seems a wise step as in 15 days I think I can go through the whole syllabus once. In a nutshell I am confused! Try helping me out and answer the poll by choosing an appropriate choice based upon your understanding!

Your support in this regard would be highly appreciated and can help a lot of candidates.

Are you able to recall these topics of Level II? (Bloomberg News Pick)

Candidates of Level II done with Derivatives let's see how you are able to connect this Bloomberg News Pick with what you've studied in Derivatives of Level II.

Read here:

Thursday 29 March 2012

Parties to Securitization - Level II Fixed Income

1) Originator: The initial owner of the asset (also known as sponsor or seller) who has a loan agreement with the borrowers;

2) SPV: The issuer/trust also known as the SPV is the entity, which would typically buy the assets (to be securitized) from the Originator. The structure keeps the SPV away from bankruptcy of the originator, technically called ‘bankruptcy remote’;

3) Servicer: The servicer is usually the originator, who collects payments due on the underlying assets and, after retaining a servicing fee, pays them over to the security holders;

4) The Investors: The investors may be in the form of individuals or institutional investors like mutual funds, pension funds, insurance companies, etc. They buy a participating interest in the total pool of
receivables and receive their payment in the form of interest and principal as per agreed pattern.

5) The investment bankers: Who assist in structuring the transaction and who underwrite or place the
securities for a fee;

6) The rating agencies: The rating agencies assess credit quality of certain types of instruments and
assign a credit rating;

7) Agent and Trustee: It accepts the responsibility for overseeing that all the parties to the securitization deal perform in accordance with the securitization trust agreement. Basically, it is appointed to look after the interest of the investors.

WSJ Blog - UPDATE: SLM To Sell $668M Student Loan Asset-Backed Securities

If you have studied Fixed Income of Level II specifically Reading 51 & 52, try connecting what you've learned with this Wall Street Journal Blog post & share your experience.

Read the post:

Wednesday 28 March 2012

News Pick - (Reuters) - U.S. bond funds designed to fight inflation have relaxed their guard against rising interest rates, leaving investors vulnerable to heavy losses

Interest rate risk (duration) has been discussed extensively in Level I and Level II curriculum under Fixed Income. In level a basic understanding is developed and it is considered to be a highly testable area while in Level II a more in depth approach is introduced. Key rate duration is discussed, measuring the duration of portfolio with non-parallel shift in interest rates Candidates who are done with Fixed Income will find this news pick relevant to what they have been studying in the curriculum.

Read the news:

LOS Command Words

Exam is approaching and only 65 days are left. We must be completed with the first reading within next few weeks so that we are left with ample time to revise the syllabus at least once before appearing into mocks. It will enable us to highlight our strengths and weaknesses and plan accordingly. This is the time to read the material with exams perspective. Since exam is designed in a way that the LOS are tested, we must have an overview of the command words so that we could figure out what the CFA Institute is demanding from us regarding a particular topic. As mentioned earlier this is the time to focus more on the material with exams perspective as compared to complete and in depth understanding considering every dimension... Below is the link to LOS Command words I think you all should go through those to better gauge what exactly the CFA Insitute wants us to be equipped for on the exam day.

Good Luck.

Tuesday 27 March 2012

Joint Ventures - Level II FRA

Joint ventures can be organized in the following forms:
· Partnerships
· Corporations
· Other Legal forms i.e. Unincorporated associations

Under IFRS Both Proportionate consolidation method and Equity method can be used. However, Proportionate consolidation method is preferred. In Proportionate Consolidation Method Venturer’s share of the assets, liabilities, income and expenses of the Joint venture is combined on a line-by-line basis with similar items on the venturer’s financial statements & No Minority interest is necessary to be reported.

Under U.S. GAAP · Only Equity method is allowed to use. Proportionate consolidation method can be used
only for unincorporated entities operating in certain industries.

Relative to Proportionate consolidation method, Equity Method results in:
· Net Profit Margin being high
· ROA being high
· D/E Ratio being low
· Total income and total net assets of the investor are identical under both Equity and Proportionate consolidation method.

Monday 26 March 2012

GDP/Capita - List of Countries (Ascending Order 2010)

