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CFA Level 2 Economics

The self-made mind maps, suitable for JC online courses, are compiled based on personal understanding of the teaching materials. You can add or remove them according to your review situation. I hope it can help you clarify your knowledge and improve your learning efficiency. I wish you all good luck in the exam~ For your reference, I hope you can get on board as soon as possible!

Edited at 2021-05-31 16:34:26

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CFA Level 2 Economics

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economics

Forex

1. Factors influencing bid-ask spread

the spread quoted by the dealer

interbank;size;realtionship

interbank spread

currency pair; time of the day; market volatility; maturity

3.market to market value calculation

Sign an inverse contract with the same expiration date at time t, and close the original contract position.

Calculate the value at the expiration time point

Discount the value at the expiration time point to time point t, and calculate the value at time point t

Pay attention to the currency of the price

4.1 interest rate parity

covered IRP

1. Calculation

F/S=（1 rx）/(1 ry)

F or S; forward point; forward point in%

2. Arbitrage process and profit

3.Conclusion

FX risk fully hedged

y foreign country = y home country = r home country

covered: Signing a forward contract so there is no FX risk

Established based on arbitrage mechanism

uncovered IRP

1. Calculation

E(S1)/S=（1 rx）/(1 ry)

2.Conclusion

Not true in the short term, true in the long term

Forecast exchange rate trends

rx>ry, y appreciates and x depreciates

risk netural

There is no risk in our country, but there is FX risk in foreign countries. The return of both is the same.

forward rate parity

covered&uncovered IRP established at the same time

The forward rate is an unbiased estimate of the future spot rate.

Not true in the short term, true in the long term

4.2.purchase power parity

absolute PPP

Launched fx by P based on law of one price, eg: Big Mac Burger

relative PPP

ex-post

ex-ante

E(S1)/S=（1 Ix）/(1 Iy)

Not true in the short term, true in the long term

Forecast exchange rate trends

Ix>Iy, x depreciates and y appreciates

4.3 international fisher realtion

assumption

Real IRP: Rreal(X)=Rreal(Y)

in conclusion

The difference between the interest rates of the two countries is equal to the difference between the expected inflation rates of the two countries.

Not true in the short term, true in the long term

Small conclusion

uncovered IRP; ex-ante relative PPP; international fisher realtion

Two of them are true, and the third one must be true.

internatonal parity relationship

trilemma

5.long run fair value of FX

FXr;mean reverting

Based on relative PPP

determine its method

Sustainability of the scale of foreign loans; international trade; econometrics

6.FX carry trade

6.1 Calculate carry trade profit

Low interest rate for borrowing and high interest rate for investment

6.2 Conclusion

Related to uncovered IRP

If established, profit=0

risk

Investment decreases, funding increases value

7.The impact of BOP on FX

current account

the flow supply/demand channel

the portfolio balance channel

the debt sustainability channel

financial account

play a decisive role

Capital inflow and outflow

Short-term exchange rate factors

FXa/b=FXr (rb-ra)-(RPb-RPa)

Inspection object b

8.FX determination models

mundel-fleming model

Floating exchange rate system, high capital circulation

Floating exchange rate system, capital cannot be highly circulated

Fixed exchange rate system, high capital circulation

Monetary Policy

Fiscal policy

double expansion

the monetary approach

pure monetrary model

relative PPP

long

overshooting

short term

M-F

long

pure monetrary model

Portfolio balance models

M-F

short term fiscal policy

expansion

Appreciation of local currency

PBM

long term fiscal policy

expansion

Currency depreciation

9.FX management

More effective for emerging countries (large foreign exchange reserves)

Economic Growth

1 Sources of economic growth

2 Relationship with capital market

stock market

long run

P =GDP * E/GDP * P/E

potiential GDP change rate = stock market price performance change rate

potential GDP

~higher,real interest rate/expected real asset return higher

3 Production function

3.1 Formulas and properties

consant return to scale

3.2 Deformation

△%y=△%A α△%k

Related conclusions

diminishing marginal productivity

The driving effect of k on y

Capital deepening: Calculate α△%k=△%y-△%A (more effective for developing countries)

movement along

Growth rate of labor productivity= Growth rate of TFP Growth rate of capital deepening (assuming labor force is constant), look at the absolute value

k capital to labor

y output per worker(labor productivity)

the growth accounting equation △%Y=△%A α△%k (1-α)△%L

labor productivity growth accounting equation △%Y=△%y △%L

4 5 factors affecting economic growth

natural resource: is not so straightforward. Phenomenon: dutch disease (a country rich in oil, due to oil exports, the currency appreciates, and exports in other industries decline)

labor supply factors

human capital(educated,skilled)

capital

technological development

5 Economic Growth Theory

classical

The reason for economic growth is technological progress (accidental), and the conclusion will eventually return to equilibrium

neoclassical (long term)

The cause of economic growth is technological progress (accidental, exogenous), and the conclusion will eventually return to equilibrium.

Calculate g* G*

equilibruium sustainable growth rate of per capital△%y

sustainable growth rate of output △%Y

4 Conclusion

long run,K ,cause Y , not effect △%Y

The effect of k on y is diminishing at the margin, and it relies on TFP in the long run.

convergence

the initial impact of a higher saving rate is to temporarily raise the rate of growth in the economy

economic growth exogenous variables

endogenous growth theory

Technological progress is endogenous

Conclusion: The economy will continue to grow and there will be no steady state

6 Convergence phenomenon

absolute; conditional; club (change)

economic regulation

1 regulation

statutes; administrative regulations/laws; judicial law

2 regulators

gov-backed regulatory bodies

gov agency

independent regulators

The fed does not rely on gov funding

industry self-regulatory bodies

SRO self-regulatory organizations

Authorized by gov, it has regulatory power but no legal power.

NON-SRO non self-regulatory organizations

outside bodies

Set guidelines, no rights

As long as an organization is an SRO, it cannot rely on For government-funded operations, the division of independent regulators has nothing to do with whether or not they accept funding. independent regulator The division depends on whether an SRO's authority is granted by the government. If power still comes from the government If approved, then such an SRO is an independent regulator, otherwise it is not an independent regulator.

3 Phenomena in supervision

regulatory capture theory

Experts confuse, report good news but not bad news, solution: improve knowledge level

regulatory competition

Regulators compete with each other, eg: U.S. states, estate tax.

regulatory abritrage

Regulated persons take advantage of the different regulatory systems in different countries

solution: global regulation

4 Regulatory Tools

5 cost benefit analysis of regulation

implementation costs