SYSTEMS OF FINANCIAL ANALYSTS TRAINING

1. SYSTEMS OF FINANCIAL ANALYSTS TRAINING

2. Contents • Certificate in Finance and Investment of the Faculty of Actuaries and Institute of Actuaries (UK) • Chartered Financial Analyst (CFA) of the Chartered Financial Analyst Institute (USA) • Certified International Investment Analyst (CIIA) Association of Certified International Investment Analysts • The Association of Corporate Treasurers (UK) • The Training Center for Actuaries and Financial Analysts (Ukraine)

3. Job An analyst will write reports on the companies they are supposed to cover, trying to describe the businesses and their opinion of the company's investment potential, usually from a fundamental analysis standpoint. They also summarize that report with a rating, such as "buy", "sell", "market perform", "overweight", "hold", etc.

4. Financial analysts, also called securities analysts and investment analysts, work for banks, insurance companies, mutual and pension funds, securities firms, and other businesses, helping these companies or their clients make investment decisions. Financial analysts employed in Commercial lending perform "balance sheet analysis," examining the audited financial statements and corollary data in order to assess lending risks. In a stock brokerage house or in an investment bank, they read company financial statements and analyze commodity prices, sales, costs, expenses, and tax rates in order to determine a company's value and project future earnings. In any of these various institutions, the analyst often meets with company officials to gain a better insight into a company's prospects and to determine the company's managerial effectiveness. Usually, financial analysts study an entire industry, assessing current trends in business practices, products, and industry competition. They must keep abreast of new regulations or policies that may affect the industry, as well as monitor the economy to determine its effect on earnings.

5. Financial analysts in investment banking departments of securities or banking firms often work in teams, analyzing the future prospects of companies that want to sell shares to the public for the first time. They also ensure that the forms and written materials necessary for compliance with Securities and Exchange Commission regulations are accurate and complete. They may make presentations to prospective investors about the merits of investing in the new company. Financial analysts also work in mergers and acquisitions departments, preparing analyses on the costs and benefits of a proposed merger or takeover. There are buy-side analysts and sell-side analysts. Some financial analysts, called ratings analysts (who are often employees of ratings agencies), evaluate the ability of companies or governments that issue bonds to repay their debt. On the basis of their evaluation, a management team assigns a rating to a company's or government's bonds. Other financial analysts perform budget, cost, and credit analysis as part of their responsibilities.

6. Financial analysis Financial analysis refers to an assessment of the viability, stability and profitability of a business, sub-business or project. It is performed by professionals who prepare reports using ratios that make use of information taken from financial statements and other reports. These reports are usually presented to top management as one of their basis in making business decisions. Based on these reports, management may: • Continue or discontinue its main operation or part of its business; • Make or purchase certain materials in the manufacture of its product; • Acquire or rent/lease certain machineries and equipments in the production of its goods; • Issue stocks or negotiate for a bank loan to increase its working capital. • other decisions that allow management to make an informed selection on various alternatives in the conduct of its business.

7. Goals • Financial analysts often assess the firm's: 1. Profitability- its ability to earn income and sustain growth in both short-term and long-term. A company's degree of profitability is usually based on the income statement, which reports on the company's results of operations; 2. Solvency- its ability to pay its obligation to debtors and other third parties in the long-term;

8. 3. Liquidity- its ability to maintain positive cash flow, while satisfying immediate obligations; Both 2 and 3 are based on the company's balance sheet, which indicates the financial condition of a business as of a given point in time. 4. Stability- the firm's ability to remain in business in the long run, without having to sustain significant losses in the conduct of its business. Assessing a company's stability requires the use of both the income statement and the balance sheet, as well as other financial and non-financial indicators.

9. Education • It is often required for analysts to earn an MBA or a professional qualification such as Chartered Financial Analyst designation (CFA) in the United States of America, or Certified International Investment Analyst designation (CIIA) in Europe and Asia, to advance beyond a certain level within a firm. Alternatively, analysts may earn a Master of Science in Finance (MSF).

