Subject

LOS in

Description

2012

LOS

Description

in
2013

Ethics

1.1.b

2.8.b

Quantitati

3.11.h

explain the ethical responsibilities required

1.1.b

explain the ethical responsibilities required of

by the Code and Standards, including the

CFA Institute members and candidates in the

multiple sub-sections of each standard

CFA Program by the Code and Standards

discuss appropriate actions to take in

2.8.b

describe appropriate actions to take in response

response to trade allocation practices that

to trade allocation practices that do not

do not adequately respect client interests

adequately respect client interests

calculate a predicted value for the

3.11.

calculate the predicted value for the dependent

ve

dependent variable, given an estimated

variable, given an estimated regression model

Methods

regression model and a value for the

and a value for the independent variable, and

independent variable, and calculate and

calculate and interpret a confidence interval for

interpret a confidence interval for the

the predicted value of the dependent variable

predicted value of a dependent variable

3.12.e
Economic

4.14.a

calculate and interpret the F-statistic, and

3.12.

calculate and interpret the F-statistic, and

discuss how it is used in regression analysis

describe how it is used in regression analysis

describe sources of and preconditions for

economic growth

4.14.b

discuss how the one-third rule can be used

to explain the contributions of labor and
technological change to growth in labor
productivity

4.15.b

explain potential benefits and possible

negative side effects of social regulation

4.15.c

distinguish between the capture hypothesis

and the share-the-gains, share-the-pains
theory of regulator behavior

4.16.a

explain comparative advantage and how

countries can gain from international trade

4.16.b

compare tariffs, nontariff barriers, quotas,

and voluntary export restraints

4.16.c

evaluate arguments for trade restrictions

4.17.a

define direct and indirect methods of foreign

exchange quotations, and convert direct
(indirect) foreign exchange quotations into
indirect (direct) foreign exchange quotations

4.17.b

calculate and interpret the spread on a

4.14.

calculate and interpret the bidask spread on a

foreign currency quotation, and explain how

spot or forward foreign currency quotation and

spreads on foreign currency quotations can

describe the factors that affect the bidoffer

differ as a result of market conditions,

spread

bank/dealer positions, and trading volume

4.17.c

calculate and interpret currency cross rates,

given two spot exchange quotations
involving three currencies

4.17.d

calculate the profit on a triangular arbitrage

4.14.

identify a triangular arbitrage opportunity, and

opportunity, given the bidask quotations for

calculate its profit, given the bidoffer

the currencies of three countries involved in

the arbitrage
4.17.e

distinguish between the spot and forward

markets for foreign exchange

4.17.f

calculate and interpret the spread on a

forward foreign currency quotation, and
explain how spreads on forward foreign
currency quotations can differ as a result of
market conditions, bank/dealer positions,
trading volume, and maturity/length of
contract

quotations for three currencies

4.17.g

calculate and interpret a forward discount or

premium and express it as an annualized
rate

4.17.h

explain interest rate parity and covered

interest arbitrage

4.17.l

distinguish between spot and forward

4.14.

distinguish between spot and forward rates and

transactions, calculate the annualized

calculate the forward premium/ discount for a

forward premium/discount for a given

given currency

currency, and determine whether the

currency is strong or weak.
4.14.

calculate the mark-to-market value of a forward

contract

4.14.

explain international parity relations covered

and uncovered interest rate parity, purchasing

power parity, and the international Fisher effect

4.14.f

describe relations among the international

parity conditions

4.14.

evaluate the use of the current spot rate, the

forward rate, purchasing power parity, and

uncovered interest parity to forecast future spot
exchange rates

4.14.

explain approaches to assessing the long-run

fair value of an exchange rate

4.14.i

describe the carry trade and its relation to

uncovered interest rate parity and calculate the
profit from such a strategy

4.14.j

explain how flows in the balance of payment

accounts affect currency exchange rates

4.14.

describe the MundellFleming model, the

monetary approach, and the asset market

(portfolio balance) approach to exchange rate
determination

4.14.l

forecast the direction of the expected change in

an exchange rate based on balance of payment,
MundellFleming, monetary, and asset market
approaches to exchange rate determination

