Speaker 0:
Hi, everybody. Uh, Russell here, uh, from edge designations. I hope everybody's doing well. I hope everybody that is joining us from last night's session has recovered somewhat. Um, I hope we didn't scare anybody too much away last night. Um, and to any newcomers will come on board as well.

Speaker 0:
Um, let us get ourselves going straight. We've got a We've got a fantastic lineup tonight. I've got a lot that we got to get through. Um, let's get going straight away For those that are planning, um, something that they need still to do tonight. I hope it's a bit of studying, but after two hours with me, you are more than, uh, uh deserve. Ok, um, some time off. OK,

Speaker 0:
I know you're supposed to study every night, so I think that's what they tell us. But after two hours with me, you you can take some time off. OK, guys, tonight's session, first of all, just to introduce myself for those that are not with us last night, um, as mentioned,

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my name is Russell Jude Gath. Um, I head up a, uh, prep provider company called edge designations. And that's what we do is designations C FA FR MA And our latest edition is FDP um

Speaker 0:
N FTP um is financial data uh, professional, which is as as the as the word said, it's a data, uh, designation fintech and all that kind of good stuff. We've just been appointed a prep provider earlier on this year. Uh, along with Captain uh, Schweer,

Speaker 0:
um very proud to be the only two prep providers for that designation at the moment for those that are of interest. Guys, if you want to visit our website WWW dot edge designations dot com I'm just gonna give you my email address up front. So it's Russell two l's with AJ

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at

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EBS dot CO dot Z a.

Speaker 0:
Just remember, guys and just we we we'll we'll knock out the admin a little bit earlier on tonight. OK, we, we we we get the question often. Um are these sessions recorded? Well, first and foremost, yes, they are OK and they belong to the C FA Society. I work on behalf of the C FA Society, South Africa. So these sessions then belong to them. OK, they record them via a most marvellous company called Corp Camp. Who does a fantastic job. If anyone's looking

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to do recording things, OK? And they then place the videos on a platform called Asset TV. So if you are looking for tonight's video as well as any previous videos that we do as well and we have done quite a couple already, guys. So, um,

Speaker 0:
if you are looking for some past stuff, we've got some lovely stuff. OK, um on asset TV as a platform. So please do take a look there. If anything that you like. I think you need to register. You log in, you get details and that kind of stuff. Um, the platform, as I say called asset TV number two. OK, are the notes OK? The notes that we present from

Speaker 0:
here tonight and what I generally do is we make the notes a little bit more than, uh what I can in fact, go through with you in a two hour class tonight, guys. OK, but then we make the notes available to you as well. So there are some nice examples on there. Um, there's some nice information as well.

Speaker 0:
So the notes those are in a PDF format and you are more than welcome to get a free copy of those. And that's why I've given you the email address up there. So please, if you do wish to get a copy of the notes that we'll be handling tonight, please just pop me an email. And with pleasure, we can give you a copy of those. Um, absolute pleasure. Ok, there you go. You got so so that that that's the admin behind it, guys. So just depending on what you're looking for, video you got Asset TV. If you're looking for notes, you just pop me an email. We pop that across to you

Speaker 0:
in terms of tonight's material. Guys, I'm just gonna make this a little bit bigger so we can see it nicely, OK, Those that attended, uh, last night's session. Ok, uh, will remember that we

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wanted to do both time value of money as well as

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a bit of probability. Ok, um

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and just due to time, OK, we only managed to get through the time value of money component, OK. And, uh, hopefully people benefited from that, uh, in that we did a lot of calculator work showing you how to use the calculator, the various functions that your calculator can do et cetera, et cetera.

Speaker 0:
The guys requested last night. Um, that, please, if we could just do a little bit tonight and steal perhaps, um, an hour Odd. Maybe even a little bit less than that from economics time and do a little bit on

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probability. OK, um, which we, we, we we we we took a vote last night, and that was the overwhelming feeling that people wanted to carry on a little bit with quants. I think people battle a bit with quants and just do a little bit more on quants. And we we do. We'll start tonight's session, Um, with probability concepts. OK, as soon as we're done with that, guys shouldn't take that long. OK, then we're gonna hop into the second part of tonight's session, which will be, uh, economics.

Speaker 0:
Ok, um, again, economics carries with it. Just like quant over here, guys, As you can see, economics like quants carries an 8 to 12% weighting in your exam. So it's a fairly not the biggest ratings. OK, those are for things like, uh uh, ethics.

Speaker 0:
Um, financial statement, analysis equities, things like that, uh, fixed income. But it does carry a fair, measured weighting to with it. Uh, economics, as does Quantum. Keep in mind both of these. OK, both quantum. Both economics in 2024. I'm sure you guys have had a brief look at some of the changes Uh, C FA Institute are putting through. And there will be, um

Speaker 0:
um, both of these, including the third topic, which is financial statement analysis, are gonna move out of the syllabus, OK? And they're gonna move to what we call the the the They they they they're gonna term them pre reading. So things like time, value of money organising visualising describing data probability All a lot of these concepts guys are gonna go into what we call pre reads.

