CFA Level 1 Volume 2

✍ Scribed by CFA Institute

• Year: 2023
• Tongue: English
• Leaves: 617
• Category: Library

✦ Table of Contents

How to Use the CFA Program Curriculum
Errata
Designing Your Personal Study Program
CFA Institute Learning Ecosystem (LES)
Feedback
Economics
Learning Module 1 Topics in Demand and Supply Analysis
Introduction
Demand Concepts
Demand Concepts
Price Elasticity of Demand
Extremes of Price Elasticity
Predicting Demand Elasticity, Price Elasticity and Total Expenditure
Elasticity and Total Expenditure
Income Elasticity of Demand, Cross-Price Elasticity of Demand
Cross-Price Elasticity of Demand
Substitution and Income Effects; Normal Goods, Inferior Goods and Special Cases
Normal and Inferior Goods
Supply Analysis: Cost, Marginal Return, and Productivity
Marginal Returns and Productivity
Economc Profit Versus Accounting Profit
Economic Cost vs. Accounting Cost
Marginal Revenue, Marginal Cost and Profit Maximization; Short-Run Cost Curves: Total, Variable, Fixed, and Marginal Costs
Understanding the Interaction between Total, Variable, Fixed, and Marginal Cost and Output
Perfect and Imperfect Competition, Profit Maximization
Profit-Maximization, Breakeven, and Shutdown Points of Production
Breakeven Analysis and Shutdown Decision
The Shutdown Decision
Economies and Diseconomies of Scale with Short-Run and Long-Run Cost Analysis
Short- and Long-Run Cost Curves
Defining Economies of Scale and Diseconomies of Scale
Summary
Practice Problems
Solutions
Learning Module 2 The Firm and Market Structures
Analysis of Market Structures
Analysis of Market Structures
Perfect Competition
Demand Analysis in Perfectly Competitive Markets
Elasticity of Demand
Other Factors Affecting Demand
Consumer Surplus: Value Minus Expenditure
Supply Analysis, Optimal Price, and Output in Perfectly Competitive Markets
Optimal Price and Output in Perfectly Competitive Markets
Long-Run Equilibrium In Perfectly Competitive Markets
Monopolistic Competition
Demand Analysis in Monopolistically Competitive Markets
Supply Analysis in Monopolistically Competitive Markets
Optimal Price and Output in Monopolistically Competitive Markets
Long-Run Equilibrium In Monopolistic Competition
Oligopoly and Pricing Strategies
Demand Analysis and Pricing Strategies in Oligopoly Markets
The Cournot Assumption
The Nash Equilibrium
Oligopy Markets: Optimal Price, Output, and Long-Run Equilibrium
Optimal Price and Output in Oligopoly Markets
Factors Affecting Long-Run Equilibrium in Oligopoly Markets
Monopoly Markets: Demand/Supply and Optimal Price/Output
Demand Analysis in Monopoly Markets
Supply Analysis in Monopoly Markets
Optimal Price and Output in Monopoly Markets
Price Discrimination and Consumer Surplus
Monopoly Markets: Long-Run Equilibrium
Identification of Market Structure
Econometric Approaches
Simpler Measures
Summary
References
Practice Problems
Solutions
Learning Module 3 Aggregate Output, Prices, and Economic Growth
Introduction
Aggregate Output and Income
Gross Domestic Product
The Components of GDP
GDP, National Income, Personal Income, and Personal Disposable Income
Relationship among Saving, Investment, the Fiscal Balance and the Trade Balance
Aggregate Demand and Aggregate Supply
Aggregate Demand
Aggregate Supply
Shifts in the Aggregate Demand Curve
Equilibrium GDP and Prices
Economic Growth and Sustainability
The Production Function and Potential GDP
Sources of Economic Growth
Measures of Sustainable Growth
Measuring Sustainable Growth
Summary
References
Practice Problems
Solutions
Learning Module 4 Understanding Business Cycles
Introduction
Overview of the Business Cycle
Phases of the Business Cycle
Leads and Lags in Business and Consumer Decision Making
Market Conditions and Investor Behavior
Credit Cycles and Their Relationship to Business Cycles