10. Faculty of Actuaries and Institute of Actuaries(UK) http://www.actuaries.org.uk

11. Introduction to the Education System There are four stages: • Core Technical stage • Core Applications stage • Specialist Technical stage • Specialist Applications stage This is shown diagrammatically as:

12. Core Technical Stage In the Core Technical stage there are nine subjects: • CT1 Financial Mathematics • CT2 Finance and Financial Reporting • CT3 Probability and Mathematical Statistics • CT4 Models • CT5 Contingencies • CT6 Statistical Methods • CT7 Economics • CT8 Financial Economics • CT9 Business Awareness Module

13. Each of CT1 - CT8 will be examined by one paper of three hours duration. CT9 Business Awareness Module involves a 2-day residential course, with pre-course study and a post-course test, that has been designed to help people joining the Actuarial Profession understand: • the business environment they will be working in, including the related challenges • how to tackle business related problems • their professional responsibilities • the need to equip themselves for lifelong learning The module consists of internet-based study, attendance at a two day course and internet-based assessment.

14. Core Applications Stage In the Core Applications stage we will be covering actuarial concepts. The main Core Applications subject will be assessed by two papers each of three hours in length, one paper covering assets and one covering liabilities and asset-liability management. The two papers will be added together to give a single mark for: • CA1 Core Applications Concepts CA11 one paper - assets CA12 one paper - liabilities and asset-liability management

15. CA2 Modelling requires attendance at a two day course with a practical data handling assessment on the second day. The purpose of the first day is to ensure that all students understand the nature of the assessment and are familiar with the software provided and on the second day the assessment takes place. The successful candidate will be able to demonstrate: • Analysis and summary of data • Development of a model with audit trail • Ability to apply results • Interpretation of results within a general business context • Communication of results to a technical audience

16. CA3 Communications has two questions, each testing a different type of written communication. The paper is of three hours duration.

17. Specialist Technical stage Students will in future be required to pass two subjects at the Specialist Technical stage. There are seven Specialist Technical subjects: • ST0 Alternative Specialist Technical • ST1 Health and Care Specialist Technical • ST2 Life Insurance Specialist Technical • ST3 General Insurance Specialist Technical • ST4 Pensions and other Benefits Specialist Technical • ST5 Finance and Investment Specialist Technical A • ST6 Finance and Investment Specialist Technical B Each of ST1 - ST6 will be tested by one examination paper of three hours in length.

18. Specialist Applications stage There are seven Specialist Applications subjects. Students required to pass one subject chosen from: • SA0 Research Dissertation Specialist Applications • SA1 Health and Care Specialist Applications • SA2 Life Insurance Specialist Applications • SA3 General Insurance Specialist Applications • SA4 Pensions and other Benefits Specialist Applications • SA5 Finance Specialist Applications • SA6 Investment Specialist Applications Each of SA1–SA6 are tested by an examination paper of three hours duration.

19. UK Practice Modules A UK Practice Module has to be taken by students working in the UK. This is tested by multiple choice examinations each of one and a half hours duration. The first part is common to all practice areas and tests the generic principles of UK Financial Services. The second part tests UK business practice, regulation, legislation and professional guidance notes in specific areas.

20. Qualifications 1. Class of Associate Students who have completed all but the Specialist Technical and Specialist Applications subjects and who have completed the appropriate professionalism course and meet the work-based skills requirement, may apply to transfer to the class of Associate member. Students do not automatically transfer to Associate prior to taking the Specialist Technical and Specialist Applications subjects, but can apply to transfer to the class of Associate if they no longer wish to continue taking examinations.

21. 2. Class of Fellow Students will be admitted to the Fellowship on having successfully completed or passed the Core Technical subjects, Core Applications subjects, two of the Specialist Technical subjects, one of the Specialist Applications subjects and having met the work-based skills requirement. An applicant for admission to the Institute Class of Fellow must have attained the age of 23 years.

22. 3. Diploma in Actuarial Techniques The joint Diploma in Actuarial Techniques was introduced in April 1996. The Diploma in Actuarial Techniques will be sent directly to students completing all of the Core Technical stage subjects: CT1, CT2, CT3, CT4, CT5, CT6, CT7, CT8 and CT9.

23. 4. Certificate in Finance and Investment The Certificate in Finance and Investment is a joint certificate and will be sent to all students of the Faculty and Institute of Actuaries who complete or are exempted from CT1, CT2, CT4, CT7, CT8, CT9 and CA1 .

24. Chartered Financial Analyst Institute (USA) http://www.cfainstitute.org/

25. Chartered Financial Analyst (CFA) is a professional designation offered by the CFA Institute (formerly known as Association for Investment Management and Research (AIMR)) to financial analysts who complete a series of three examinations and work for at least four years in the investment decision making process. CFA charterholders are also obliged to adhere to a strict Code of Ethics and Standards (a commitment that, above all else, you put the interests of your clients first. ) governing their professional conduct. The CFA designation is a qualification for people engaged in the financial and investment sector.

