Which areas are you most comfortable with so far?

CFA Level II
#1

Hey guys,

It would be nice to share your strengths and weaknesses, in teams of topic areas…It could be as specific as you want.

For example: I feel so comfortable with triangular arbitrage - I can up the bitch and down that ass!! anyday!!

Fixed income, Derivatives and Alt Inv i’d say that i’m 70% ready, or at lease i don’t feel lost.

FRA, Equity and PM i’m 50% there, but Quant, as the name suggests, is still damn heavy on me. Funny enough i did really well on the CFAI online practice test for Quant, i don’t get it!

I had Equity on lockdown, but it kind of excaped as i grappled with FI and Derivatives…

Where do you stand?

#2

According to the 5 mock exams I have taken so far… My strength is Quant 83% while my weakness is Derivatives 54%. Six sections testing between 65-75% so I expect to be right around the MPS. Just not sure which side.

#3

I scored below 70% on all 4 mock exams i’ve taken but i scored 5/6 on each quant practice test from CFAI…

65-75% is alright, you have another week to jump over the fence .

#4

Surprisingly derivatives. Something finally clicked - it’s really not that bad!

Gosh I hope there’s an extra vignette or two - give me a swaption or an FRA any day over nonsense accounting rules.

#5

Yep, same here. Derivatives is going well.

On the flip side I just got a merger type (vertical, backward???) and an HHI question wrong in a corp finance vignette. I don’t even have notes on that stuff because it’s so easy. I need to slow down. Feel like Rasec right now.

#6

lol

#7

For Derivatives/Quants/Fixed Income, there’s probably like one or two calculations questions. The rest are all conceptual/fact based questions. Go with those first.

I like Equity Swap, Receiver/Payer Swaptions. Just plug in the formula.

I also like Gordon Growth model questions and simple FCFE/FCFF formulas.

For Economics, I can’t seem to figure out Triangular arbitrage for the life of me and wont waste my time on those.

ACCOUNTING just sucks big time!!!

#8

Suppose you are given:

EUR/USD = x JPY/EUR = y USD/JPY = z

arrange the three rates in 2 different sequences such that the rates cancel each other out and the LHS = 1, for example

A. (EUR/USD) * (JPY/EUR) * (USD/JPY) = 1 (sell USD to buy EUR, use EUR to buy JPY, use JPY to buy USD back)

B. (JPY/USD) * (EUR/JPY) * (USD/EUR) = 1 (sell USD to buy JPY, use JPY to buy EUR, use to EUR to buy USD back)

In each path A & B, USD is the base you start with and then end up with.

Now, for the path with RHS of the equation : xyz > 1; Arbitrage opportunity exists and the profit to be made starting with $1 = xyz - 1 (path A)

profit with path B = [1/(xyz)] - 1

(note you might have to invert the quotes in path B. This method works with mid quotes as well as with bids and asks. You can start with either all bids or asks but will have to switch to the other each time you need to flip the given quote).

Example:

USD/CHF:: 0.9350 - 0.9352 JPY/USD :: 91 - 92 JPY/CHF :: 83 - 84

CHF is the base currency in this example.

Suppose you start with CHF to buy USD, then use USD to buy JPY and finally use JPY to buy CHF back. This wil result in

(USD / CHF) * (JPY / USD) * (CHF / JPY)

start with all bids using bid for CHF/JPY = 1 / (ask for JPY/CHF)

0.9350 x 91 x 1/84 = 1.012917 > 1 (Arbitrage opportunity exists)

You can make (1.012917 - 1) * 1000000 = CHF 12917 starting with CHF 1m

Alternatively, if you start with CHF to buy JPY, then use JPY to buy USD and finally use USD to buy CHF back. This wil result in

(JPY / CHF) * (USD / JPY) * (CHF / USD) = 83 * 1/92 * 1/.9352 = 0.9646855 (<1 No arbitrage profit)

Credits to CFASniper

#9

+1

#10

Wow, thanks!

So quick summary is just have 2 different sequences such that it cancels out.

Line up all the bids and invert if necessary. And you’re saying it doesnt matter if its mixed (bids, mids, asks) when you multiply it???

Then the path with a value > 1 is the path with arbitrage?

#11

Exactly. The path with (for example) 1.004567 is the one with arbitrage.

The profit is (1.004567 - 1) * principal.

I assume you know how to invert pairs. Pretty straightforward this way.

#12

None.