Study Notes for CFA® Level III – Derivatives and Currency Management – offered by AnalystPrep

15 Nov 2023

Reading 17: Options Strategies

Los 17 a: Demonstrate how an asset’s returns may be replicated by using options

Los 17 b: Discuss the investment objective(s), structure, payoff, risk(s), value at expiration, profit, maximum profit, maximum loss, and breakeven underlying price at expiration of a covered call position

Los 17 c: Discuss the investment objective(s), structure, payoff, risk(s), value at expiration, profit, maximum profit, maximum loss, and the breakeven underlying price at expiration of a protective put position

Los 17 d: Compare the delta of covered call and protective put positions with the position of being long an asset and short a forward on the underlying asset

Los 17 e: Compare the effect of buying a call on a short underlying position with the effect of selling a put on a short underlying position

Los 17 f: Discuss the investment objective(s), structure, payoffs, risk(s), value at expiration, profit, maximum profit, maximum loss, and the breakeven underlying price at expiration of the following option strategies: bull spread, bear spread, straddle, and collar

Los 17 g: Describe uses of calendar spreads

Los 17 h: Discuss volatility skew and smile

Los 17 i: Identify and evaluate appropriate option strategies consistent with given investment objectives

Los 17 j: Demonstrate the use of options to achieve targeted equity risk exposures

Reading 18: Swaps, Forwards and Futures Strategies

Los 18 a: Demonstrate how interest rate swaps, forwards, and futures can be used to modify a portfolio's risk and return

Los 18 b: Demonstrate how currency swaps, forwards, and futures can be used to modify a portfolio's risk and return

Los 18 c: Demonstrate how equity swaps, forwards, and futures can be used to modify a portfolio’s risk and return

Los 18 d: Demonstrate the use of volatility derivatives and variance swaps

Los 18 e: Demonstrate the use of derivatives to achieve targeted equity and interest rate risk exposures

Los 18 f: Demonstrate the use of derivatives in asset allocation, rebalancing, and inferring market expectations

Reading 3: Currency Management: An Introduction

Los 3 a: Analyze the effects of currency movements on portfolio risk and return

Los 3 b: Discuss strategic choices in currency management

Los 3 c: Formulate an appropriate currency management program given financial market conditions and portfolio objectives and constraints

Los 3 d: Compare active currency trading strategies based on economic fundamentals, technical analysis, carry-trade, and volatility trading

Los 3 e: Describe how changes in factors underlying active trading strategies affect tactical trading decisions

Los 3 f: Describe how forward contracts and FX (foreign exchange) swaps are used to adjust hedge ratios

Los 3 g: Describe trading strategies used to reduce hedging costs and modify the risk-return characteristics of a foreign-currency portfolio

Los 3 h: Describe the use of cross-hedges, macro-hedges, and minimum-variance-hedge ratios in portfolios exposed to multiple foreign currencies

Los 3 i: Discuss challenges for managing emerging market currency exposures

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