Financial Exam Help 123

Author: Bill Campbell

  • Accounting Taxes vs. Tax Return Taxes

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    Bill Campbell
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    One of the reasons that Level I candidates find income taxes confusing is that the Income Tax Expense shown on a company’s income statement generally is not equal to the tax liability that is shown on their income tax return.  The fact that they are different from each other is a little easier to understand…

  • Income Taxes – General

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    Bill Campbell
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    I debated for a long while whether to write a single article about taxes, or to write separate articles about each of the bits that go into taxes  I think that separate articles is the way to go.  So this is the general article that ties it all together, and provides definitions for all of…

  • Equity Return Attribution

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    Bill Campbell
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    By “return attribution” we mean breaking down the realized return on a portfolio (in this case, specifically an equity portfolio) into a number of practically significant pieces; in other words, it’s the analysis of the realized return.  In the CFA curriculum, there are two flavors of equity return attribution: macro attribution and micro attribution.  I’ll…

  • Inter-Temporal Rate of Substitution

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    Bill Campbell
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    I know: it sounds like something out of a science fiction movie. Sometimes it looks that way. However, once it’s explained well, at least it should be easy to follow and understand.  I’ll do my best to explain it well. Also, I’ll abbreviate inter-temporal rate of substitution as ITRS; it’ll save me a lot of…

  • Correlation . . . of, What, Exactly?

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    Bill Campbell
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    I already wrote an article on the tendency of people in finance to be sloppy in the language they use; you’ll find it here.  The purpose of this article is to expand on one specific area in which the language of finance people is particularly sloppy: correlation.  The problem, as I see it, is that…

  • Currency Management Basics

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    Bill Campbell
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    What do we mean by “currency management“? In a nutshell, we mean managing (i.e., adjusting) our exposure to changes in currency exchange rates. We might, for example, Hedge 100% (or as close to 100% as we can get) of our exposure to exchange rates (that exposure arising from existing investments in securities denominated in currencies…

  • Option Greeks

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    Bill Campbell
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    The option Greeks – delta, gamma, theta, vega, and rho – refer to sensitivities of the price of an option to various underlying variables.  Here, we’ll be talking about options on stocks, though the discussion would be equally appropriate for options on, say, commodities.  It would not be appropriate for a discussion of options on…

  • FX Swaps

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    Bill Campbell
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    Let’s start by addressing the elephant in the room: the name “FX swap” is just plain weird.  This isn’t a swap in any normal sense of the word swap: it isn’t an exchange of cash flows at some predetermined future date(s).  An FX swap is nothing more nor less than rolling over an expiring currency…

  • Variance Swaps

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    Bill Campbell
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    Variance swaps more closely resemble forward contracts – or forward rate agreements (FRAs) – than they do swaps (e.g., plain vanilla interest rate swaps, or equity swaps).  Whereas most swaps have more than one payment, variance swaps (and forwards, and FRAs) have a single payment.  However, given the penchant of finance folks to ascribe inaccurate…

  • Short Bearish Seagull Spread

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    Bill Campbell
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    If you haven’t read the article on option strategies in general, that’s a good place to start, then return here. In particular, if you haven’t read the warning about calculating profit that appears at the end of that article, you should go read it now; the way I’m calculating the profit here is correct, but…