Speaker 0:
OK. And the three big sections that they've extracted some stuff from the syllabus and moved it into the pre read section are coming from quants economics and financial statement analysis. OK, um so you won't just don't get a fright next year when you, uh uh hopefully you're not still

Speaker 0:
doing it, OK? We hope and pray and you're done with it. Um but if not OK, or you decide to postpone your exam you'll notice that in 2024 a lot of these quants economics and financial statement analysis readings are going to find their way into what we call the pre readings section.

Speaker 0:
OK, on that note, guys, I'm gonna be turning lots of pages because I'm sure you've all seen this before. This is what we covered mostly last night from this very first, uh, document that we will be working with. So I'm gonna turn a lot of pages over here until we get to the one that I want,

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which is, uh, probabilities. We'll get there. Keep turning. OK, let's have a look over here,

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OK? And what I've got over here, guys in terms of probabilities is I'm really gonna only be handling two components of probabilities. And that's why um, we nearly finished last night, but time value money took us a bit longer than I would have anticipated. OK, but for tonight's session, what we're gonna be doing over here, guys, is I really want to look at just summarising probabilities in literally one page for you here,

Speaker 0:
OK, it'll take us a few moments, and then I wanna go ahead and look at what confuses people just a little bit, which is, uh, Bayes Theorem. Ok, um which is always the back end of probabilities. Um, those that have been involved in data science may know it as naive Bayes. It comes with, you know, the different different ways that we we we look at it, but there we go. OK, so, guys, let's have a look at probabilities over here. OK?

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Um uh, let me get my OK. Move that out there and let's get going, OK,

Speaker 0:
there's six major rules or probabilities that I wanna go through, OK? And hopefully this will be the majority It it's it's a It's a very small summary. It's only one page, but it's quite a powerful summary because it does handle most of the probability concepts that we are likely to encounter. OK, first and foremost, we deal with a very simple probability rule. Now the very simple probability rule. OK, Rule one and Rule two are fairly gentle.

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Nothing too difficult about those two. OK,

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I've just called it. What's the name of the rule? It doesn't have a real name. We just call it the Probability Rule. I'm not sure if that's its real name. I don't know. I made that up. OK? And in terms of the stock standard probability rule. OK, um and I'm gonna go through this by example

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a roll of a dice. Now everybody knows that that if you look at a dice, a dice has got six different sides, OK? And the question asks you, what's the probability of getting a three

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OK, And just look for interest sake, how we express that it's the P of three. Why? Why is it the P of three? Why is that the formula? Because that stands for the probability of getting a three. Now, you could make it anything you like, as long as you label it. So you could say I want to call this thing the P of F

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and if

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is equal to the probability of getting a three. So remember whatever you label your uh uh that three, as you can call it what you like. So don't be surprised. Sometimes if they change the names a little bit, I'll try to make it a little bit easier over here. And I've called it the P of Three and the probability of getting a three we know there is only 13 on the how many sides? Six sides, one out of six. So the probability the formula and the probability over there is, uh,

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0.16667. Everybody comfortable with that?

Speaker 0:
Something interesting about probabilities? OK, Which I haven't put here in my table. My Maybe when I do an update, I would include it as rule number seven. Well, I'll call it Rule number one. And you all know this is fairly simple, But let me write it down anyway. So you've got a full picture. The sum

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of probabilities

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is equal to one that that that is the golden rule with respect to probabilities, guys, that the summer of probabilities always

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sums to one.

Speaker 0:
Now, how would that apply over here? Well, what you would say over here? Well, hold on a second. If the probability of getting a three is 0.16667. What's the probability of getting any other number?

Speaker 0:
Well, you would just say the probability of getting something that's not a three would be one minus naught 0.1667. Of course, we know that to be naught 0.8

Speaker 0:
333 whatever it happens to be and as you can see So the probability of getting a three is 16.67% or 0.1667 and then the probability, then of getting, uh, any other number on the SK which would obviously be a one a two a four a five or a six is 0.83 because we know the stock standard Golden rule is that the sum of probability is always sums to one. So, guys, if you if you were trying to work out a probability in an exam,

Speaker 0:
OK? And the answer that you get to is greater than one is say, for example, you get to a probability of 1.32. You made a mistake, OK? Because first and foremost, the total or the sum of all probabilities

Speaker 0:
only equals to one. So all the individual components must all be less than one. Does that make sense? Guys OK, so that I I should next time I update my notes OK, I'm gonna put that in as my rule number one that all probabilities sum to one OK,

Speaker 0:
an interesting one Let's throw it in every now and then. I'm not sure. Um, with the with the mark. So let's not lose it. It's called the Odds Rule. So if we got any betting guys in the house OK, OK, everyone knows how to work with odds. Ok, Um

Speaker 0:
particularly like me. If you've got teenage boys, then you know a little bit more about odds. They like to do the the betting on the sports and that we haven't made much money yet, I can tell you that, but anyway, here's your odds. OK? Look at odds. OK, look at your formula for odds. OK, odds is almost the other side of probability and you can work them out one from the other because you've got the formula. I'll give you the formula now.