Applications of Credit Cycles
Consequences for Policy
Business Cycle Fluctuations from a Firm’s Perspective
The Workforce and Company Costs
Fluctuations in Capital Spending
Fluctuations in Inventory Levels
Consumer Behavior
Consumer Confidence
Measures of Consumption
Income Growth
Saving Rates
Housing Sector Behavior
Available Statistics
Sensitivity to Interest Rates and Relationship to Credit Cycle
The Role of Demographics
Impact on the Economic Cycle
External Trade Sector Behavior
Cyclical Fluctuations of Imports and Exports
The Role of the Exchange Rate
Overall Effect on Exports and Imports
Theoretical Considerations
Historical Context
Neoclassical Economics
The Austrian School
Monetarism
Keynesianism
Modern Approach to Business Cycles
Economic Indicators
Types of Indicators
Composite Indicators
Leading Indicators
Using Economic Indicators
Other Composite Leading Indicators
Surveys
The Use of Big Data in Economic Indicators
Nowcasting
GDPNow
Unemployment
Unemployment
Inflation
Deflation, Hyperinflation, and Disinflation
Measuring Inflation: The Construction of Price Indexes
Price Indexes and Their Usage
Explaining Inflation
Summary
References
Practice Problems
Solutions
Learning Module 5 Monetary and Fiscal Policy
Introduction to Monetary and Fiscal Policy
Monetary Policy
Money: Functions, Creation, and Definition
The Functions of Money
Paper Money and the Money Creation Process
Definitions of Money
Money: Quantity Theory, Supply and Demand, Fisher Effect
The Demand for Money
The Supply and Demand for Money
The Fisher Effect
Roles of Central Banks & Objectives of Monetary Policy
The Objectives of Monetary Policy
The Costs of Inflation
Monetary Policy Tools
Open Market Operations
The Central Bank’s Policy Rate
Reserve Requirements
The Transmission Mechanism
Inflation Targeting
Central Bank Independence 
Credibility
Transparency
Exchange Rate Targeting
Monetary Policies: Contractionary, Expansionary, Limitations
What’s the Source of the Shock to the Inflation Rate?
Limitations of Monetary Policy
Roles and Objectives of Fiscal Policy
Roles and Objectives of Fiscal Policy
Deficits and the National Debt
Fiscal Policy Tools
The Advantages and Disadvantages of Using the Different Tools of Fiscal Policy
Modeling the Impact of Taxes and Government Spending: The Fiscal Multiplier
The Balanced Budget Multiplier
Fiscal Policy Implementation
Deficits and the Fiscal Stance
Difficulties in Executing Fiscal Policy
The Relationship between Monetary and Fiscal Policy
Factors Influencing the Mix of Fiscal and Monetary Policy
Quantitative Easing and Policy Interaction
The Importance of Credibility and Commitment
Summary
References
Practice Problems
Solutions
Learning Module 6 Introduction to Geopolitics
Introduction
National Governments and Political Cooperation
Features of Political Cooperation
Motivations for Cooperation
Resource Endowment, Standardization, and Soft Power
The Role of Institutions
Hierarchy of Interests and Costs of Cooperation
Power of the Decision Maker
Political Non-Cooperation
Non-State Actors and the Forces of Globalization
Features of Globalization
Motivations for Globalization
Costs of Globalization and Threats of Rollback
Assessing Geopolitical Actors and Risk
Autarky
Hegemony
Multilateralism
Bilateralism
The Tools of Geopolitics
National Security Tools
Economic Tools
Financial Tools
Multi-Tool Approaches
Geopolitical Risk and Comparative Advantage
Incorporating Geopolitical Risk into the Investment Process
Types of Geopolitical Risk
Assessing Geopolitical Threats
Tracking risks according to signposts
Manifestations of Geopolitical Risk
Acting on Geopolitical Risk
Summary
Practice Problems
Solutions
Learning Module 7 International Trade and Capital Flows
Introduction & International Trade-Basic Terminology
International Trade
Patterns and Trends in International Trade and Capital Flows
