Mock Exam 1 2022

[Trevor]

Hi,

I practiced the 2022 Mock Exam 1. There is actually a huge part of the solution that I don't quite agree on.

By reading the question, Kylie (our audience) seemed to:

1. Think the new investment policy is too risky
2. Not understand the report, what the numbers mean
3. Want to know what the numbers will mean in the future

Therefore, I think the appropriate response will need to:

1. Comment how risky is the new policy
2. Explain what the numbers in Exhibit C & D means, especially the historical investment performance and reserve level
3. Based on this report, explain what will happen in the future.

The solution provided seem to agree with these, but not so for point 2. It instead has a lot of discussion if the investment objectives are met. No explanation of what the historical numbers mean.

In my solution, I first explained the relevant headers of the table in Exhibit C, and then explain how the numbers changed over the last 10 years and what it meant. I thought this is exactly what Kylie asked for in her email quoting:
" I’m not sure I fully understand what has really happened over the last couple of years."
"Could you please explain for us what the numbers mean"

Kylie did not explicitly asked to comment on whether the objectives are met, so I thought those will be irrelevant details. It seemed to me Kylie just needs help in understanding the report, and then he/she will make his/her own judgement in the upcoming review.

I might be wrong, can anyone comment on my interpretation of the question?

Thanks
Trevor

 

[Helen Evans]

Hi Trevor

Thank you for your post. Re the second point I would say I agree that Kylie wants to understand what has really happened in the recent past but note she hasn't asked for all the figures in the report to be stepped through, she's just said there's a lot of numbers here / not much explanation. So it is over to us to find the simplest way of effectively communicating the information. This is part of the filtering process when answering questions, a decision to make about the level of detail needed to satisfy the audience.

We need to think about what she is really interested in and how far we would need to go in our explanation to have a satisfied audience. What she is likely to be primarily interested in is whether from all this information in the report we can clearly see if the investment objectives have been met ... and if I can cover that without unnecessary detail then she should be happy.

I hope this helps and your studies are going well.

Helen

 

[Trevor]

Hi Helen,

Thank you for responding to my query. I do agree with what you said - to convince the reader with the minimal amount of detail. But here comes a question, do we really need to use evidences to prove our point (ie: not making things up so the reader can trust what we said)?

One good example is the 2018 April paper, we have to explain the diversification benefit of cryptocurrencies.

I thought it would be sufficient to say:
"Cryptocurrencies has very weak relationship with other assets we currently invest, so it is a good way to diversify. This reduces risk of having multiple assets falling together."
Why do we need to bring in the concept of correlation? Will my general statement convince the reader, or I need numerical evidence/charts to prove it?

There are a lot of marks to bring in the concept of correlation plus all the explanation. But I am wondering if I can just give a general statement (in layman term), totally avoiding all the lengthy explanation, without losing out on all the marks for it?