FAQ for Subject SA7

Discussion in 'SA7' started by Colin McKee, Oct 15, 2018.

  1. Colin McKee

    Colin McKee ActEd Tutor Staff Member

    SA7 FAQs (updated October 2018)

    This thread contains the Subject SA7 questions asked most frequently by students, with answers written by ActEd's tutors.
    This thread was last updated in October 2018.

    Question
    What material from other subjects will I need to know to pass SA7?

    Answer
    The subjects that contain useful information are: CT2 (now CB1), CA1 (now CP1) and most importantly ST5 (now SP5). Some material from the old subjects CT7 (business economics) and CT8 (financial economics) can be useful but these appear much less regularly.

    Analysing this in more detail, the relevant areas and topic from these earlier subjects (using the older naming convention) are as follows:
    CT2: long-term finance, derivatives, analysing accounts, capital structure and cost of capital, and dividend policy
    CA1: money markets, property markets, macro economics and the impact on investment markets, investment strategy (for both institutions and individuals)
    ST5: Everything!

    Numerical questions have been more frequently assessed in Subject SA6 since 2015 when the core reading was revised. These have tended to come from material in Subject ST5 (now SP5). A list of numerical techniques that COULD be examined, or have been examined in the past is as follows:
    Performance measurement and attribution
    Risk-adjusted performance measures
    Valuing derivatives including options, swaptions, futures and swaps
    VaR analysis
    Risk-neutral pricing

    Subject SA5 would commonly examine more general ‘corporate finance’ concepts using numbers, and these could include:
    forecasting the cashflow or profits from a business proposal
    analysing a set of accounts for credit risk
    simple present value or IRR calculations.

    It is likely that these will continue to feature in Subject SA7 given the material from Subject SA5 that has been incorporated in the course.

    It was also common for marks to be available for knowledge outside any of the subjects listed above, both in Subject SA5 and in Subject SA6. Commonly the areas examined were simply issues that had been discussed in the financial press in the years leading up to the exam. Examples include BREXIT, Scottish independence, Quantitative easing, multi-national companies and taxation, negative inflation as well as various aspects of regulation and legislation (eg Solvency II, Basel II and III).

    It is worth noting that Subject ST6 (now SP6) is not required for Subject SA7.

    Bookwork recall questions are likely to be from the Core reading of Subject SA7 only.

    Question:
    What topical issues are relevant for the coming sitting?

    Answer
    It is impossible to say for certain, but the examiners for Subject SA6 often focused on issues that affect investment consultants in the 24 months prior to the exam date. Examiners for Subject SA5 have focused on corporate activity, taxation issues or regulatory changes that have happened recently or are ongoing. The examiners are not scared of picking on current issues when designing questions.
    Topics for 2019 might include:

    demands for tighter financial sector regulation, with an increase in statutory oversight and demands for corporate salaries to be constrained. In the UK and certain other countries, there have been calls to have certain industries re-nationalised, which would have big implications for institutional shareholders.

    the large issuance of government bonds that we have seen over recent years from most western governments, and the implications for pension funds, and long-term interest rates. The spiralling pile of sovereign debt from western nations in general remains a big issue.

    the BREXIT result and its ramifications for asset strategies, risk budgets, and the performance of various asset categories (both short term and long term). Question are likely to be of a generic nature (‘a large country has decided to leave an international trading block ...’) as Subject SA7 is aiming to be less UK specific. The impacts of regulation, Solvency II and Basel II & III on institutional portfolios is also examinable.

    the increasingly common imposition of trade tariffs and the likelihood of ongoing trade wars has been discussed widely in the press since 2017, and the effects of these on the insurance world is likely to be examinable.

    the importance of credit rating an entity before making an investment and the problems involved in relying on large politically-influenced rating agencies.

    Quantitative Easing (QE) and its consequences for bond markets and other investment markets. Also the arguments about competitive currency devaluation. In general, the immense power of central banks to manipulate market prices is very topical.
     
    Last edited: Nov 7, 2018

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