4.18.e

explain how monetary and fiscal policies

4.14.

explain the potential impacts of monetary and

affect the exchange rate and balance of

fiscal policies on exchange rates

4.14.

describe the objectives and effectiveness of

central bank intervention and capital controls

4.14.

describe warning signs of a currency crisis

payments components

o
4.14.

describe the use of technical analysis in

forecasting exchange rates

4.15.

describe and compare factors favoring and

limiting economic growth in developed and

developing economies

4.15.

describe the relation between the long-run

rate of stock market appreciation and the

sustainable growth rate of the economy

4.15.

explain the importance of potential GDP and its

growth rate in the investment decisions of

equity and fixed income investors

4.15.

distinguish between capital deepening

investment and technological process and

explain the impact of each on economic growth

and labor productivity

4.15.

forecast potential GDP based on growth

accounting relations

4.15.f

explain the impact of natural resources on

economic growth and evaluate the argument
that limited availability of natural resources
constrains economic growth

4.15.

explain the effects of demographics,

immigration, and labor force participation on the

rate and sustainability of economic growth

4.14.c

explain how faster economic growth can be

4.15.

explain how investment in physical capital,

achieved by increasing the growth of

human capital, and technological development

physical capital, technological advances, and

affects economic growth

investment in human capital

4.14.d

compare classical growth theory,

4.15.i

neoclassical growth theory, and new growth

compare classical growth theory, neoclassical

growth theory, and endogenous growth theory

theory
4.15.j

explain and evaluate convergence hypotheses

4.15.

explain the economic rationale for governments

to provide incentives to private investment in

technology and knowledge

4.15.l

describe the expected impact of removing trade

barriers on capital investment and profits,
employment and wages, and growth in the
economies involved

4.16.

describe classifications of regulations and

regulators

4.16.

describe uses of self-regulation in financial

4.15.a

markets

explain the rationale for government

4.16.

describe the economic rationale for regulatory

regulation in the form of 1) economic

intervention

4.16.

describe regulatory interdependencies and their

effects

4.16.

describe tools of regulatory intervention in

markets

4.16.f

explain purposes in regulating commerce and

regulation of natural monopolies and 2)

social regulation of nonmonopolistic
industries

financial markets
4.16.

describe anticompetitive behaviors targeted by

antitrust laws globally and evaluate the antitrust

risk associated with a given business strategy

4.16.

describe benefits and costs of regulation

h
4.16.i

evaluate effects on an industry, company, or

security of a specific regulation

4.18.a

explain how exchange rates are determined

in a flexible (or floating) exchange rate
system

4.18.b

explain the role of each component of the

balance of payments accounts

4.18.c

explain how current account deficits or

surpluses and financial account deficits or
surpluses affect an economy

4.18.d

describe factors that cause a nations

currency to appreciate or depreciate

4.18.f

describe a fixed exchange rate and a pegged

exchange rate system

4.18.g

explain absolute purchasing power parity

and relative purchasing power parity

4.18.h

calculate the end-of-period exchange rate

implied by purchasing power parity, given
the beginning-of-period exchange rate and
the inflation rates

4.18.i

explain the international Fisher relation

4.18.j

calculate the real interest rate, given

nominal interest rates and expected inflation
rates, using the international Fisher relation
and its linear approximation

4.18.k

explain the theory of uncovered interest rate

parity and the theorys relation to other
exchange rate parity theories

4.18.l

calculate the expected change in the

exchange rate, given interest rates and the
assumption that uncovered interest rate
parity holds

4.18.m

explain the foreign exchange expectation

relation between the forward exchange rate
and the expected exchange rate

4.19.a

distinguish between the measures of

economic activity (i.e., gross domestic
product (GDP), gross national income, and
net national income), including their
components

4.19.b

distinguish between GDP at market prices

and GDP at factor cost

4.19.c

distinguish between current and constant

prices, and describe the GDP deflator

Financial

6.23.c

Reporting
6.23.d

describe the components of a companys

6.20.

