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LM01 Alternative Investment Features, Methods, and Structures

LM01 Categories, Characteristics, and Compensation Structures of Alternative Investments

LM01 Corporate Structures and Ownership

LM01 Derivative Instrument and Derivative Market Features

LM01 Ethics and Trust in the Investment Profession

LM01 Fixed-Income Instrument Features

LM01 Fixed-Income Securities: Defining Elements

LM01 Introduction to Financial Statement Analysis

LM01 Market Organization & Structure

LM01 Market Organization and Structure

LM01 Organizational Forms, Corporate Issuer Features, and Ownership

LM01 Portfolio Management Overview

LM01 Portfolio Management: An Overview

LM01 Rates and Returns

LM01 The Firm & Market Structures

LM01 Time Value of Money

LM01 Topics in Demand and Supply Analysis

LM02 Alternative Investment Performance and Returns

LM02 Analyzing Income Statements

LM02 Code of Ethics and Standards of Professional Conduct

LM02 Code of Ethics and Standards of Professional Conduct Profession

LM02 Financial Reporting Standards

LM02 Fixed Income Markets - Issuance Trading and Funding

LM02 Fixed-Income Cash Flows and Types

LM02 Forward Commitment and Contingent Claim Features and Instruments

LM02 Introduction to Corporate Governance and Other ESG Considerations

LM02 Investors and Other Stakeholders

LM02 Organizing, Visualizing, and Describing Data

LM02 Performance Calculation and Appraisal of Alternative Investments

LM02 Portfolio Risk & Return: Part I

LM02 Portfolio Risk and Return Part I

LM02 Security Market Indexes

LM02 The Firm and Market Structures

LM02 Time Value of Money in Finance

LM02 Understanding Business Cycles

LM03 Aggregate Output, Prices and Economic Growth

LM03 Analyzing Balance Sheets

LM03 Business Models & Risks

LM03 Corporate Governance: Conflicts, Mechanisms, Risks, and Benefits

LM03 Derivative Benefits, Risks, and Issuer and Investor Uses

LM03 Fiscal Policy

LM03 Fixed-Income Issuance and Trading

LM03 Guidance for Standards I-VII

LM03 Guidance for Standards I–VII

LM03 Introduction to Fixed Income Valuation

LM03 Investments in Private Capital: Equity and Debt

LM03 Market Efficiency

LM03 Portfolio Risk & Return: Part II

LM03 Portfolio Risk and Return Part II

LM03 Private Capital, Real Estate, Infrastructure, Natural Resources, and Hedge Funds

LM03 Probability Concepts

LM03 Statistical Measures of Asset Returns

LM03 Understanding Income Statements

LM04 An Introduction to Asset-Backed Securities

LM04 Analyzing Statements of Cash Flows I

LM04 Arbitrage, Replication, and the Cost of Carry in Pricing Derivatives

LM04 Basics of Portfolio Planning & Construction

LM04 Basics of Portfolio Planning and Construction

LM04 Capital Investments

LM04 Common Probability Distributions

LM04 Fixed-Income Markets for Corporate Issuers

LM04 Introduction to the Global Investment Performance Standards (GIPS)

LM04 Monetary Policy

LM04 Overview of Equity Securities

LM04 Probability Trees and Conditional Expectations

LM04 Real Estate and Infrastructure

LM04 Understanding Balance Sheets

LM04 Understanding Business Cycles

LM04 Working Capital and Liquidity.

LM05 Analyzing Statements of Cash Flows II

LM05 Capital Investments and Capital Allocation

LM05 Company Analysis: Past and Present

LM05 Fixed-Income Markets for Government Issuers

LM05 Introduction to Geopolitics

LM05 Introduction to Industry and Company Analysis

LM05 Monetary and Fiscal Policy

LM05 Natural Resources

LM05 Portfolio Mathematics

LM05 Pricing and Valuation of Forward Contracts and for an Underlying with Varying Maturities

LM05 Pricing and Valuation of Forward Contracts.

