Study Notes for CFA® Level II – Economics – offered by AnalystPrep

Study Notes for CFA® Level II – Economics – offered by AnalystPrep

Reading 8: Currency Exchange Rates: Understanding Equilibrium Value

-a. Calculate and interpret the bid-offer spread on a spot or forward currency quotation and describe the factors that affect the bid-offer spread;

-b. Identify a triangular arbitrage opportunity and calculate the profit, given the bid-offer quotations for three currencies;

-c. Explain spot and forward rates and calculate the forward premium/discount for a given currency;

-d. Calculate the Mark-to-Mark Value of a forward contract;

-e. Explain international parity conditions (covered and uncovered interest parity, forward rate parity, purchasing power parity, and the international Fisher effect);

-f. Describe the relations among the international parity conditions;

-g. Evaluate the use of the current spot the rate, purchasing power parity and uncovered interest parity to forecast future spot rates of exchange;

-h. Explain approaches to assessing the long-run fair values of an exchange rate;

-i. Describe the carry trade and its relation to uncovered interest rate parity and calculate the profit from the carry trade;

-j. Explain how flows in the balance of payment accounts affect currency exchange rates;

-k. Explain the potential effects of monetary and fiscal policy on exchange rates;

-l. Describe objectives of the central bank or government intervention and capital controls and describe the effectiveness of the intervention and capital controls;

-m. Describe warning signs of a currency crisis;

Reading 9: Economic Growth 

-a. Compare factors favoring and limiting economic growth in developed and developing economies;

-b. Describe the relationship between the long-run rate of stock market appreciation and the sustainable growth rate of the economy;

-c. Explain why potential GDP and its growth rate matter for equity and fixed income investors;

-d. Contrast capital deepening investment and technological progress and explain how each affects economic growth and labor productivity;

-e. Demonstrate forecasting potential GDP based on growth accounting relations;

-f. Effect of Natural Resources on Economic Growth;

-g. Explain how demographics, immigration, and labor force participation affect the rate and sustainability of economic growth;

-h. Explain how investment in physical capital, human capital, and technological development affects economic growth;

-i. Compare classical growth theory, neoclassical growth theory, and endogenous growth theory;

-j. Explain and evaluate convergence hypotheses;

-k. Describe the economic rationale for governments to provide incentives to private investment in technology and knowledge;

-l. Describe the expected impact of removing trade barriers on capital investment and profits, employment and wages, and growth in the economies involved.

Reading 10: Economics of Regulation

-a. Describe the economic rationale for regulatory intervention;

-b. Explain the purposes of regulating commerce and financial markets;

-c. Describe anticompetitive behaviors targeted by antitrust laws globally and evaluate the antitrust risk associated with a given business strategy;

-d. Describe classifications of regulations and regulators;

-e. Describe uses of self-regulation in financial markets;

-f. Describe regulatory interdependencies and their effects;

-g. Describe tools of regulatory intervention in markets;

-h. Describe benefits and costs of regulation;

-i. Describe the considerations when evaluating the effects of regulation on an industry.

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