Sample Exam 1: 3. How was misrepresentation violated? I can argue that suitability was violated in that they didn’t judge the investment using the prudent man rule - the fund could have already been concentrated in that security. 6. How was the order of trading a violation? The hedge fund, a client, traded first, and then the employees traded. 15. Is the answer B? Answer key says C, but the answer they give, 3.66%, is choice B in the exam. 20. Why was 6.0 used as the portfolio duration? Are we not taking into account the duration of the liabilities, since this is a leveraged portfolio? Sample Exam 2: 10: The PM purchases stocks “with market prices most below the intrinsic value estimated by his model”. How is this a market-oriented strategy and not a value strategy? 23: Net of fee returns are required in performance presentations? I don’t see that in GIPS. I thought that you could use either gross or net of fee returns. 30. Industrial metals is not a good inflation hedge? It is storable.
Ethics is a crap shoot, just read the passage carefully and do the best you can.
bpdulog Wrote: ------------------------------------------------------- > Ethics is a crap shoot, just read the passage > carefully and do the best you can. #20.) don’t get me started. not only did they not account for liability duration, they only used the value of the assets in the portfolio. #10.) I was annoyed by this, but sifting through the text looking for something else, this is an exact quote out of CFAI. If they mention intrinsic value based purchases, go with market directional #23.) Gross or Net is allowed. The answer misleads you into thinking Net is required, but it’s just because the nature of the choices… i.e. that was the combination of “needed” requirements… not necessarily that Net is required in and of itself. #30.) both are good, but according to cfgay, energy is better because it is “directly related to the intensity of the economy” or some such bullshit like that.
good to bad inflation hedge descending ordered list with reasoning: 1) Energy (Crude Oil, Heatnig Oil, Gas are all storable PLUS they are higher correlated with Econ activity) 2) Precious Metals (Manufacturers need them plus safe haven assets that don’t lose value) 3) Industrial Metals (like Copper- in high demand in booming economy, right when inflation is high) 4) Agricultural Commodity (Perishable plus high storage cost, think humidity and cliamate controlled) 5) Livestock (Pigs and Cows make poop, maybe you can use it for shortages in peak demand for Energy)
#23) But you don’t need Columns 2 & 5, you can have columns 1 & 5…
Bump
I will go with energy for inflation hedging for the exam… but for argument sake Most of the resource consumption is by consumers not business. If all the prices go up, energy vs food ( grains and live stock). people can cut down power and other stuff, but they cant stop eating. so no matter how much the price rise is due to inflation, I think producers can do the price hike. Realistically, take countries that are currently experiencing above average inflation, I think cost of food went up with inflation. % change in price of food is greater than the % rise in energy. This pattern can be seen in developing/emerging markets where the inflation risk is high.
Sample Exam 1: #22 That’s a question about to hedge or not hedge the currency exposure. There are 2 bonds: UK and Eurozone. After calculating all the forward discounts/premiums and the expected appreciation/depreciation of both bonds, I found none of them should be hedged… but the answer says Euro bonds should be hedged… did anyone come across this??
- It is very tricky. They have similar question like that in EOC. Misrepresentation could be violated but not definitely suitability because he tells that in the first sentence 6. They did not definitely distort the market prices 15. Answer is B. Incorrectly quotes as C. 20. you only take the leverage when they are trying to calculate the equity duration not on this calculation
- The IRP and forward discount is the same but the expected rates are much less for GBP. So it is better to hedge in pounds They way I tackled this question 1. Check what would be unhedged changed based on difference in RFR 2. Check the IRP 3. Check if they give expected rates. If expected rates hedge depreciates less than IRP, use the hedge
drk Wrote: ------------------------------------------------------- > 22. The IRP and forward discount is the same but > the expected rates are much less for GBP. So it is > better to hedge in pounds > > They way I tackled this question > > 1. Check what would be unhedged changed based on > difference in RFR > 2. Check the IRP > 3. Check if they give expected rates. If expected > rates hedge depreciates less than IRP, use the > hedge why don’t they hedge against domestic currency Kronor given the fact that both currencies will depreciate ?
But they could have gained more by hedging in GBP compared to the other one.