LM05 Sampling and Estimation

LM05 The Behavioral Biases of Individuals

LM05 Understanding Cash Flow Statements

LM05 Understanding Fixed-Income Risk and Return

LM05 Working Capital & Liquidity

LM06 Analysis of Inventories

LM06 Capital Structure

LM06 Cost of Capital-Foundational Topics

LM06 Equity Valuation: Concepts and Basic Tools

LM06 Financial Analysis Techniques

LM06 Fixed-Income Bond Valuation: Prices and Yields

LM06 Fundamentals of Credit Analysis

LM06 Hedge Funds

LM06 Hypothesis Testing

LM06 Industry and Competitive Analysis

LM06 International Trade

LM06 Introduction to Geopolitics

LM06 Introduction to Risk Management

LM06 Pricing and Valuation of Futures Contracts

LM06 Simulation Methods

LM07 Analysis of Long-Term Assets

LM07 Business Models

LM07 Capital Flows and the FX Market

LM07 Capital Structure

LM07 Company Analysis: Forecasting

LM07 Estimation and Inference

LM07 International Trade and Capital Flows

LM07 Introduction to Digital Assets

LM07 Introduction to Linear Regression

LM07 Inventories

LM07 Pricing and Valuation of Interest Rate and Other Swaps

LM07 Pricing and Valuation of Interest Rates and Other Swaps

LM07 Technical Analysis

LM07 Yield and Yield Spread Measures for Fixed-Rate Bonds.

LM08 Currency Exchange Rates

LM08 Equity Valuation: Concepts and Basic Tools

LM08 Exchange Rate Calculations

LM08 Fintech in Investment Management

LM08 Hypothesis Testing

LM08 Long Lived Assets

LM08 Measures of Leverage

LM08 Pricing and Valuation of Options

LM08 Topics in Long-Term Liabilities and Equity

LM08 Yield and Yield Spread Measures for Floating-Rate Instruments

LM09 Analysis of Income Taxes

LM09 Income Taxes

LM09 Option Replication Using Put-Call Parity

LM09 Option Replication Using Put–Call Parity

LM09 Parametric and Non-Parametric Tests of Independence

LM09 The Term Structure of Interest Rates: Spot, Par, and Forward Curves

LM10 Financial Reporting Quality

LM10 Interest Rate Risk and Return

LM10 Non-current (Long-Term) Liabilities

LM10 Simple Linear Regression

LM10 Valuing a Derivative Using a One-Period Binomial Model

LM11 Financial Analysis Techniques

LM11 Financial Reporting Quality

LM11 Introduction to Big Data Techniques

LM11 Yield-Based Bond Duration Measures and Properties

LM12 Applications of Financial Statement Analysis

LM12 Introduction to Financial Statement Modeling

LM12 Yield-Based Bond Convexity and Portfolio Properties

LM13 Curve-Based and Empirical Fixed-Income Risk Measures

LM14 Credit Risk

LM15 Credit Analysis for Government Issuers

LM16 Credit Analysis for Corporate Issuers

LM17 Fixed-Income Securitization

LM18 Asset-Backed Security (ABS) Instrument and Market Features

LM19 Mortgage-Backed Security (MBS) Instrument and Market Features

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IFT Notes for Level I CFA^® Program

LM01 Market Organization and Structure

Part 2

3. Assets and Contracts

3.1. Classifications of Assets and Contracts

Classification criteria:
Based on the underlying	Financial assets: Means by which individuals hold claim on real assets and future income generated by these assets, e.g., securities like stocks and bonds.	Real assets: Include physical assets like real estate, equipment, commodities, and other assets.
Based on the nature of claim by financial securities	Debt securities: Periodic interest payments made on borrowed funds that might be collateralized.	Equity securities: Represent ownership positions and claim on the future cash flows of the business.
Based on where the securities are traded	Publicly traded: These securities trade in public markets through exchanges or dealers and are subject to regulatory oversight.	Privately traded: These securities are not traded in public markets. They are often not subject to regulation.
Based on delivery	Spot market: Markets for immediate delivery of assets.	Forward market: Contracts that call for future delivery of assets and include forwards, futures, and options.
Based on the underlying of the derivative contract	Financial derivative contract: These contracts draw their value from financial assets like equities, equity indexes, debt, and other assets.	Physical derivative contract: These contracts draw their value from real assets like commodities.
Based on issuance of security	Primary market: Issuers sell securities directly to investors.	Secondary market: Investors buy and sell securities among themselves.
Based on maturity	Money market: Securities with maturities of one year or less.	Capital market: Securities that have more than one year maturity or equities that do not have any maturity.
Based on the type of investment markets	Traditional investment markets: Includes all publicly traded debt and equities.	Alternative investment markets: Includes hedge funds, private equity, commodities, real estate, and precious gems that are hard to trade and value.

