| The CFA Qualification (Chartered Financial Analyst) |
What is the Chartered Financial Analyst (CFA) Qualification?Chartered Financial Analyst (CFA) is a professional designation offered by the CFA Institute (formerly known as 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 governing their professional conduct. The CFA DesignationThe CFA designation is a qualification for people engaged in the financial and investment sector. In 1990, in hopes of boosting the credential's public profile, the CFA Institute (formerly the Association for Investment Management and Research) was created from the merger of the Financial Analysts Federation (FAF) and the Institute of Chartered Financial Analysts (ICFA). The FAF was originally established in 1947 as a service organization for investment professionals in its societies and chapters. Many of today's senior CFA charterholders were "grandfathered" into CFA charterholders at this time without today's current three level testing. 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 such as the British Association of Chartered Certified Accountants (ACCA). 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.[1] 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. [2] The program focuses on portfolio management and financial analysis, and provides a generalist knowledge of other areas of finance. Trademark RightsThe CFA designation is not affiliated with the Chartered Financial Analyst degree offered by a university in India known as ICFAI or its affiliate the Council of Chartered Financial Analysts. ICFAI offers Masters degrees in Finance which to lead to a CFA Charter issued by the CCFA. In 1998, CFA Institute's predecessor organization, AIMR, sued and won a judgment [3] against ICFAI/CCFA. The judgment prohibited ICFAI/CCFA and its members from using the CFA or Chartered Financial Analyst mark in the United States and Canada. In August 2006, an Indian court issued a temporary injunction against the Indian organization as well. [4] The judgments made no assessment of the quality of the Indian program and merely discussed the trademark violation. The Indian Association of Investment Professionals[5] is the only organization in India which is affiliated with the CFA Institute. In January 2007, the Trademark Registry, UK refused to grant protection to the CFA charter. The word 'chartered' is restricted in the United Kingdom due to the association with royal charters. [6] The CFA ExamA group of CFA candidates waiting in front of the testing location of San Francisco before the test. Dec 2, 2006Candidates 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%. [7]. The Level II and III passing rates for 2006 were 48% and 76% respectively. [8]
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. 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. The CFA curriculumThe curriculum for the CFA program is based on a Candidate Body of Knowledge established by the CFA Institute. The curriculum includes:
The ethics section is primarily concerned with compliance and reporting rules when managing an investor's money or when issuing research reports, although there are some rules which pertain to more general professional behaviour (such as prohibitions against plagiarism). There are also rules that specifically relate to the proper use of the designation for charterholders and candidates. All of these rules are delineated in the 'Code and Standards'. The section on quantitative analysis is dominated by statistics and time series analysis. Other financial fundamentals such as the time value of money are also addressed. The statistics topics are fairly broad, but the main focuses are risk analysis, hypothesis testing and regression analysis. For the test, only two types of calculator are allowed (the Hewlett Packard 12C and the Texas Instruments BA II Plus). The test also features other quantitative topics, but these are covered in other sections. For example, calculating depreciation of assets is a part of financial statement analysis (accounting), and determining currency arbitrage is a part of international economics. Both micro and macro economics are covered. There are sections for international economics, mainly related to currency conversions and how they are affected by international interest rates and inflation. The accounting section is heavily tested at Levels I and II, but is not a significant part of Level III. It is divided into financial statements analysis and corporate finance. Financial statement analysis considers the statement of cash flows, the balance sheet, and the income statement. Each of these documents gives a distinct view into the state and operations of a company. Corporate finance uses these views of the company to make decisions about projects, deciding how they will impact the company. The section on security analysis is divided by the types of security. There is a general section on global markets, sections on equity (stocks), fixed income (bonds), and derivatives (futures, forwards, options and swaps). The first levels of the test require familiarity with these instruments, then the focus develops into correctly valuing them, and how to properly use them. The final section is portfolio management. This section increases in importance with each of the three levels. Portfolio management is an analysis of the process of managing money. It depends heavily on all of the other topics. When managing money for others, ethics is obviously important. This section deals with how the investors' needs are met by the portfolio manager. Modern portfolio theory is also tested: the efficient frontier, Capital asset pricing model, etc. The Code of EthicsMembers of CFA Institute (including charterholders and candidates for the CFA designation) must:
Legal & Other Recognition
information on this page was taken from http://en.wikipedia.org/wiki/Chartered_Financial_Analyst |