Country Name 2010 2009 2008
Luxembourg  $  105,437.67  $  104,353.69  $  118,218.78
Norway  $    84,538.24  $    76,763.74  $    93,366.81
Switzerland  $    67,463.71  $    63,568.24  $    65,799.80
Denmark  $    55,890.68  $    55,933.35  $    62,156.99
Macao SAR, China  $    51,429.89  $    40,105.21  $    39,924.25
Sweden  $    48,935.67  $    43,471.68  $    52,730.78
United States  $    47,198.50  $    45,758.10  $    46,971.33
Ireland  $    47,170.20  $    49,737.93  $    59,573.37
North America  $    47,111.43  $    45,160.91  $    46,796.80
Netherlands  $    46,914.66  $    47,998.27  $    52,951.03
Canada  $    46,235.64  $    39,643.79  $    45,110.04
Austria  $    45,209.40  $    45,638.09  $    49,679.42
Finland  $    44,512.01  $    45,084.64  $    51,181.25
Belgium  $    43,144.34  $    43,799.18  $    47,340.95
Japan  $    42,831.05  $    39,456.44  $    38,212.27
Singapore  $    41,122.19  $    37,789.61  $    36,738.45
Germany  $    40,152.22  $    40,275.25  $    44,132.04
United Arab Emirates  $    39,624.70  $    38,959.81  $    50,727.21
Iceland  $    39,616.84  $    38,032.66  $    53,087.53
High income: OECD  $    39,521.08  $    38,299.77  $    40,899.12
France  $    39,459.55  $    40,663.05  $    44,117.04
High income  $    38,208.22  $    36,963.49  $    39,661.98
Euro area  $    36,618.19  $    37,503.33  $    41,073.18
United Kingdom  $    36,143.94  $    35,163.41  $    43,286.04

Source: World Bank 

Edmonton Journal - Accounting Shenanigans (News Pick)

Accounting Shenanigans, Red flags, quality of reported earnings, earnings quality etc. and other terminologies related to manoeuvring earnings have been discussed in detail in CFA Level I and Level II curriculum under Financial Reporting & Analysis. The link to the news pick discusses one such event which is being heard in the court of law in which earnings were engineered by a company around a decade back.

Read the news:

Sunday 25 March 2012

Issues for Analysts in Investments in Associates

1) Analyst should recognize whether the equity method is appropriate to use or not i.e. a company may prefer to use equity method to include associate income as equity income even when it has no significant influence on the investee simply to enhance its profits.
2) An analyst should recognize whether a company which has control over the investee use equity method to enhance its financial performance, because under equity method:

· No asset or liability of the investee is required to be reported on the investor’s balance sheet. This lowers debt ratio.
· Associate income is included in the investor net income but associate revenue is not included. This leads to overstated Net margin ratios.

3) Analyst must also determine the quality of the Equity method Earnings i.e. proportionate share of the investee’s income is included as Investor’s income although no cash is actually received.

WSJ Blog - Why Carlyle’s Liquidity Promise May Be Difficult To Keep

Investment in Private Equity refers to purchasing shares or investing in companies which are not listed. A detailed reading is present in Alternative Methods in CFA Level II curriculum. Regarding the composition of private equity, the portfolio firms, the investors who have stake in the private equity, the steps taken by the general partner to keep intact the management of portfolio firms etc. have been discussed extensively in the reading. Candidates who have covered this reading will enjoy reading this news item on the WSJ Blog.

Read the news:

Saturday 24 March 2012

Linked In - Balance Sheet Vertical Analysis

  Dec-08 Dec-09 Dec-10 Dec-11
Cash And Short Term Investments 65.93% 60.57% 39.04% 66.10%
Receivables 12.29% 16.35% 24.48% 12.75%
Prepaid Expenses 2.21% 1.48% 2.06% 1.24%
Deferred Tax Assets, Current 0.57% 1.14% 0.00% 0.00%
Restricted Cash 0.16% 0.00% 0.00% 0.00%
Other Current Assets 0.00% 2.02% 6.76% 3.01%
Total Current Assets 81.24% 81.56% 72.29% 83.08%
Net Property Plant And Equipment 17.77% 17.29% 23.80% 13.15%
Goodwill 0.00% 0.00% 0.00% 1.40%
Deferred Charges, Long Term 0.00% 0.07% 0.71% 0.00%
Other Intangibles 0.41% 0.20% 2.18% 0.93%
Other Long-Term Assets 0.49% 0.87% 0.97% 1.44%
Total Assets 100.00% 100.00% 100.00% 100.00%
Accounts Payable 2.05% 3.30% 5.42% 3.23%
Accrued Expenses 8.35% 12.38% 11.59% 6.71%
Current Income Taxes Payable 0.08% 0.40% 0.00% 0.00%
Unearned Revenue, Current 12.20% 17.16% 27.29% 16.00%
Total Current Liabilities 22.69% 33.18% 44.29% 25.95%
Deferred Tax Liability Non-Current 0.57% 1.14% 2.77% 2.13%
Other Non-Current Liabilities 0.33% 0.34% 0.80% 0.40%
Total Liabilities 23.67% 34.66% 47.86% 28.47%
Total Preferred Equity 84.68% 69.58% 43.58% 0.00%
Common Stock 0.00% 0.00% 0.00% 0.00%
Additional Paid In Capital 4.75% 9.22% 10.54% 70.69%
Retained Earnings -13.10% -13.53% -1.97% 0.82%
Comprehensive Income And Other 0.00% 0.00% 0.00% 0.01%
Total Common Equity -8.35% -4.24% 8.56% 71.53%
Total Equity 76.33% 65.34% 52.14% 71.53%
Total Liabilities And Equity 100.00% 100.00% 100.00% 100.00%