Most difficult Level 2 topic

I saw this thread on the L3 forum and wanted to know what do you guys think is the hardest topic in L2 so maybe when i find my self about to study it, i will keep my guard up

Its actually a very subjective stuff my friend, unfortunately.

General consensus or stuff I have heard from people is:

  1. Currency translations

  2. Black scholes stuff and its understanding

  3. FRA - Pensions stuf…

  4. Derivatives

But IMHO, if you prepare Pensions stuff and do your problems well - its quite doable… Now coming to the topics I dreaded personally:

  1. Alternative Investments - come what may I cant seem to get more than 50 in this. L1 and L2 got less than 50

  2. Swaps in Derivatives -

From a multiple retaker:

  1. Intercorporate Investments/ Goodwill in particular/ Partial Consolidation/ Equity Method etc. (by far the hardest there really can’t be any debate)

  2. Swaps (Initially even though once you intuit it it’s not so bad. Even though the way it was tested last year was dirty)

  3. Residual Income/ Random Equity Vignette (always one of these and it’s brutal, FRA is pretty defined what you’ll have, equity will give you a curve ball)

Pensions/ Currency Translations are really simple, they’re just memorization of whether to use current/ temporal, how the ratios are affected, what the economic pension expense is etc. They are intimidating at first but are really gimme points.

Anything to do with Accounting.

Derivatives is hard but you can pass the exam and fail derivatives.

Portfolio Management and Quants can be vague, thus making them more difficult thatn the need to be.

Alternative Investment has easy and hard parts.

Fixed Income has a lot of material to go over but it’s not worth as much as Accounting or Equity so spend your time wisely.

I haven’t gotten to it yet, but I’m curious what the consolidation is like. I’m asking because I sometimes have to consolidate financial statements for my job. Is it just the process of eliminating double counting entires and things, or is it something else? If it’s what I already have to do, I’ll be very happy :slight_smile: ha ha

I personally found pensions to be fairly straight forward, as long as you learn the 3 or 4 calculations about how the various entries interlink. It was only made slightly hard by the fact that the CFAI text and Schweser contradicted each other.

Derivatives was easy to go through and learn, but it’s the one area where I found the mock exam questions to be a lot harder than the EOCs…in one of the mock papers there was a question about PVing a cross-currency swap that I couldn’t even follow with the ansers in front of me!

In respect of what I found difficult, the section on CDO’s/MBS’s was particularly tedious as there is quite a lot to cover.

Rawraw - consolidation refers to one of the methods for merging the accounts of two or more companies where there are aquisitions/mergers/JV’s etc. There are several methods you need to understand around this.

Of course it wasn’t going to be that easy lol

Of course not :slight_smile:

and just to make it harder (unless it’s changed), they even get you studying the ‘pooling method’, which isn’t even allowed anymore!

My subjective opinion:

  1. Calculation of values of swaps in the middle of the term

  2. Pension accounting

  3. Implications of different key rate durations for portfolios with the same overall durations

  4. Equity method vs consolidation method vs investments

  5. Differences between GAAP and IFRS rules for reclassifying securities among held for maturity, available for sale, designated at fair value and held for trading.

  6. Current rate vs translation and rules for hyperinflationary environment

Much respect for making it to level 3, but I don’t see why people are constantly saying pension accounting. This section really is pretty simple memorization.

Economic Pensions Expense: Ending Funding - Beginning Funding Status- contributions

Implications of increasing discount rate/ contributions/ asset class assumptions on funding status.

The difference in funding status between IFRS and GAAP

Pension Expense: Service cost + Interest Cost – expected return on plan assets + prior service costs + unexpected cost + unexpected actuarial losses, which is convoluted but somewhat intuitve.

Key rate duration is also simple 1+1 = 2 type of stuff, higher duration more it will affect the price will be by interest rate moves then just simply add how the bonds are distributed whether ladder, barbell, or bullet.

5 would have been #2 that section is a huge pain, and I wish it was still tested on Level 1. 6 is rarely tested with the hyperinflation, and if you learn the current/ temporal table, remember current is less strict so functional and opearting currency will be the same, you should be ok.

I heard pension has become very easy this year. Mainly because of the convergence between IFRS and US GAAP. Can someone confirm?

SpyAli source plz?

i find anything with an accounting component rather daunting (eventhough oddly enough it saved my bum in the exam)…computationally, swaps were a bit of a nightmare and exam questions on derivatives tend to be quite different from syllabus examples angry

The quante part of the syllabus was quite easy (easy points here)

Ethics is what it is indecision

But friend - IMHO, the pension stuff earlier was the way Net Pension Asset/Liability was defined right? Sorry I dont recollect any other difference. Please pardon my ignorance or my memory if that was not the case :frowning:

But the difficulty was due to the fact that this was explained in the text in the most complex way. Even Schweser was doing an extremely dirty job on it… But thankfully for me a professor here explained this beautifully for me with a presentation. I remember my email study partner telling me Elan did it the same way. I really suggest you try to get hold of that notes to read this. Believe me, its extremely easy in first place.

If they have made it easier by having only IFRS well and good, but give Elan a try if you can seriously… All the very best guys/gals!

To me all of the topics are difficult in L2 curriculums, but notiably Derivatives and FSA. Not only the concept on these topics are difficult to understand, but also the L2 CFA books are horribly written on these topics.

Heard from a friend who is retaking. Sorry i haven’t registered yet so can’t confirm!

Hey Sooraj i did study from Elan. Their reading was ok, not that great IMO. I think they could have done a more better job on it. Hope they can improve it this time. I found a thread on this forum, Pension Are Easy, which really helped me in getting the bigger picture.

Anyway, I hope what my friend has said comes true, then we really wouldn’t need to worry about pensions.

Repeat Post!

Gee, I dunno, I just started reading CFAI Quant,and my Dickey is already Fuller.

Based on the recent 2012 results, FRA, Eq Investments and Derivatives are the weak points for candidates that didn’t pass. Especially Equity Inv - the difference between passing and failing candidates in that topic was fairly significant.