Hi all, Has anybody looked at this reading? Seems really difficult. Any thoughts? S
It is. Once you get it though you will have an area of competitive advantage over other candidates. The best advice I got on handling these was to draw a time line (thanks slouiscar). All you are doing is swapping cash flows. Once you get the timeline in your head it becomes as easy as a TVM calculation at level I. Don’t give up on it. It will click.
Thanks for your advice mate. I kind of started with reverse approach- to read things that I am not familiar with and got stuck with this one. Best S
If you have schweser look at their explanation of how the floating side acts like a reset note. At every payment date the note resets to the current interest rate and will trade at par. You can then discount this number using the rate of the swap. This is a sticking point for many people (it was for me).
Make sure you learn these in and out - guaranteed two questions (at least) on the exam. Also, make sure to know Swaptions COLD, guaranteed question.
Thanks CardShark. Sounds pretty tricky. DO you mean to master all of the valuation of swaps- interest rate, currency, equity. I have barely understood the first one. S
solar. don’t worry. it takes at least two readings then something eventually clicks. i was freaked out about swaps on my first read too but by the time the test came around, i was hoping for swaps to show up. and got it, like cardshark mentioned. i think he’s right, you can almost bet swaps will show up in some form on the test… and mwvt is spot on about the timeline, it helps to visualize it… and once you get it, you’ve got an advantage going into the test. good luck.
yeah, i think this is classic “hard at first” but easy once you get the hang of it… as opposed to translation and pensions which i never felt that comfortable. pensions and compensation just had so much irrelevent detail (but i didn’t really know whether i needed to learn it).
westbruin Wrote: ------------------------------------------------------- > yeah, i think this is classic “hard at first” but > easy once you get the hang of it… as > opposed to translation and pensions which i never > felt that comfortable. pensions and compensation > just had so much irrelevent detail (but i didn’t > really know whether i needed to learn it). That’s because swaps have nice mathematical structure that looks impsong until you figure it out and then it has this great foundation. Pensions is just wacky made-up BS. It doesn’t even try to have the same kind of structure that most accounting has.
> That’s because swaps have nice mathematical > structure that looks impsong until you figure it > out and then it has this great foundation. > Pensions is just wacky made-up BS. It doesn’t > even try to have the same kind of structure that > most accounting has. ok here’s a good place to ask this: why doesn’t the cfa teach credit and debit entries like a normal accounting course? that’s one of my key criticisms. the CFA is very comprehensive (much more than a finance MBA i think), but it seems so dumbed-down and memorization-intensive. i guess that’s the reality when it’s a multiple-choice exam.
Because CFA isn’t teaching accounting. It’s teaching financial statement analysis.
Re: credit and debit entries To a certain extent, this is just assumed background knowledge. I don’t think writing out a bunch of T accounts would provide any added benefit for charterholders (rather it would be a waste of time). Re: SWAPS KNOW SWAPS INSIDE OUT. You can rest assured that they will be tested. Either really know how to do them, or you don’t… If you really know this sh!t, there’s no reason not to go 6/6 or 12/12 on the SWAP/derrivatives item sets. Two perfect item sets can be the difference maker if you are borderline in other areas.