Speaker 0:
OK, let's have a look at it. What? What are the odds

Speaker 0:
of getting a three So again I'm rolling a dice. We know the DA has got six sides. OK, when you're looking at the odds OK of getting a three, what do you say? What's your numerator? Your numerator is the probability we by the way, we've calculated that in uh uh rule number one. So what's the probability of getting a 31 out of six? Or as you can see, there's my numerator. Naught! Point

Speaker 0:
1667. That's my numerator. That's my probability. What's my denominator? Always One less The probability. OK, so one minus 0. 0.6667

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0.8333 What are my odds then of getting a three

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20% or naught 0.2? Oh, what's interesting is that you notice. Ok,

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I hope you noticed the denominators 0.833 What is that?

Speaker 0:
OK, And again, if you sum the two what do you get? Both the way. Take your numerator and your denominator. No, the numerator nought! 0.1667 And your denominator 0.8333. And of course, that always comes back to one, doesn't it? So just keep that in mind as a nice little neat rule. If you're looking for just to make sure that you got your numbers right, just do take a look at that and make sure that your numbers always sum to one your denominator and your numerator.

Speaker 0:
Ok? I wouldn't spend much more time on odds than that. But yes, it does sometimes come up. Um and remember, they could give you. OK, um uh

Speaker 0:
um, give you the odds. If they really wanted to be a bit cruel and unusual, they could give you the odds and say, What's the probability? The odds are not 0.2. If the odds in that particular case are not 0.2 what is your probability? Well, you'll just work backwards, won't you? OK, you just have to solve algebraically. It's a bit messy, but easy to do. OK,

Speaker 0:
that was the basic general easy introduction. Is everyone comfortable? That's how we dealt with it. A stock standard probability rule. You could apply the probability rule as well, by the way to, uh, flipping a, uh, a A coin again. You always say to yourself how many sides of the coin

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two sides to the coin. What's the prob probability of getting a head or a tail? OK, Uh, well, as one out of the two

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and those are the easier ones because

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it's just one little case and away we go, we're gonna start to work with some stuff now, in probabilities. Guys that are gonna test us a little further. For example, let's say, uh uh, uh,

Speaker 0:
Flick the dice.

Speaker 0:
Uh, not flicked us. I flipped the coin five times. Not once now. Five times. Because this first part was a bit easy for you, wasn't it? But what if I flicked us? Uh uh. I flipped the coin five times. Now, what's my probability of getting 22 heads or we can It does get a bit more confusing, but we we we we're gonna start to work on some of the numbers. Some of the numbers now. OK, now

Speaker 0:
we start off with the multiplication rule. OK, so let's just change our colour. Let let's keep multiplication in green, OK? Now, remember, multiplication rule

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is the Andrew.

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Ok, now the and rule. Always remember, it's the probability of something and something else. Now you can see why we've introduced a second level. I suppose of complexity is because we need two things now. Now I'm gonna go to, um

Speaker 0:
uh, uh, my card example. And I've been using this card example for many, many years. Um, and one candidate once asked me, Can I explain to him how I managed to,

Speaker 0:
um I don't know what the right word is, but get so many designations. So the the real answer why I got so many designations, guys, is because I teach them. And if I teach a designation and I didn't have it, I don't look very good with it. If I'm teaching you C FA, I'm not AC FA Charter holder. So that's why that's the real reason for getting them, by the way. But someone said to me, Well, how do you manage to get them?

Speaker 0:
And then when I started to teach my card example, I had to ask the students how many, uh, cards in the pack. What type of what type of cards, et cetera. Because I didn't spend much of my varsity or my university years playing cards. I had time to study, So that's how I managed to get through. But I didn't know I didn't at the end of it. Unfortunately, my one weakness was I didn't know much about poker or cards.

Speaker 0:
OK, but I've learned OK cause I need it for this example. OK, now let's have a look. We we're gonna work with cards now for the next two examples. Very, very important ones. OK,

Speaker 0:
the multiplication. And I'm specifically starting off with the multiplication rule. The multiplication rule is the and rule. OK, now look what I want. I want I'm picking a card from a pack of cards. Now look what the question says to you calculate the probability of getting an ace.

Speaker 0:
OK, so first and foremost I want to get an ace

Speaker 0:
and a spade Now for those that are not so familiar with cards, OK, everyone will should know OK, that in terms of the types of uh uh I don't know what you even call them, but there's spades, hearts, diamonds. And then there's another one. I'm not sure what it is, but there's four different

Speaker 0:
categories all together. Let me let me make sure just to make sure I've got all the details about cards, we're gonna go a bit slow. So in terms of the I don't know what you even call them, I don't know. But the there's four major categories in a pack of cards spades, hearts and I know diamonds. There is one more. OK, but there are four altogether four different types of cards. OK,

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when I talk about the probability of an ace. We now need to say, Well, how many cards are there in every one of these things? So within all of the spades OK, there's a 23456789 Jack

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Queen King and a So there are 13 cards in every. I don't know what you call it, and then there are four altogether. Is everybody comfortable? I hope I've explained it well enough, OK, that there are 52 cards in a pack And what are they made up of?

Speaker 0:
Well, there are four

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groups

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OK? Or sweets. I think they I think they're called. I don't know if I'm saying it right. And within each and every one of those, like in the spades there are 13 spades. There are 13 hearts. There are 13 diamonds. What are those? 13. There's a two or three or four or five or six or 78 and nine. Jack, Queen King and an ace as well.