Benefits and Costs of International Trade
Comparative Advantage and the Gains from Trade: Absolute and Comparative Advantage
Gains from Trade: Absolute and Comparative Advantage
Ricardian and Heckscher–Ohlin Models of Comparative Advantage
Trade and Capital Flows: Restrictions & Agreements- Tariffs, Quotas and Export Subsidies
Tariffs
Quotas
Export Subsidies
Trading Blocs, Common Markets, and Economic Unions
Capital Restrictions
Balance of Payments- Accounts and Components
Balance of Payments Accounts
Balance of Payment Components
Paired Transactions in the BOP Bookkeeping System
Commercial Exports: Transactions (ia) and (ib)
Commercial Imports: Transaction (ii)
Loans to Borrowers Abroad: Transaction (iii)
Purchases of Home-Country Currency by Foreign Central Banks: Transaction (iv)
Receipts of Income from Foreign Investments: Transaction (v)
Purchase of Non-financial Assets: Transaction (vi)
National Economic Accounts and the Balance of Payments
Trade Organizations
International Monetary Fund
World Bank Group
World Trade Organization
Summary
References
Practice Problems
Solutions
Learning Module 8 Currency Exchange Rates
Introduction & The Foreign Exchange Market
The Foreign Exchange Market
Market Functions
Market Participants, Size and Composition
Market Size and Composition
Exchange Rate Quotations
Exchange Rate Quotations
Cross-Rate Calculations
Forward Calculations
Exchange Rate Regimes- Ideals and Historical Perspective
The Ideal Currency Regime
Historical Perspective on Currency Regimes
A Taxonomy of Currency Regimes
Arrangements with No Separate Legal Tender
Currency Board System
Fixed Parity
Target Zone
Active and Passive Crawling Pegs
Fixed Parity with Crawling Bands
Managed Float
Independently Floating Rates
Exchange Rates and the Trade Balance: Introduction
Exchange Rates and the Trade Balance: The Elasticities Approach
Exchange Rates and the Trade Balance: The Absorption Approach
Summary
References
Practice Problems
Solutions
Financial Statement Analysis
Learning Module 1 Introduction to Financial Statement Analysis
Introduction
Scope of Financial Statement Analysis
Major Financial Statements - Balance Sheet
Financial Statements and Supplementary Information
Statement of Comprehensive Income
Income Statement
Other Comprehensive Income
Statement of Changes in Equity and Cash Flow Statement
Cash Flow Statement
Financial Notes, Supplementary Schedules, and Management Commentary
Management Commentary or Management’s Discussion and Analysis
Auditor's Reports
Other Sources of Information
Financial Statement Analysis Framework
Articulate the Purpose and Context of Analysis
Collect Data
Process Data
Analyze/Interpret the Processed Data
Develop and Communicate Conclusions/Recommendations
Follow-Up
Summary
References
Practice Problems
Solutions
Learning Module 2 Financial Reporting Standards
Introduction
The Objective of Financial Reporting
Accounting Standards Boards
Accounting Standards Boards
Regulatory Authorities
International Organization of Securities Commissions
The Securities and Exchange Commission (US)
Capital Markets Regulation in Europe
The International Financial Reporting Standards Framework
Qualitative Characteristics of Financial Reports
Constraints on Financial Reports
The Elements of Financial Statements
Underlying Assumptions in Financial Statements
Recognition of Financial Statement Elements
Measurement of Financial Statement Elements
General Requirements for Financial Statements
Required Financial Statements
General Features of Financial Statements
Structure and Content Requirements
Comparison of IFRS with Alternative Reporting Systems
Monitoring Developments in Financial Reporting Standards
New Products or Types of Transactions
Evolving Standards and the Role of CFA Institute
Summary
Practice Problems
Solutions