26. From 1963 (when the CFA designation was first used) to 2006, approximately 69,600 people from 126 different countries have been awarded the right to use the CFA designation. As of 2006, more than 116,000 more people are currently enrolled to take one of the examinations. The CFA program began in the United States, but has become increasingly international with many people becoming charterholders across Europe, Asia and Australasia. By 2003 fewer than half the candidates in the CFA program were based in the US and Canada, with most of the other candidates based in Asia or Europe. India and China have shown some of the highest growth from 2005-2006 with increases of 25% and 53% respectively in the total number of charterholders.

27. The basic requirements for participation in the CFA program include holding or being in the final year of (a) four-year university degree (or international equivalent) or having four years of qualified, professional work experience in an investment decision-making process. The program focuses on portfolio management and financial analysis, and provides a generalist knowledge of other areas of finance.

28. The CFA exam Candidates generally take one exam per year over three years and are written at a postgraduate level for financial professionals. Exams are challenging, with only 39% passing the Level I exam in December 2006. The June 2006 Level I Exam resulted in a worldwide pass rate of 40%; Europe achieved the highest pass rate for that exam with 57%. The Level II and III passing rates for 2006 were 48% and 76% respectively.

29. The Level I study program emphasizes tools and inputs and includes an introduction to asset valuation and portfolio management techniques. • The Level II study program emphasizes asset valuation and includes applications of the tools and inputs (including economics, financial statement analysis, and quantitative methods) in asset valuation. • The Level III study program emphasizes portfolio management and includes strategies for applying the tools, inputs, and asset valuation models in managing equity, fixed income, and derivative investments for individuals and institutions.

30. All three exams are administered on paper, on a single day; the Level I exam is administered twice a year (usually the first weekend of June and December). The Level II and III exams are administered once a year, usually the first weekend of June. Each exam consists of two three-hour sessions. Both Level I and Level II are entirely multiple choice, while Level III consists of a session of short-answer questions and a session that is multiple choice. On the multiple-choice sections, there is no penalty for wrong answers.

31. Candidates who have taken the exam receive a score report that is intended to be fairly unspecific: there is no overall score for the test, only a Pass/Fail result. For each category of questions, each test-taker is given a broad range within which his or her performance falls: below 50%, between 50% and 70%, and above 70%. There is no pre-set passing grade for the exams. The threshold for passing is 70% of the average of the top 10% of all scores. The wide variation in pass rates from year to year may partially stem from this calculation.

32. The CFA curriculum The curriculum for the CFA program includes: • Ethics and Professional Standards • Quantitative Methods (such as the time value of money, and statistical inference) • Economics • Financial Statement Analysis • Corporate Finance • Analysis of Investments (stocks, bonds, derivatives, venture capital, real estate, etc.) • Portfolio Management and Analysis (asset allocation, portfolio risk, performance measurement, etc.)

33. Analysis of Equity Investments - Organization and Functioning of  Securities Markets- Security-Market Indexes and Benchmarks- Equity Risk Definition and Measurement- Fundamental Analysis - Special Applications of Fundamental Analysis- Technical Analysis

34. Financial Statement Analysis - Financial Reporting System - Principal Financial Statements- Earnings Quality and Nonrecurring Items - Analysis of Inventories - Analysis of Long-Lived Assets- Analysis of Income Taxes- Analysis of Financing Liabilities - Analysis of Leases - Analysis of Off-Balance-Sheet Activities- Analysis of Pensions, Stock Compensation, and Other Employee Benefits - Analysis of Inter-Corporate Investments- Analysis of Business Combinations Analysis of Multinational Operations- Ratio and Financial Analysis

35. Corporate Finance - Fundamental Issues- Capital Investment Decisions - Business and Financial Risk- Long-Term Financial Policy- Mergers and Acquisitions- Valuation Implications of Corporate Finance

36. Analysis of Fixed-Income Investments - Fixed-Income Securities- Risks Associated with Investing in Bonds- Global Bond Sectors and Instruments- Yield Spreads- Introduction to the Valuation of Fixed-Income Securities- Yield Measures, Spot Rates, and Forward Rates- Measurement of Interest Rate Risk- The Term Structure and Volatility of Interest Rates- Valuing Bonds with Embedded Options- Mortgage-Backed Securities- Asset-Backed Securities- Valuing Mortgage-Backed and Asset-Backed Securities- Assessing Trading Strategies- Principles of Credit Analysis

