CFA Level III Reading 13 and 28

An email from a Level III candidate brings our post today over two changes in the curriculum this year. The changes were not the only ones but the candidate wanted to know how to approach the two new readings, reading 13 (Concentrated Single Asset Positions) and reading 28 (Currency Management).
After looking back over the new readings, there may be less of a change than candidates are expecting. For those taking the exam for the first time, the change means little because they did not see the old curriculum. For those retaking the exam, the new material is going to look a lot like the old material.

Concentrated Single Asset Position

Previously, reading 13 covered Low-basis Stock but dealt with some of the same issues as we see in the new reading. Two of the previous LOS required candidates to understand psychological considerations, risk, tax issues and techniques for reducing a concentrated position. The new reading brings with it 10 new LOS but the reading looks relatively intuitive.
The reading revolves around the issue of diversification and company-specific risks that come with a large single-asset position. Not only do you have to worry about limiting these risks but your have to do it in a tax-efficient manner.
List material is always a good bet on the Level III exam. It is relatively easy to test on the exam, especially the essay part. Remember the considerations affecting a concentrated position (taxes, liquidity, market constraints, and psychological constraints) as well as the common strategies (sale, hedging, and monetization). Pay special attention to advantages and disadvantages to each strategy when available.
There doesn’t look like you need any calculations so make sure focus on the conceptual material. Lists and the advantages/disadvantages to different tax regimes and strategies should also be remembered.

Currency Management

Currency Management was previously seen in reading 35 as Currency Risk Management but now becomes reading 28 and Currency Management: An Introduction. The new reading is still within Study Session 14, Risk Management and the LOS look similar if not identical in spirit.
Foreign exchange concepts is probably one of the most difficult for many candidates but extremely important. You absolutely must understand the basics because you will need it within multiple topics (Financial Reporting in Level II, Portfolio Management, and Risk Management). If you did not master the basics in an earlier level, you might want to go back and review.
The important calculations are finding the mark-to-market value of a position and the return decomposition. Focus on these before any of the other formulas and spend your time on the conceptual elements of the material. As long as you understand the conceptual material and the two important calculations, you should be able to get most of the points on the exam. As with the section above, the list material is a good place to start. Lists can be easier to remember and have a good chance of showing up on the exam. Pay attention if any advantages or disadvantages are offered.
Both of the new readings are fairly large and it really isn’t possible to list out all the concepts in the space we have here. The FinQuiz notes condense the two readings down to 28 pages or you may want to create your own outline of the material for easier review. Less is better with an outline so try to describe each concept or step in a process in no more than a couple of sentences.
Just a couple of weeks to the exam and you need to start wrapping up your studying. Work those practice tests and understand where your strengths/weaknesses are on the material.
‘til next time, happy studyin’
Joseph Hogue, CFA


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