Speaker 0:
It makes up to 13. OK, thank you. Someone, someone putting over their clubs. Thank you. OK, so let me just make sure everybody is that we could if we don't get the the the example right. We're gonna be in a bit of trouble. So we've got Oops.

Speaker 0:
You've got clubs,

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hearts,

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diamonds

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and we've got spades as well. Thank you for that, guys. Those are my four categories. There's four major categories and in each category guys, there are 13 cards. A two a three, a four a five. Well, for an ace, an ace. 2345 or nine Jack. Queen King. So there are 13 over there.

Speaker 0:
Can everybody see over here? Hopefully, I made it a little bit clearer. Now in your pack A card, people. People are probably laughing at me that of course, everybody knows this. But I just wanna make sure, guys, um,

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in your pack of cards,

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there are 52 cards. Is everybody comfortable? Now? I'm working guys with what we call the multiplication rules. So let's go back up over here. And what are the multiplication rules say? The multiplication rule says OK, what are my chances? What's my probability of Pick a pick a card out of the pack? One card.

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What's the probability that that card will be an ace?

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OK, how many aces are there? Four and a spade. How many spades are there? 13?

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OK, so

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and the ace of spades, there was only one in the pack, isn't it? Only one in the pack.

Speaker 0:
OK, so intuitively you're probably saying to me Well, that's easy. How many aces space are there in a pack with only one.

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How many cards? 52. So yes, you can get the answer. You should have already. By the way, OK, the answer is one out of 52. Whatever that works out to be as a probability. Naught point. Naught.

Speaker 0:
Uh, 19 or something like that. OK, so that we've got but go through the thinking behind it and the the formula behind it. Remember, the multiplication rule is an and rule

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OK,

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and let's have a look at it. It's not,

Speaker 0:
and this is often this is for the most part, guys, this is the formula. It's the probability of A and B. Interestingly enough, you can always express it. Remember, with multiplication guys worry about multiplication doesn't make a difference which order you put it. You can do 11 times two or two times one. The answer is the same. So that's why we put over here. There's two formulas. It's It's the probability of getting an A and a B, an ace and a spade or a spade, and an ace makes no difference.

Speaker 0:
OK, just make sure you get the orders right? And what is that formula? Guys? That formula says it's equal to the probability of a

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OK

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even B.

Speaker 0:
OK, the line down. Look over here, guys. That line down means given that

Speaker 0:
OK, times the probability of B. So let's just work with the first one first. So what is the probability OK of it being an ace? OK, and let's just work with these numbers over here. What's the probability of it being an ace,

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given

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that it's a spade?

Speaker 0:
Well, how many of those are there? OK, only one out of 13. Is everyone comfortable with that? So is everybody comfortable? When I look over here that the first part of the formula, the probability of a given that it's a B, what's the probability of it being an ace?

Speaker 0:
So if I had to and guys, I want to just check that we've all got this right. Let's term these guys OK, let's call the probability of a being the probability of an ace and the probability of it B being a spade. Is everybody comfortable with it?

Speaker 0:
Everybody comfortable now, guys, I wanna check my chat over here. Let's do them together. What is the P of a What's the probability of? And remember, what am I working with? I'm working with her.

Speaker 0:
A pack of

Speaker 0:
52 cards now, guys, if you could help me out over here, I'm gonna check the chat. OK? What's the probability in a pack of cards? OK, it's an ace. What's the P of a

Speaker 0:
out of 52?

Speaker 0:
I'm gonna check my chat.

Speaker 0:
He II I I'll have to do this one first. Yeah, so that I get some nice answers from you guys. OK, now, remember, I got a pack of 52

Speaker 0:
OK, so the probably I'm gonna get rid of that guys, OK?

Speaker 0:
The probability of it being an ace is I say to myself. Well, how many? How many cards are there?

Speaker 0:
They're 52.

Speaker 0:
How many aces are there? Ok, so you got an answer over here? Thank Thank you. Ok, Uh, four out of 52. Thank you for that. Ok, so the pro probability of it. Being an ace is four out of 52. Am I comfortable with that? Thank you for that. Four out of 52. Or you could say exactly guys one out of 13. Fantastic. And that's your answer over there.

Speaker 0:
The probability of B the probability guys of it OK, uh, being a spade,

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OK. And again, what do we know about the

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spades?

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There are four

Speaker 0:
four sets of spades. OK, so what is the chance of it being a spade? Well, there's 13 spades in the pack

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out of 52. There is my probability of it being a spade. So those the individual probabilities guys, we know we know the probability of it being an ace. That's nice and easy. There's only four aces in the pack. We also know the probability of it being a spade. OK is the fact that there are 13 spades, 13 hearts, 13 whatever. Out of a pack of 52 Everybody comfortable?

Speaker 0:
OK, what? I want to know.

Speaker 0:
OK, what is the probability? And this is my first one over here. OK, what's the probability of a

Speaker 0:
ok given B? In other words, what's the probability of it being an ace.