4. Securities

Securities can be broadly classified into: fixed income, equities and shares in pooled investment vehicles.

4.1 Fixed Income

Refers to debt securities where the borrower is obligated to pay interest and principal at a pre-determined schedule. They might be collateralized, i.e., investors have claim of certain physical assets in case of a default.

The different types are:

Bonds: Long-term debts.
Notes: Intermediate-term debts.
Bank borrowings: Long- to short-term involving revolving credit lines and other debt instruments.
Convertible: Debt can be exchanged for a specified number of equity shares.

4.2 Equity

Refers to ownership claims by investors in companies.

The different types are:

Common shareholders: They have a residual claim over any assets and income after all the senior securities have been paid.
Preferred shareholders: They are paid scheduled dividends before the common shareholders.
Warrants: They give the holder a right to buy the firm’s security at a price, called the exercise price, within a specified time period. (similar to options)

4.3 Pooled investments

Pooled investments include mutual funds, trusts, exchange traded funds (ETFs), and hedge funds. They issue securities to represent the shared ownership in the assets. Money from several investors is pooled together to be managed by a professional money manager according to a specific investment strategy. The advantage of investing in pooled vehicles is to benefit from the investment management services of managers and from diversification opportunities. Pooled vehicles may be open-ended or close-ended.

5. Currencies, Commodities, and Real Assets

Currencies are monies issued by national monetary authorities. Reserve currencies such as dollar and euro are currencies that national central banks around the world hold in large quantities. Currencies trade in foreign exchange markets, spot markets, forward markets, or futures markets.

5.1 Commodities

Commodities include precious metals, energy products, industrial metals, agricultural products, and carbon credits. They trade in spot, forward, and futures markets. They are traded in spot markets for immediate delivery and in forwards and futures markets for future delivery.

5.2 Real Assets

Real assets are tangible assets such as real estate, machinery, and airplanes which are normally held by operating companies. Real assets are unique, illiquid, and costly to manage. They are attractive to investors for two reasons:

Low correlation with other investments.
Income and tax benefits to investors.

Real estate investment trusts (REITs) and master limited partnerships (MLPs) securitize real assets and facilitate indirect investment in real assets. Since these securities are more homogeneous and divisible than the real assets they represent, they are often more liquid and more suitable as investments.

6. Contracts

A contract is an agreement between traders to perform some action in the future that can either be settled physically or in cash.

Based on the underlying asset, contracts can be further classified into:

Physical contract: If contracts are based on physical assets like crude oil, wheat, gold, or any other commodity, then it is a physical contract.
Financial contract: If contracts are based on financial assets such as indexes, interest rates, and currencies, then they are called financial contracts.

Contracts for Difference (CFD) allow people to speculate on the price of an underlying asset. The buyer benefits if the price of the underlying asset increases. These are derivative contracts because their value is derived from the underlying asset. They are generally settled in cash.

The major types of contracts (also termed as derivatives) are:

6.1 Forward Contracts

A forward contract

is an agreement to trade the underlying asset at a future date at a pre-specified price. It is not standardized and is not traded on exchanges or in dealer markets.

6.2 Futures Contracts

A futures contract

is a standardized forward contract for which amount, asset characteristics and delivery date are the same. Standardization ensures higher liquidity.

6.3 Swap Contracts

A swap contract

is an agreement to swap payments of one asset for the other. The different types are:

Interest rate swap: Floating rate payments are swapped for fixed-rate payments for a specified period.
Currency swap: Currency amount swapped for another currency for a specified period.
Equity swap: Returns earned on one investment are swapped for the other.

6.4 Option Contracts

Contracts that give the holder a right, but not the obligation, to buy/sell an underlying security at a specified price at or before a specific date. The different types are:

Call options: Buyer gets the right but not the obligation to buy the underlying security. The seller of the call option gets the premium upfront but has to the sell the security if the buyer exercises his option to buy.
Put options: Buyer gets the right but not the obligation to sell the underlying security. The seller of the put option gets the premium upfront but has to the buy the security if the buyer exercises his option to sell.