What Does HKSI Paper 7 on Financial Markets Actually Cover?

HKSI Paper 7 aims to develop basic financial markets knowledge, with descriptions and explanations of markets, products, participants and factors that affect financial markets.  There are 60 questions, 42 or more of which must be answered correctly to pass.  Around 15% of the questions will be numerical, at times requiring the use of a calculator.  Read on to learn of the material covered.

The Global Financial System is outlined in the first topic by considering:
  • Introductory micro and macro economics
  • Participants in the global financial system (IMF, World Bank, WTO etc)
  • Role of central banks
  • Types of financial markets
  • Economic influences on financial markets
  • Lessons from:
  • 1997-98 Asian Financial Crisis
  • 2008 Global Financial Crisis
The second topic focuses on the Hong Kong financial system by looking at:
  • Major Hong Kong regulatory bodies, including the SFC and the HKMA
  • Participants in the Hong Kong financial system, including banks, fund houses, brokerage houses and investment banks
  • Ways in which the Hong Kong government influences financial markets
  • The impact of technology
The Equity Market is covered in the third topic, with the following areas addressed:
  • Different methods of raising equity finance
  • Initial public offerings
  • Calculations behind a share rights issue and a bonus share issue
  • Organisation and measurements of the Hong Kong stock market
  • Privatization of government-owned companies
  • Different types of equity securities
  • Trading and settlement systems
The fourth topic explains major factors behind the Debt Market, including:
  • Characteristics and advantages of debt
  • Simples versus compound interest
  • Different categories of bonds
  • Pricing of debt securities
  • Role of the yield curve
  • Structure of the Hong Kong debt market
  • Debt market participants
The Foreign Exchange and Derivative Markets are outlined in the fifth topic with attention paid to:
  • The history of exchange rates and the different exchange rate regimes
  • Hong Kong’s linked exchange rate
  • Calculating forward currency rates
  • Classifications and functions of different types of derivatives, including options, futures, forwards and swaps
  • The mechanics of interest-rate swaps
The sixth topic focuses on Financial Risk Management by looking at:
  • Risk versus expected return
  • Risk management techniques
  • Different types of risk including: credit, market, liquidity and operational
  • Measuring risk by calculating variance and standard deviation
  • Lessons from:
    • The Barings Case
    • The Enron Case
    • The Metallgesellsschaft
    • The Lehman Brothers Case
    • The Madoff Case
Finally, the seventh topic wraps things up outlining Different Applications in the Financial Sector focusing on:
  • Corporate Finance
  • Asset Management
  • Financial Advising

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