Speaker 0:
OK,

Speaker 0:
probably of a over here, guys. This this one If you get this one, guys, this is what what trips? A lot of people up. It's this one. OK,

Speaker 0:
let's make it a bit clearer over here. In other words, what's the probability of an A What's what's a an ace? OK, what? In other words, what is the probability of the card that I pick up being an ace? Given that B I already know it's a spade I already know. It's a spade now if it already is a spade, OK, how many spades are there? 13. What's the probability of it being an ace out of 13?

Speaker 0:
Just the one. Can everybody see why that number over there is one out of 13? Because what am I saying? I'm saying, What's the probability of it being an ace? Give that that line down there means give a that I already know or give that it's a that it is a B already. B is. It's a spade.

Speaker 0:
So what's the pro of it being an ace now that I know already that it's a spade one out of how many spades? 13. Everybody comfortable with this first pot over there.

Speaker 0:
Then I say times by the probability of B. And what's the probability of B? The probability of it being a spade. We've dealt with that already. Either one out of four or 13 out of 52. So your total probability, guys, if I to then say to you guys, what is the probability of you of you picking a card?

Speaker 0:
It's both an ace

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and display.

Speaker 0:
Well,

Speaker 0:
one out of 52. But we knew that. Didn't we know that we knew that the pro of picking one is gonna be one out of 52? And why did we know that intuitively? Because we know there's only one ace of spades in the whole pack coming in a pack 52.

Speaker 0:
But I've shown you the formulas over here. And remember, guys, you can do the formulas in any way that you like. You can say probability of a given B times

Speaker 0:
probability of B or probability of B

Speaker 0:
given a

Speaker 0:
and then you can just times it by a remember then the second part of the equation. And yes, guys, you have to learn these formulas of by heart or I understand the forms. Whichever works best for you. I prefer the understanding approach. If you can try and understand what what we're trying to do over here. OK, um is is that particular one as well? Ok, and we've got a lovely formula sheet that we've put together as well. Ok, um uh and you have to know all those, uh, formulas. Ok, um,

Speaker 0:
OK, um someone says, please can we use a different colour to black? With pleasure. We can just change that colour. Absolute pleasure. OK, As I said, guys, we've got a a lovely formula sheet which goes through all the formulas that you need. Um, and with pleasure as well. Guys, those that are on tonight's call. Please don't tell your friends, OK, In fact, you can tell your friends and you can help them as well. We'll give that to you for free as well. Please don't forget to message me at the end.

Speaker 0:
OK, um and those those that send me an email and ask for tonight's presentation We just want the formula sheet. Absolute pleasure. But please remember, guys, you have to learn the formulas. Nothing's coming up in the exam we get this question very, very often. Um, are we gonna get, uh, formula sheet in an exam? The only thing that you're gonna get an exam are tables, OK? And of course, those are are very related to the quant section, etcetera, etcetera. OK, everybody comfortable so far.

Speaker 0:
Question over here. Will we get access to the formula sheet where you can have my formula sheet for free? The edge formula sheet. That's one that I've put together for my, uh, for my current students. But with pleasure. Guys, um, I think it's about seven or eight pages of memory serves and with absolute pleasure. If you email me just read

Speaker 0:
as a reminder because I don't have the best memory. OK, with pleasure. I'll send you that, uh, that my edge formula sheet for absolute, for for for free. No problem at all. But I need an email I wanna forget. OK, guys, everybody comfortable with the multiplication or the multiplication rule is the and rule

Speaker 0:
OK, in other words, OK, it's the probability of something and something else happening ace and a space because remember if it was just the probability of an ace or just the probability of a space if, in other words, I pick one card out of a pack and just the probability of getting one of them. That's easy, isn't it? We go back to our normal probability rule over here Rule One and that we know, don't we? It's the end when there's both of them together. OK,

Speaker 0:
I hope I hope that's clear. Cleared that up a little bit. We move to the next rule over here, guys. A big one.

Speaker 0:
The additional rule Now the addition rule. OK,

Speaker 0:
multiplication rules the and rule The addition rule is the or rule. What's the or rule? OK, going back to my group of cards again? It's the probability of getting an ace OK

Speaker 0:
or a spade. I don't care what it is.

Speaker 0:
OK, now you should say to yourself at this point, purely intuitively

Speaker 0:
OK, nice and easy, guys. II, I want some help here. We've got another hour and a half together. I'm getting tired already. OK, help me out, OK,

Speaker 0:
intuitively,

Speaker 0:
OK, and I want answers over here Intuitively. Guys, I don't care what I get. I don't care if it's an ace and what do we know about aces, guys, we know that Aces.

Speaker 0:
There are four of them spades. We know that there are

Speaker 0:
13 as there are 13 hearts, 13 diamonds, Um, et cetera.

Speaker 0:
What is my probab just purely intuitive? You guys, what's my probability of getting I pick one card out of the pack? What's my probability of getting an ace or a spade? I don't care which one it is, as long as

Speaker 0:
it's either an ace of which there are four or it's a spade of which there are 13. What's my probability? Guys? I wanna check my chat. Help me. Help me.

Speaker 0:
I know that I know these a little bit of a time delay. So, um,

Speaker 0:
we we we can, uh, uh, account for that. Ok, um

Speaker 0:
and that is this is the remember guys. This is the addition or the old rule.

Speaker 0:
OK, I don't care which one it is. It could be an ace,

Speaker 0:
or it could be a spade.