describe the components of a companys

defined benefit pension expense

defined benefit pension costs

explain and calculate the impact of a defined

6.20.

explain and calculate the impact of a defined

benefit plans assumptions on the defined

benefit plans assumptions on the defined

benefit obligation and periodic expense

6.23.e

6.23.g

benefit obligation and periodic pension cost

explain the impact on financial statements of

6.20.

explain and calculate the effects on financial

adjustments for items of pension and other

statements of adjusting for items of pension and

post-employment benefits that are reported

other post-employment

in the notes to the financial statements

benefits that are reported in the notes to the

rather than in the financial statements

financial statements

evaluate the underlying economic liability

(or asset) of a companys pension and other
post-employment benefits

6.23.h

calculate the underlying economic pension

expense (income) and other postemployment expense (income) based on
disclosures

6.24.c

compare and contrast the current rate

6.21.

compare the current rate method and the

method and the temporal method, evaluate

temporal method, evaluate the effects of each

the effects of each on the parent companys

on the parent companys balance sheet and

balance sheet and income statement, and

income statement, and determine which method

determine which method is appropriate in

is appropriate in various scenarios

various scenarios

6.24.d

calculate the translation effects, evaluate

6.21.

calculate the translation effects, evaluate the

the translation of a subsidiarys balance

translation of a subsidiarys balance sheet and

sheet and income statement into the parent

income statement into the parent companys

companys currency, and analyze the

currency, and analyze the effects of the current

different effects of the current rate method

rate method and the temporal method on the

and the temporal method on the subsidiarys

subsidiarys financial ratios

financial ratios
Corporate

8.28.a

Finance

calculate the yearly cash flows of an

8.25.

determine the yearly cash flows of expansion

expansion capital project and a replacement

and replacement capital projects, and evaluate

capital project, and evaluate how the choice

how the choice of depreciation method affects

of depreciation method affects those cash

those cash flows

flows
8.28.c

8.28.e

evaluate and select the optimal capital

8.25.

evaluate capital projects and determine the

project in situations of 1) mutually exclusive

optimal capital project in situations of 1)

projects with unequal lives, using either the

mutually exclusive projects with unequal lives,

least common multiple of lives approach or

using either the least common multiple of lives

the equivalent annual annuity approach, and

approach or the equivalent annual annuity

2) capital rationing

approach, and 2) capital rationing

explain the procedure for determining the

8.25.

explain and calculate the discount rate, based

discount rate to be used in valuing a capital

on market risk methods, to use in valuing a

project, and calculate a projects required

capital project

rate of return using the capital asset pricing

model (CAPM)
8.28.g

explain common capital budgeting pitfalls

8.25.

describe common capital budgeting pitfalls

g
8.29.e

describe international differences in financial

8.26.

describe international differences in financial

leverage and their implications for

leverage, factors that explain these differences,

investment analysis

and implications of these differences for

investment analysis

8.30.e

calculate and interpret the effective tax rate

8.27.

calculate and interpret the effective tax rate on

on a given currency unit of corporate

a given currency unit of corporate earnings

earnings under double-taxation,

under double taxation, dividend imputation, and

split rate, and tax imputation dividend tax

split-rate tax systems

regimes
8.30.f

compare stable dividend, target payout, and

8.27.f

compare stable dividend, constant dividend

residual dividend payout policies, and

payout ratio, and residual dividend payout

calculate the dividend under each policy

policies, and calculate the dividend under each

policy

8.30.h
9.31.a

9.32.a

describe global trends in corporate dividend

8.27.

describe broad trends in corporate dividend

policies

policies

explain corporate governance, describe the

9.28.

define corporate governance, describe the

objectives and core attributes of an effective

objectives and core attributes of an effective

corporate governance system, and evaluate

corporate governance system, and evaluate

whether a companys corporate governance

whether a companys corporate governance has

has those attributes

those attributes
9.28.

describe environmental, social, and governance

risk exposures

classify merger and acquisition (M&A)

9.29.

