Fear of Derivatives and Fixed Income - Tips?

Hey Guys!

First time poster. I’ve taken the CFA L2 test once before and failed. I had a lot of trouble getting through the FI/ Derivatives material mainly because I couldn’t manage to retain most of it on test day. I work best when the topic area is based on logical foundations and I can’t, for the life of me, figure out how to relate the material on FI/ Derivatives to what I encounter in my work. Any tips on how I can survive the Fixed Income/ Derivatives section this time around? How’d you guys study for it and what was your study strategy? Thanks in advance for taking the time to type out a reply. Good luck to all L2 candidates also in the same boat as me!

Wiley’s Level 2 videos on Fixed Income and Derivatives were great prep for me.

I think practice is the key , practice more , there is no hard and fast rule for that. Also, to avoid confusion, avoid referring these 2 subjects from multiple source, use only one study material , i think CFAI books will be sufficient.

Thank you! I’ll look into purchasing the videos and use the CFAI material as my primary source.

Look for David Hetherington’s videos which explain the calculations from basic principles … no formula involved in any of those calculations.

They were a great resource for me when I was at Level 2.

Thanks! That’s a resource I’d never heard about before this, really appreciate it!

My general advice would be to start with some easy pieces, and then reevaluate. For example, with derivatives you can begin with:

  • The difference between the payer and receiver side of a swap (just definitions)
  • The greeks (how directional changes changes the output)
  • Put-Call parity

These are all areas that are ripe for CFA LII questions and not difficult to understand. Within an hour, you can probably learn these well enough to answer CFA questions. And if you review them a few times before the exam you will likely be able answer to answer their questions correctly.

Same for Fixed Income. Look for the stuff that is easy for you.

The 50-70% range is very achievable without even coming close to mastering the material. Not everything in Fixed income and Derivatives is “hard”.