Speaker 0:
Makes no difference to me. OK, so let us get ourselves started on the calculation as we wait for the answers to come through. I know they are going to be many of them. OK, let's go. All right, Let's have a look. Probability of a or B. Now, why am I saying a or B? Because I know it doesn't have to be both If it was both, it would be the multiplication rule. OK,

Speaker 0:
we've got one clever person over here, by the way, guys, if you notice I'm not I'm specifically not mentioning people's names. I don't know if people want their names mentioned. Um, specifically, um, if nobody minds Well, that's OK by me, of course, but, uh uh, you know, I don't know, because the the the video does become quite public afterwards. Um, OK, now I see Someone's quite clever, though, that they didn't fall into my trick that I specifically tried. But

Speaker 0:
you guys are smarter than that. Ok, look over here, guys, OK, remember, I don't care which one it is

Speaker 0:
OK, the probability of it being an a an a plus the probability of it being a B.

Speaker 0:
Don't mind which one it is an A or spade. Look what I do now. Let's look over here now There's a minus minus the probability of it being P A and B. What is that? By the way that

Speaker 0:
where Did you see that?

Speaker 0:
That was the multiplication that you just saw there wasn't it.

Speaker 0:
Why am I subtracting it? So first of all, let's go. What's the probability of it being an ace? Easy. You know that by now. Ok, what's the probability of it being an ace? Easy.

Speaker 0:
OK, one out of 13 that we know. What's the probability of it being a spade? One out of four. You know that easy, easy. OK, why am I minus one out of 52? And what is one out of 52 by the way, guys, that's the probability of it being

Speaker 0:
and ice

Speaker 0:
and a spade. Now, why do we take that off? Because And now we look at the logic over here, guys, for this last bit. Why do we subtract that? We subtract that because one card is what? Both an ace and the spade. So

Speaker 0:
we need to We need to make sure that we deduct that from my probability. And I can't just do this. What would I be in inclined to? I would be inclined to say OK, Um

Speaker 0:
well, 13 out of 52 cards or what?

Speaker 0:
Ok, spades plus four out of 52 cards are aces, so that's 13 plus four. Should be 17 out of 52 is my chance of getting an ace or a spade? But remember, I need to take one away. One out of the 52. Why? Because one of these cards is the same. It it's one of the cards. Is an ace

Speaker 0:
OK? And a spade, um as well, everybody comfortable with that? So I hope you I hope you all understood that. Remember to just get a little bit tricky sometimes with the addition rule. If within the example that they give you guys OK, there is one card that is the same card. Don't forget to minus that on the back end. And of course, guys, that is why we get to 16 out of 52.

Speaker 0:
Everybody comes to a little bit complicated over there. Just follow through that and and go through that a few times. OK, um, yes. Uh, someone over here says we subtract to avoid double counting. Fantastic. Nicely done Nicely Said Said said better than I could have said it, so thank you. Ok, good. OK,

Speaker 0:
guys, Now we've got this thing called the total rule. OK, so we've dealt with three rules so far. Let's go. Sorry. Four rules so far. Now I wanna deal with the total rule. OK? The total rule says we wanna work out the total. Now the total rule is an easy one because the total rule is what It's just the multiplication rule which is an and rule.

Speaker 0:
It's an end

Speaker 0:
ro plus

Speaker 0:
multiplication rule again. So it's and and And

Speaker 0:
when would we use this particular example? Let's go through one. Quick, quick. OK, we want to work out how many people in total have visited America? OK, we select a group of 100 people. Our group is made up of 60 males and 40 females, OK, making up the total group of 100.

Speaker 0:
Now 50% of the males say they've been to America. 25% of of females say that they've been to America.

Speaker 0:
Now can you see why this is gonna be a total probability rule? Because I wanna know in total not just the males on their own and not just the females on their own, OK, I want to know both all together. So it's just a plus thing, isn't it? But can you see why it's the multiplication? Because I wanna know if I'm taking the two groupings together. That's why it's a total. It's all the males and the females. So first of all, what did I say? What's the probability of the

Speaker 0:
males going to, uh, America? In other words, what's the probability of you being a male and you can see what's the multiplication? And you've been to America,

Speaker 0:
plus multiplication rule again and rule? In other words, what's the probative of you being a female? And

Speaker 0:
you've been to America as well? Everybody can really. Guys, it's it's It's a fairly gentle one because it's only fairly gentle because it comes after the multiplication rule, which we've seen already. So the total probability rule guys is the is multiplication and multiplication. You sum them together. Let's have a look. I'll just do one of them with you guys. OK, so let's do the first one,

Speaker 0:
OK,

Speaker 0:
The first one is the probability of UM

Speaker 0:
Yeah, probability of being a male and having gone to America or gone to America. Given that you have, you're a male. Am I happy that that's 50% times by the total number of males. 60%. You uncomfortable?

Speaker 0:
Ok, so that is my multiplication rule relating to the males. Plus, don't forget the plus over here because it's

Speaker 0:
OK then I say, What is the probability of you being a female

Speaker 0:
K and having gone to, uh uh the US? OK, and we're trying to find the number over here. Ok, um

Speaker 0:
just trying to see if this is, I think does not seem to be overly uh there seems to be an issue over here,

Speaker 0:
OK, because that 25% I like I don't like the 10 seems to be an era seems to have crept in because guys, it wouldn't be that, would it? It would be 25% of the females that have been to America. Does that make sense times? What's the percentage of the group or the makeup of them that are female?

