BOOK 2 — ECONOMICS AND FINANCIAL REPORTING AND ANALYSIS Study Session 4 — Economics: Economics for Valuation. 10 Self-Test ~ Economics ul Study Session 5 - Financial Reporting and Analysis: Intercorporate Investments... 114 Study Session 6 ~ Financial Reporting and Analysis: Post-Retirement and Share-Based Compensation and Multinational Operations 159 Study Session 7 - Financial Reporting and Analysis: Earnings Quality Issues and Financial Ratio Analysis... secserernee ee sveseee 220 Self-Test ~ Financial Reporting and Analysis ...c.c.eeeness .-- 286 Formulas 295 Index 300LEVEL 2 BOOK 2: ECONOMICS AND FINANCIAL REPORTING AND ANALYSIS. ©2008 Kaplan Schweser. All rights reserved. Published in September 2008 by Kaplan Schweser. Printed in the United States of America. ISBN: 1-60373-238-1 / 978-1-60373-238-3 PPN; 45546CFA, zm with the Kaplan Schoveser logo on the back cover, uted without permission of Kaplan Schweser, a Division of Kaplan, Inc., and isin direct violation of global copyright laws. Your asistance in pursuing potential violators of this law is greatly appreciated. Required CFA Insteute® disclaimer: “CEA® and Chartered Financial Analyst® are rademarks owned by CFA Inacitute. CFA Insticue (formerly the Association for Investment Management and Research) does not endorse, promote, review, or wareant the accuracy ofthe products or services offered by Kaplan Sehweser.” Certain materials contained within this text are the copyrighted property of CFA Institute, The following is che copyright disclosure for these materials: “Copyright, 2009, CFA Instiuce. Reproduced and republished from 2009 Learning Outcome Statements, Level I, 2, and 3 questions from CFA® Program Materials, CFA Institute Standatds of Professional Conduct, and CFA lastitute’s Global Investment Performance Standatds with permission from CFA Institute. All Rights Reserved.” ‘These materials may not be copied withous writen permission from che author. The unauthorized duplication of these notes isa violation of global copyright laws and the CFA Institute Code of Ethics. Your assistance in pursuing potencial violators of this law is greatly appreciated. Disclaimer: The Schweser Notes should be used in conjunction with the original readings asset forth by CCEA Insticute in their 2009 CFA Level 2 Study Guide. The information contained in these Notes covers, topics contained in the readings referenced by CFA Institute and is believed to be accurate. However, their accuracy cannot be guaranteed nor is any warranty conveyed as to your ultimate exam success. The authors of the referenced readings have not endorsed or sponsored these NotesREADINGS AND LEARNING OUTCOME STATEMENTS READINGS The following material is a review of the Economics and Financial Reporting and Analysis principles designed to address the learning outcome statements set forth by CFA Institute. STUDY SESSION 4 Reading Assignments Economics, CFA Program Curriculum, Volume 1, Level 2 (CFA Institute, 2009) 14, Economic Growth page 10 15. Regulation and Antitrust Policy in a Globalized Economy page 29 16. Trading with the World page 38 17. The Exchange Rate and the Balance of Payments page 49 18. Currency Exchange Rates page 61 19. Foreign Exchange Parity Relations page 82 20, Measuring Economic Activity page 105 STUDY SESSION 5 Reading Assignments Financial Reporting and Analysis, CFA Program Curriculum, Volume 2, Level 2 (CEA Institute, 2009) 21. Intercorporate Investments page 114 22. Variable Incerest Entities, Intercompany Debt, Consolidated Cash Flows, and Other Issues page 151 STUDY SESSION 6 Reading Assignments Financial Reporting and Analysis, CFA Program Curriculum, Volume 2, Level 2 (CEA Institute, 2009) 23, Employee Compensation: Post-Retirement and Share-Based page 159 24. Multinational Operations page 186 Se uer ay vi Reading Assignments Financial Statement Analysis, CEA Program Curriculum, Volume 2, Level 2 (CFA Institute, 2009) 25, The Lessons We Learn page 220 26. Evaluating Financial Reporting Quality page 229 27. Analysis of Financial Statements: A Synthesis page 258 ©2008 Kaplan Schweser Page 3