Economics

Study of production, distribution, and consumption of goods and services.

Economics is the study of how individuals, businesses, and governments allocate scarce resources to satisfy unlimited wants and needs. It encompasses both microeconomics, which focuses on individual decision-making, and macroeconomics, which examines the overall economy and its indicators, such as GDP, inflation, and unemployment.

5 minutes 5 Questions

Economics in the CFA Level 2 curriculum explores advanced macroeconomic and microeconomic concepts with practical applications for investment analysis. The curriculum delves into currency exchange rate determination models, including purchasing power parity, interest rate parity, and the international Fisher effect. Students learn how monetary and fiscal policies affect economic growth, inflation, and financial markets across different economic systems. The course examines business cycles and how they influence asset prices and investment strategies. Economic growth theories help analysts understand long-term market trends and evaluate emerging market opportunities. International trade concepts, including comparative advantage and trade barriers, are covered to assess global investment environments. Level 2 Economics emphasizes the application of economic indicators to forecast financial market movements. Students analyze how GDP growth rates, inflation measures, employment statistics, and consumer sentiment translate into investment decisions. The curriculum also covers market efficiency concepts and behavioral economics to explain market anomalies and investor psychology. Currency market analysis receives particular attention, as candidates learn to evaluate exchange rate risks and hedging strategies for international portfolios. The relationship between economic variables and asset class performance helps investment professionals develop robust asset allocation frameworks. Unlike Level 1's focus on fundamental concepts, Level 2 Economics requires candidates to apply economic analysis to complex investment scenarios through vignettes and case studies. Candidates must interpret economic data to form investment theses and recommendations. Mastering Economics at this level equips investment professionals with the analytical framework to assess macroeconomic trends, evaluate country risk, anticipate policy impacts, and ultimately make more informed investment decisions in global markets.

Concepts covered: Economic Growth, Currency Exchange Rates: Understanding Equilibrium Value

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