Speaker 0:
That number should be 0.4. I hope everyone is in agreement with that.

Speaker 0:
Ok, apologies for that.

Speaker 0:
Everybody comfortable. Ok, so remember, guys, the total rule is not a bad one at all. All that the total rule says is we take multiplication rule for males Multiplication rule here for females and add them together. OK, nice and simple. Ok, Um

Speaker 0:
OK, good. Everybody comfortable. Ok. Oh, wait, That that answer is right. The 0.4. I think so. But it's just the fact that, uh um that little bit got a bit wonky. So there we go. OK, Final rule.

Speaker 0:
OK, The final rule is an interesting one. OK, this is called the Independent Rule.

Speaker 0:
OK,

Speaker 0:
now the independent rule.

Speaker 0:
OK,

Speaker 0:
in a sense, you would say to yourself, Ok, well, this rule, this independent rule, where does it fit in?

Speaker 0:
Ok, the independent rule is is is similar to what we've seen before, but it's a rule of independence. Ok, let let me give you my example or tell me if you if you if you like it, we've got three shares. Apple, Google and Twitter assume that the shares are independent of each other. In other words, what does that mean? If one moves up, it has no impact on the others. I'm not sure if

Speaker 0:
and if if you guys would agree with me that that works in the market per se So just take treat treat it like that for my example, I I'm not I'm not sure if that's the real thing in the in the example itself. OK, um

Speaker 0:
OK, but over here we're assuming that. OK, now it says, What's the probability of Apple Corporation shares going up 60% on any day? Google 50 Twitter 30. Look what the question then asks you OK? And remember the movements on these three stocks Apple, Google and Twitter are completely independent of one another. Then the question says to you and what does that mean? Guys, they are independent. OK,

Speaker 0:
OK, um then the question says,

Speaker 0:
What is the probability that all three shares will go up on the same day? This is a nice and easy one to do because they're all independent of each other. You purely multiply them by each other. In other words, what's the probability guys of Apple Corporation going up 60%? Google 50

Speaker 0:
Twitter? 30 times Times times naught 0.6 times 0.5 times. Naught 0.3

Speaker 0:
and then guys, the probability of all three going up on the same day being given that they are independent of each other

Speaker 0:
is 0.09 or 9%. Does that make sense? Now? Let's just for a second before we continue. Just contrast that then with what we've seen already. And you can see the other ones are not independent of each other. For example, my addition and my, uh, multiplication there. And we use very specific examples over there where they are linked to each other and and a and it's all in the same pack, isn't it?

Speaker 0:
OK, so yes, So those ones. And that's why you can see, uh uh uh uh When we use the addition rule, we needed to subtract that double counting of them because one of the cards was the same same card. There's a link over there, a certain dependence on on one another.

Speaker 0:
And when when you say, depend, as we say, give a net. It's an ace. Given that it's a spade, it's a and that's not the case. Now, with rule number six, rule number six is the rule of independence. They are not linked at all. Whenever you've got things, guys that are not linked at all purely multiply them by each other like we see over there in rule number six. OK, so guys a very brief

Speaker 0:
summary Over here. You've got your stock standard Probability rule rolling a dice. OK, Your odds rule. It's almost like a little bit of the reverse of the probability we had Multiplication rule Rule number three which is the and rule addition rule, which is the or rule. Please know these formulas very, very well. We've got your total probability rule

Speaker 0:
which is multiplication rule plus multiplication rule. Put in there together and then number six, we've got the rule of independence.

Speaker 0:
OK, everybody comfortable with that? On some level, let me just check if we've got any questions, we do need to start to move. OK, Question number one Does the total probability rule use independence events for multiplication or no? So generally the the total probability rule assumes there's some link then between them, they're not completely dependent. Males, females And in my example particularly,

Speaker 0:
uh, males Females in the US. Ok,

Speaker 0:
All right, guys. And the last thing I wanna do with probabilities the fun, fun, fun,

Speaker 0:
Ok is,

Speaker 0:
uh, Bayes formula.

Speaker 0:
Ok, good.

Speaker 0:
OK, and I'm gonna just

Speaker 0:
in order to teach you Bayes guys, I'm gonna hop in straight to an example time is short, so we're gonna just do an example of Bayes together. OK, But before we start that all I want to tell you about Bayes, OK? And why is Bay formula? By the way, his name was Thomas Bayes. If it's of interest to anybody and it's very old, I think it's from the 17 hundreds. Guys or 1800 is old. OK,

Speaker 0:
he's not a new researcher. Thomas Bay. OK, but it's a It's a very powerful formula. To the extent guys is one of the it's a very used formula in data science today, it's called. They call it naive base, but it's a very, uh, used formula. Guys in, uh, data science as well. Very powerful, because if you know some of the probabilities, you can update others without having to know the full picture.

Speaker 0:
OK, but let's keep it as simple as we can for what we need for now. What is bay here for? Bay says, Hold on a second. Yes,

Speaker 0:
we've got probabilities.