37. Economics - Market Forces of Supply and Demand- Elasticity- The Firm and Industry Organization- Supply and Demand for Productive Resources- Measuring National Income- Economic Fluctuations and Unemployment- The Monetary System- Inflation: Causes and Consequences- International Trade- International Finance- The Macroeconomics of an Open Economy- Aggregate Demand and Aggregate Supply- Sources of Economic Growth- Government Regulation- Natural Resource Markets- Relationship of Economic Activity to the Investment Process

38. Derivatives - Derivative Markets and Instruments- Forward Markets and Instruments- Futures Markets- Options Markets- Swaps Markets

39. Portfolio Management - Capital Market Theory- Management of Individual Investor Portfolios- Management of Institutional Investor Portfolios- Pension Plan and Employee Benefit Funds- Endowment Funds and Foundations- Insurance Companies- Other Corporate Investors- Capital Market Expectations- Asset Allocation- Portfolio Construction and Revision- Equity Portfolio Management Strategies- Fixed-Income Portfolio Management Strategies - Real Estate and Alternative Investments in - Portfolio Management- Risk Management - Performance Measurement- Presentation of Performance Results

40. Analysis of Alternative Investments - Real Estate - Investment Companies- Venture Capital - Hedge Funds - Closely-Held Companies - Distressed Securities/Bankruptcies- Commodity Markets and Commodity Derivatives

41. Ethical and Professional Standards - Professional Standards of Practice- Topical Issues

42. Fee Schedule To enter the CFA Program, you must pay: • An initial, one-time only registration fee • An enrollment fee for your first exam (Level I) Fees for New Candidates Payment deadlines: December 2007: 15 Mar 07 15 Aug 07 17 Sep 07 Registration Fee(one-time) US$390 US$390 US$465         Exam Fee: Level I(enrollment) US$370 US$455 US$690         Total Cost to Enterthe CFA Program: US$760 US$845 US$1155   

43. Association of Certified International Investment Analysts http://web.aciia.org/

44. Certified International Investment Analyst (CIIA) is a designation offered by the Association of Certified International Investment Analysts (ACIIA) to professional financial analysts; candidates may be financial analysts, portfolio managers and / or investment advisors. To be awarded the CIIA, candidates must pass two "Common Knowledge" Exams and a third National/Regional Exam (examining knowledge of specific markets), and have 3 years relevant experience. The exams are taken twice per year and are written at a postgraduate level.

45. The exams are implemented by 27 national Associations of Financial Analysts, or Federations of Financial Analysts Associations. Federations of Analysts Associations that are members of ACIIA, are inter alia the Asia-pacific Securities Analysts Federation (ASAF) European Federation of Financial Analysts Societies (EFFAS) and Brazil / Latin America Associação Brasileira dos Analistas do Mercado de Capitais (ABAMEC).

46. Curriculum • Equity valuation and analysis - Equity Markets and Structures- Understanding the Industry Life Cycle- Analyzing the Industry Life Cycle- Valuation Model of Common StockExercises

47. Financial accounting and financial statement analysis - Financial Reporting Environment- Framework for the Preparation and Presentation of Financial Statements- Statement of Cash Flows- Generally Accepted Accounting Principles: Income – Recognition- Generally Accepted Accounting Principles: Assets, Liabilities and Shareholders’ Equity- Business Combinations- Foreign Currency Transactions- Financial Reporting and Financial Statement Analysis- Analytical Tools for Gaining Financial Statements Insights- Analytical Tools for Assessing Profitability and RiskExercises

48. Corporate finance - Fundamentals of Corporate Finance- Long-Term Finance Decision- Short-Term Finance Decision- Capital Structure and Dividend Policy- Mergers and Acquisitions- International Corporate FinanceExercises

49. Fixed income valuation and analysis - Fundamentals- Time Value of Money- Bonds with Warrants- Convertible Bonds- Callable Bonds- Floating Rate Notes- Mortgage-Backed Securities- Fixed Income Portfolio Management StrategiesExercises

50. Economics - Macroeconomics: the Basics- Macroeconomic Dynamics- Open-Economy Macroeconomics: the Balance of Payments and the Exchange - Rate - Monetary Policy Exercises