classify merger and acquisition (M&A) activities

activities based on forms of integration and

based on forms of integration and relatedness of

types of mergers
9.32.d

business activities

explain the relation between merger

9.29.

explain, based on industry life cycles, the

motivations and types of mergers based on

relation between merger motivations and types

industry life cycles

9.32.g

of mergers

calculate the HerfindahlHirschman Index,

9.29.

calculate and interpret the Herfindahl

and evaluate the likelihood of an antitrust

Hirschman Index, and evaluate the likelihood of

challenge for a given business combination

an antitrust challenge for a given business

combination

9.32.k

evaluate a merger bid, calculate the

9.29.

evaluate a merger bid, and calculate the

estimated post-merger value of an acquirer,

estimated post-merger value of an acquirer and

and calculate the gains accrued to the target

the gains accrued to the target shareholders

shareholders versus the acquirer

versus the acquirer shareholders

shareholders
9.32.m
9.32.n
9.32.o

describe empirical evidence related to the

9.29.

describe the characteristics of merger and

distribution of benefits in a merger

acquisition transactions that create value

distinguish among divestitures, equity carve-

9.29.

distinguish among equity carve-outs, spin-offs,

outs, spin-offs, split-offs, and liquidation

split-offs, and liquidation

explain major reasons for divestitures

9.29.

explain common reasons for restructuring

o
Equity

10.33

The candidate should be able to explain how

the classic works on asset valuation by
Graham and Dodd and John Burr Williams
are reflected in modern techniques of equity
valuation

10.34.a

define valuation and intrinsic value, and

10.30

define valuation and intrinsic value, and explain

explain possible sources of perceived

.a

sources of perceived mispricing

mispricing
10.34.

explain the going concern assumption,

10.30

explain the going concern assumption and

contrast a going concern value to a

.b

contrast a going concern value to a liquidation

liquidation value, and identify the definition

value

of value most relevant to public company

valuation
10.30

describe definitions of value, and justify which

.c

definition of value is most relevant to public

company valuation

10.34.

explain the elements of industry and

10.30

describe questions that should be addressed in

competitive analysis and the importance of

.e

conducting an industry and competitive analysis

evaluating the quality of financial statement

information

10.35.c

10.30

describe sum-of-the-parts valuation, and explain

.g

a conglomerate discount

estimate the required return on an equity

10.31

estimate the required return on an equity

investment using the capital asset pricing

.c

investment using the capital asset pricing

model (CAPM), the Fama French model

model, the FamaFrench model, the Pastor

(FFM), the Pastor Stambaugh model (PSM),

Stambaugh model, macro-economic multifactor

macroeconomic multifactor models, and the

models, and the build-up method (eg, bond yield

build-up method (e.g., bond yield plus risk

plus risk premium)

premium)
11.36.a

distinguish among the five competitive

11.32

distinguish among the five competitive forces

forces that drive industry profitability in the

.a

and explain how they drive industry profitability

medium and long run

11.36.

explain how competitive forces drive

industry profitability

11.37.a

explain key components that should be

included in an industry analysis model

11.37.

describe the life cycle of a typical industry

b
11.37.c

analyze the effects of business cycles on

industry classification (i.e., growth,
defensive, cyclical)

11.37.

analyze the impact of external factors (e.g.,

technology, government, foreign influences,

demography, and social changes) on
industries

11.37.e

describe inputs and methods used in

preparing industry demand and supply

in the medium and long run

analyses
11.37.f

explain factors that affect industry pricing

practices

11.38.a

describe how inflation affects the estimation

of cash flows for a company domiciled in an
emerging market

11.38.

evaluate an emerging market company

using a discounted cash flow model based

on nominal and real financial projections

11.38.c

explain arguments for adjusting cash flows,

rather than adjusting the discount rate, to
account for emerging market risks (e.g.,
inflation, macroeconomic volatility, capital
control, and political risk) in a scenario
analysis

11.38.

estimate the cost of capital for emerging

market companies, and calculate and

interpret a country risk premium

11.39.a

compare dividends, free cash flow, and

11.33

compare dividends, free cash flow, and residual

residual income as measures in discounted

.a

income as inputs to discounted cash flow

cash flow models, and identify investment

models, and identify investment situations for

situations for which each measure is suitable

which each measure is suitable

11.39.

