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 designation is
a significant qualification for people engaged in the financial and
investment sector and has become a prerequisite for advancement at many
firms. A study by the CFA Institute showed that professionals with the
designation earn salaries 100% higher than their peers with equivalent
credentials in equivalent positions. 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 became increasingly
international similar to the UK's Association of Chartered Certified
Accountants (ACCA) which offers the Chartered Certified Accountant
qualification (Designatory letters ACCA or FCCA) worldwide. 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.
The basic requirements for prospective CFA candidates include a four-year
university degree with being allowed to apply at the final year of the degree
program (or international equivalent) or four years of qualified,
professional work experience.  The program focuses on portfolio management
and financial analysis, and provides only a generalist knowledge of other
areas of finance.
Note: The 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. AIMR
sued and won a judgment  prohibiting the organization 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.  The judgments made no assessment of the
quality of the Indian program and merely discussed the trademark violation.
The Indian Association of Investment Professionals is the only
organization in India which is affiliated with the CFA Institute.
take one exam per year over three years and are written at a postgraduate
level for financial professionals. Exams are challenging, with only 40%
passing the Level I exam in June 2006; Europe achieved the highest pass rates
in the recent exams with a 57% pass rate.  The December 2005 Level I Exam
resulted in a worldwide pass rate of 34%. The Level II and III passing rates
for 2006 were 48% and 76% respectively. 
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
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
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;
instead, the threshhold for passing is determined by multiplying by a certain
percentage the score of the top performers on the specific year's exam. The
wide variation in pass rates from year to year may partially stem from this
The curriculum for the CFA
program is based on a Candidate Body of Knowledge established by the CFA
Institute. The curriculum includes:
Ethics and Professional Standards
Quantitative Methods (such as the time value of money, and statistical
Financial Statement Analysis
Analysis of Investments (stocks, bonds, derivatives, venture capital, real
Portfolio management and Analysis (asset allocation, portfolio risk,
performance measurement, etc.)
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 'Codes and
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, there are two calculators allowed, both of which have special
financial functions for statistics and time value of money. 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 investor's needs are met by the portfolio manager.
Modern portfolio theory is also tested, the efficient frontier, Capital asset
pricing model, etc.
Legal & Other Recognition
New York Stock
Exchange(NYSE) granted CFA charterholders the option to take only the portion
of the Supervisory Analyst examination dealing with exchange rules on
research standards and related matters.
U.S. Securities and Exchange Commission (SEC) has approved the Chartered
Financial Analyst (CFA) designation as equivalent to passing Series 7
examination that qualifies a candidate for the solicitation, purchase, and/or
sale of all securities products, including corporate securities, municipal
securities, municipal fund securities, options, direct participation
programs, investment company products, and variable contracts in United
U.S. American Institute of Certified Public Accountants(AICPA) granted CFA
charterholders the option to satisfy the examination requirements by passing
the half-day Accredited in Business Valuation (ABV I) examination.
The charterholders of Chartered Financial Analyst(CFA) is recognized by UK's
Securities & Investment Institute (SII) as the equivalent level of SII full
membership (MSI) or fellow membership (FSI). (Details) Full membership of SII
is recognized by several national investment professional bodies such as in
Australia (Financial Services Institute of Australasia (Finsia) and Hong Kong
(Hong Kong Securities Institute (HKSI).
Taiwan's Securities & Futures Institute (SFI) has approved the Chartered
Financial Analyst (CFA) designation as equivalent to a local recognised
industry qualification of Certified Securities Investment Analyst(CSIA) in
The Academic and Accreditation Advisory Committee of HK's SFC has approved
the Chartered Financial Analyst (CFA) designation as a recognised industry
qualification for the licensing of Responsible Officers in Hong Kong.
The charterholders of Chartered Financial Analyst(CFA) who meet the
competence requirement, which include both education training and work
experience, may apply to register with the Hong Kong Business Valuation Forum
(HKBVF) as Registered Business Valuer (RBV) in Hong Kong. (Details)
The charterholders of Chartered Financial Analyst(CFA) is recognized by HK's
Hong Kong Securities Instutites (HKSI) as the equivalent level of HKSI full
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