I graduated with an engineering degree about a year ago and I have registered for the December Level I exam. Given I have no background in finance, diving directly into the ebook given by the CFA Institute seems to not be helping as I am not familiar with many of the terminologies. Is there any book you would suggest that covers the basics of finance related to CFA curriculum so that I can start working on the official books?
Hey @nav , welcome to the community!
I must then introduce you to my favourite engineer @vincentt for inspiration. He’s an engineer who is now a Level 3 candidate and would have some comments. I think diving straight into the book is fine as CFA does not assume finance background knowledge at all. The learning curve may be steep in the beginning, but we found that candidates that don’t have finance background (prior education) are not disadvantaged at all, with hard work and solid focus.
haha thanks @sophie !
@nav I use investopedia or wikipedia a lot on terms that I’m not familiar with, the former site helps most of the time though some of their explanation can be too simple hence you might need wikipedia to explain further.
Just a quick breakdown on the topics:
Ethical & Professional Standards – This topic is covered in all 3 levels, the only way to master this is to do lots of practice, reading alone won’t help a single bit. I use schweser notes for all topics in all 3 levels but ethics. I personally find that doing lots of practice questions is much more effective than reading it beforehand.
Quantitative Methods – This should be your forte. I find this topic pretty easy with the time value of money (TVM), discounted cash flow, etc. Though i’m not too sure if you have hypothesis testing in your current syllabus but that was the only bit that I struggle at that time.
Alternative Investments – this is pretty straightforward and covers a very tiny percentage of the exam, it touches the different kinds of funds (e.g. open-end, close-end, exchange traded, etc), real estates investments and how to calculate net operating income (NOI) and a bit on commodities.
Corporate Finance – covers things like capital budgeting, cost of capital (benefits of using more debt or equity), differences between dividends and share repurchasing, NPV analysis for project decision, etc.
Derivatives – this is rather interesting for me, it covers things like forward and future markets, options and swaps, how hedging is done with these derivative tools. Though it’s one of the smallest part of the exam, but it is fundamental to know this well as it will be needed throughout the entire CFA syllabus.
Economics – lots of interesting concepts about how the economy works, supply and demand, concept of equilibrium, game theory, different kinds of market structures (perfect competition, monopolistic competition, oligopoly and pure monopoly), fiscal and monetary policy (expansionary/contractionary), etc. I must say this can be pretty dry compared to other topics.
Equity Investments – explains the different kinds of equity and the types of it (e.g. growth, defensive, cyclical), understanding what’s market value and book value of equity securities, evaluating current market price (whether it’s over/fair/under valued), calculate different multiples (e.g. price to earnings, price to operating cash flow, price to sales and price to book value).
Fixed Income Investments – Bonds can be confusing at first as you need to come to terms with when interest rate goes up and price goes down. Understanding bond’s price relative to par value( discount, premium or equal to par), bond maturity, coupon, embedded options, yield level affect its interest rate risk, duration, yield curve, spread, spot/forward rates, etc. You will use a lots of TVM here (FV, PV, N, PMT, I/Y).
Financial Reporting & Analysis – Accounting! It’s the largest part of the exam, I personally find it hard to understand at first not knowing what items (e.g. payable, receivables, depreciation, interest expenses, etc) belongs to which statements (Income, balance or cash flow statements), but after awhile everything will sink in and it’s actually not that hard, make sure you master it as it is required again for level 2 and it helps (at least for me) to read and analyse company’s financial statements for stocks investment.
Portfolio Management – Discuss about risk and return, common variables used in investing (mean, variances, covariance, correlation, standard deviation, etc), Capital Allocation Line (CAL), Capital Market Line (CML), Security Market Line (SML) and also the well known Capital Asset Pricing Model (CAPM). Some of the calculation here might already be covered in quantitative methods.
In case I missed anything, feel free to add on to it.
The CFA syllabus changes every year and may be different to the things I mentioned above, but they should be pretty close. Hope that helps.
@vincentt Thanks for the breakdown. It really helped me out to get a general idea of what I’m dealing with here.
I just thought of another question which I’ve been unable to find an answer to…
I know the requirement to get a charterholder status is 4 years of work experience etc., and to finish the CFA Program is to just finish up the three levels. My question is, having an engineering bachelor’s degree, is it possible to get an entry level job after just finishing up and passing the Level I exam?
@nav, what roles are you looking for? Even without a CFA Level 1, you should still stand a good chance to get onto the grad schemes of large banks/asset managers. CFA Level 1 does help differentiate somewhat, but it also depends on interview performance. There are tons of engineers in finance anyway.
@Sophie I apologize for the late reply. Just got very busy the past few days. To answer your question, I am still trying to figure out what section of CFA I actually like. I will have a better idea of what topic interests me as I continue to study. So right now it’s hard to say what roles i’m looking for. Where and what kind of positions can I become eligible for? I am completely new to this industry and still trying to figure out how it all works.
There is no strict eligibility rules in finance that I’m aware of. If you have a CFA it helps, but it depends on whether you pursue the roles you like!
Talk to people in the industry and find out as much as you can. I would not advise deciding on a role simply because you like a CFA subject.
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