calculate and interpret the value of a

11.33

calculate and interpret the value of a common

common stock using the dividend discount

.b

stock using the dividend discount model (DDM)

model (DDM) for one-, two-, and multiple-

for single and multiple holding periods

period holding periods

11.39.

calculate the implied growth rate of

11.33

calculate and interpret the implied growth rate

dividends using the Gordon growth model

.d

of dividends using the Gordon growth model and

and current stock price

current stock price

11.39.f
11.39.o

calculate the justified leading and trailing

11.33

calculate and interpret the justified leading and

P/Es using the Gordon growth model

.f

trailing P/Es using the Gordon growth model

demonstrate the use of spreadsheet

11.33

explain the use of spreadsheet modeling to

modeling to forecast dividends and value

.n

forecast dividends and to value common shares

common shares
12.40.

contrast the ownership perspective implicit

12.34

explain the ownership perspective implicit in the

in the FCFE approach to the ownership

.a

FCFE approach

contrast the recognition of value in the FCFE

12.34

compare the FCFE model and dividend discount

model with recognition of value in dividend

.f

models

12.34

evaluate whether a stock is overvalued, fairly

.m

valued, or undervalued based on a free cash

perspective implicit in the dividend discount

approach
12.40.f

discount models

flow valuation model

12.41.

interpret a justified price multiple

b
12.41.c

12.35

calculate and interpret a justified price multiple

.b
describe rationales for and possible

12.35

describe rationales for and possible drawbacks

drawbacks to using price multiples (including

.c

to using alternative price multiples and dividend

P/E, P/B, P/S, P/CF) and dividend yield in

yield in valuation

valuation
12.42.c

calculate the intrinsic value of a common

12.36

calculate the intrinsic value of a common stock

stock using the residual income model, and

.c

using the residual income model, and compare

contrast the recognition of value in the

value recognition in residual income and other

residual income model to value recognition

present value models

in other present value models

12.42.j

explain strengths and weaknesses of

12.36

explain strengths and weaknesses of residual

residual income models

income models, and justify the selection of a

residual income model to value a companys

common stock
12.42.k

justify the selection of a residual income

model to value a companys common stock

Alternativ

explain alternative definitions of value, and

12.37

explain various definitions of value, and

demonstrate how different definitions can

.c

demonstrate how different definitions can lead

Investme

lead to different estimates of value

nts

12.43.c

12.43.f

to different estimates of value

demonstrate the free cash flow, capitalized

12.37

calculate the value of private company using

cash flow, and excess earnings methods of

.f

free cash flow, capitalized cash flow, and/or

private company valuation

12.43.i

excess earnings methods

demonstrate the market approaches to

12.37

determine the value of a private company based

private company valuation (for example,

.i

on market approach methods, and describe

guideline public company method, guideline

advantages and disadvantages of each method

transaction method, and prior transaction

method), and describe advantages and
disadvantages of each
12.43.j
13.44.a

demonstrate the asset-based approach to

12.37

describe the asset-based approach to private

private company valuation

.j

company valuation

explain, for each type of real property

13.38

classify and describe basic forms of real estate

investment, the main value determinants,

.a

investments

investment characteristics, principal risks,

and most likely investors
13.44.

evaluate a real estate investment using net

present value (NPV) and internal rate of

return (IRR) from the perspective of an
equity investor

13.44.c

calculate the after-tax cash flow and the

after-tax equity reversion from real estate
properties

13.44.

explain potential problems associated with

using IRR as a measurement tool in real

estate investments
13.38

describe the characteristics, the classification,

.b

and basic segments of real estate

13.38

explain the role in a portfolio, the major

.c

economic value determinants, investment

characteristics, and principal risks of private real
estate

13.38

describe commercial property types, including

.d

their distinctive investment characteristics

13.38

compare the income, cost, and sales

.e

comparison approaches to valuing real estate

properties

13.38

estimate and interpret the inputs (for example,

.f

net operating income, capitalization rate, and

discount rate) to the direct capitalization and
discounted cash flow valuation methods

13.45.a

13.38

calculate the value of a property using the direct

.g

capitalization and discounted cash flow methods

explain the relation between a real estate

13.38

compare the direct capitalization and discounted

capitalization rate and a discount rate

.h

cash flow methods

13.45.

estimate the capitalization rate by the

market-extraction method, band-ofinvestment method, and built-up method,

and justify each methods use in
capitalization rate determination

13.45.c

estimate the market value of a real estate

investment using the direct income

capitalization approach and the gross

income multiplier technique
13.45.

contrast limitations of the direct

capitalization approach to those of the gross

income multiplier technique
13.38

calculate the value of a property using the cost

.i

and sales comparison approaches

13.38

describe due diligence in private equity real

.j

estate investment

13.38

discuss private equity real estate investment

.k

indices, including their construction and

potential biases

13.38

explain the role in a portfolio, the major

.l

economic value determinants, investment

characteristics, principal risks, and due diligence
of private real estate debt investment; and

13.38

calculate and interpret financial ratios used to

.m

analyze and evaluate private real estate

investments

13.39

describe types of publicly traded real estate

.a

securities

13.39

explain advantages and disadvantages of

.b

investing in real estate through publicly traded

securities

13.39

explain economic value determinants,

.c

investment characteristics, principal risks, and

due diligence considerations for real estate
investment trust (REIT) shares

13.39

describe types of REITs

.d
13.39

justify the use of net asset value per share

.e

(NAVPS) in REIT valuation and estimate NAVPS

based on forecasted cash net operating income

13.39

describe the use of funds from operations (FFO)

.f

and adjusted funds from operations (AFFO) in

REIT valuation

13.39

compare the net asset value, relative value

.g

(price-to-FFO and price-to-AFFO), and

discounted cash flow approaches to REIT
valuation

13.39

calculate the value of a REIT share using net

.h

asset value, price-to-FFO and price-to-AFFO, and

discounted cash flow approaches

Fixed

14.48.a

Income

distinguish among default risk, credit spread

risk, and downgrade risk

14.48.

explain and analyze capacity, collateral,

covenants, and character as components of

credit analysis
14.42

describe credit risk and credit-related risks

.a

affecting corporate bonds

14.42

describe seniority rankings of corporate debt

.b

and explain the potential violation of the priority

of claims in a bankruptcy proceeding

14.42

distinguish between corporate issuer credit

.c

ratings and issue credit ratings and describe the

rating agency practice of notching

14.42

explain risks in relying on ratings from credit

.d

rating agencies

14.42

explain the components of traditional credit

.e

analysis

calculate and interpret key financial ratios

14.42

calculate and interpret financial ratios used in

used by credit analysts

.f

credit analysis

14.48.

evaluate the credit quality of an issuer of a

14.42

evaluate the credit quality of a corporate bond

corporate bond, given such data as key

.g

issuer and a bond of that issuer, given key

14.48.c

financial ratios for the issuer and the

financial ratios for the issuer and the industry

industry
14.42

describe factors that influence the level and

.h

volatility of yield spreads

14.42

calculate the return impact of spread changes

.i
14.48.e

analyze why and how cash flow from

operations is used to assess the ability of an
issuer to service its debt obligations and to
assess the financial flexibility of a company

14.48.f

explain and interpret typical elements of the

corporate structure and debt structure of a
high-yield issuer and the effect of these
elements on the risk position of the lender

14.48.

describe factors considered by rating

agencies in rating asset-backed securities

14.48.

explain how the credit worthiness of

municipal bonds is assessed, and contrast

the analysis of tax-backed debt with the
analysis of revenue obligations

14.48.i

describe considerations used by Standard &

Poors in assigning sovereign ratings, and
explain why two ratings are assigned to each

national government
14.48.j

contrast the credit analysis required for

14.42

explain special considerations when evaluating

corporate bonds to that required for 1)

.j

the credit of high yield, sovereign, and municipal

asset-backed securities, 2) municipal

debt issuers and issues

securities, and 3) sovereign debt

14.49.a

explain parallel and nonparallel shifts in the

14.43

explain parallel and nonparallel shifts in the

yield curve, a yield curve twist, and a

.a

yield curve

change in the curvature of the yield curve

(i.e., a butterfly shift)
14.49.

calculate and interpret yield volatility,

14.43

calculate and interpret yield volatility,

distinguish between historical yield volatility

.g

distinguish between historical yield volatility and

14.50.a

and implied yield volatility, and explain how

implied yield volatility, and explain how to

yield volatility is forecasted

forecast yield volatility

evaluate, using relative value analysis,

14.44

evaluate, using relative value analysis, whether

whether a security is undervalued or

.a

a security is undervalued, fairly valued, or

overvalued
15.51.c

overvalued

calculate the prepayment amount for a

15.45

calculate the prepayment amount on a

month, given the single monthly mortality

.c

mortgage passthrough security for a month,

rate

given the single monthly mortality rate

Derivative

16.55.

describe the difficulties in pricing Eurodollar

16.49

describe the difficulties in pricing Eurodollar

futures

.g

futures and creating a pure arbitrage

opportunity

17.56.

demonstrate the historical volatility and

17.50

determine the historical and implied volatilities

implied volatility methods for estimating the

.h

of an underlying asset

describe the characteristics of a credit

17.53

describe the structure and features (reference

default swap, and compare a credit default

.a

entity, credit events, settlement method, CDS

future volatility of the underlying asset

17.59.a

swap with a corporate bond

spread) of credit default swaps (CDS)

17.59.

explain advantages of using credit

derivatives over other credit instruments

17.59.c

17.53

describe obligations of the protection buyer and

.b

seller and risks faced by each

17.53

compare CDS, total return swaps, asset swaps,

.c

and credit spread options

explain the use of credit derivatives by the

17.53

identify uses of CDS (such as, hedging exposure

various market participants

.d

to credit risk, enabling action on a negative

credit view, engaging in arbitrage between
markets)

15.59.

describe credit derivatives trading

strategies, and explain how they are used by

hedge funds and other managers
17.53

explain the relation among CDS spread,

.e

expected spread payments, and expected

default losses

Portfolio

18.61.a

explain the efficiency of the market portfolio

Managem

in the CAPM and the relation between the

ent

expected return and beta of an asset when

restrictions on borrowing at the risk-free rate
and on short selling exist
18.61.

describe practical consequences that follow

when restrictions on borrowing at the riskfree rate and on short selling exist.

18.62.a

explain international market integration and

segmentation and the impediments to
international capital mobility

17.53

describe risk management roles and activities of

.f

credit derivative dealers

18.62.

describe factors that favor international

market integration

18.62.c

explain the assumptions of the domestic

capital asset pricing model (CAPM)

18.62.

justify extension of the domestic CAPM to an

international context (extended CAPM), and

describe the assumptions needed to make
the extension

18.62.e

determine whether the real exchange rate

has changed in a period

18.62.f

calculate the expected 1) exchange rate and

2) domestic-currency holding period return
on a foreign bond (security)

18.62.

calculate the end-of-period real exchange

rate and the domestic-currency

ex-post return on a foreign bond (security)

18.62.

calculate a foreign currency risk premium,

and explain a foreign currency risk premium

in terms of interest rate differentials and
forward rates

18.62.i

state the risk pricing relation and the

formula for the international capital asset
pricing model (ICAPM), and calculate the
expected return on a stock using the model

18.62.j

explain the effect of market segmentation on

the ICAPM

18.62.k

define currency exposure, and explain

exposures in terms of correlations

18.62.l

describe the likely exchange rate exposure

of a company based on the companys
activities, and explain the impact of both
real and nominal exchange rate changes on
the valuation of the company

18.62.

explain currency exposures of national

economies, equity markets, and bond

markets

18.62.

contrast the traditional trade approach (J-

curve) and the money demand approach to

modeling the relation between real
exchange rate changes and domestic
economic activity