Speaker 0:
We know we know probabilities now. OK, so base says hold on a second. Where are we? Base says you're here your time, period zero and we know the probabilities in other What's the probability of X happening? Certain amount Property of Y happening we know Then base comes along and says, Hold on now we're here Time, period What? And and base comes along and says

Speaker 0:
something

Speaker 0:
has changed,

Speaker 0:
OK, Between time, period, year and time something has changed.

Speaker 0:
OK, um

Speaker 0:
um

Speaker 0:
And, uh So there's another question I'll get to in a second. Guys don't stress. OK,

Speaker 0:
now that's something and whatever that thing will see in my example of the thing that has changed from time period zero to the next time period. Now here's the key. What does bay do for you? Bay said Hold on a second. What must you do now? You must

Speaker 0:
update

Speaker 0:
four new probabilities. Why do many new probabilities, guys? Because

Speaker 0:
something has changed, OK,

Speaker 0:
we'll do an example of that now. I just wanna answer any questions that we may have that we may have hit. OK, I've come across a practise question which combined total probability with multiplication rule and addition rule. Does this come often An exam? No, guys, just something to be mindful of now that we are together, OK, and I can give you a little bit of exam technique. OK, is that when we look at OK, um, these particular, uh, questions Any questions?

Speaker 0:
OK, keep in mind, guys. OK, that they've got 90 seconds to ask a question. C FA Ok, Uh uh Is the exam gonna be hard? Yes, but is the exam gonna be fair as well? Yes. OK, so just remember, they only gonna ask you things that they can ask you in 90 seconds. There's no linked questions. It's not part one. Part two. Part three. It's one question. Um 90 seconds. You've got 90 questions. You got to move,

Speaker 0:
but always keep in mind. Do you believe that they can ask this question 90 seconds and and and move forward from there? Ok, Um

Speaker 0:
OK, uh, regarding my previous question, was using a total probability. And Bayes Yes, Bayes does. Ba ba is linked to total probability. That's kind of like the starting point, OK? Because we want to know what's the total probability of something happening. So yes, base is very linked to total probability, but always keep in mind and I'll go through a question with you now and then. You you say to yourself my word. How can they ever ask Bayes when the question is so big? Well, they can ask and remember,

Speaker 0:
they can always ask components of a question. They can give you certain information, ask you other components. But remember, guys, you've got 90 seconds for a question. That's all they can ask. OK, if you want a longer question, then you need to move across to ER. M, you've got two minutes 24. OK, if you want less time, you got a They give you 72 seconds, you can take your pick. You're in the middle. C FA is in the middle. Ok, let's go, guys. OK, what I wanna do over here. I'm gonna go straight to the example over here, OK?

Speaker 0:
And with this, we're gonna conclude quants because otherwise I'm gonna get fired from the C FA Institute. So of South Africa Society because we advertise economics for tonight. So we stole a bit of time, but we're gonna still do I still wanna look at the new topic in economics tonight. Guys, um it's not a hard one. Ok, um uh geopolitics. So we're gonna just conclude with this and we're gonna move on to economics. OK,

Speaker 0:
we've got two candidates running for President Donald Trump and Joe Biden. I don't know if that's gonna be the case. I'm not sure how much you guys follow American politics, but you guys do need to do a little bit of American research because you are writing an American exam. C FA. Um OK,

Speaker 0:
now we are sitting off to the election, but we don't know who won the election. So again, go back to my previous thing over here. Where were we? We were here initially,

Speaker 0:
OK?

Speaker 0:
And we had certain probabilities.

Speaker 0:
OK, then what happened? Well, then the election happened.

Speaker 0:
That's a big event, isn't it? And now we're sitting in time period one and I just don't know who won. Why not? I'm on a desert island perhaps.

Speaker 0:
OK, so

Speaker 0:
we had initial probabilities. A big event happened.

Speaker 0:
I might know one or two little bits of information. I got to use those bits of information to update my new problem. Let's go. OK, we wanna find out. Remember, guys, we sitting after the election, we want to know who won that election. Ok, um

Speaker 0:
OK, now let's have a look over here. Let's go after the election. What? I know, I know. By the way, what happened? We're sitting over there at the beginning of the process, and Joe Biden and and and and, uh, um, Donald Trump are are are are both vying for the presidency.

Speaker 0:
And then

Speaker 0:
I get stuck on a desert island for whatever reason. And I never got to find out who won the election, but something I did find out they threw a newspaper down at me from the an aeroplane. They didn't rescue me. They just threw an air a newspaper at me. By the time the newspaper got down to my desert island, all that was left of the newspaper told me that after the election,

Speaker 0:
taxes have been cut. That's all I know

Speaker 0:
you're very happy with that. So let's go, OK, and let's have a look. Let's go. Let's take the facts that we've got OK. Before the election happened, the probabilities are equal. The 50 50 PR a probability of a Republican president 50% Donald Trump, Probability of a Democratic president, 50% OK in in my two sense worth, guys, not gonna

Speaker 0:
I'm a political person at all I don't think either is a very good candidate. Anyway, nobody asked. OK, but it's a 50 50 probability of them both coming in. I've just given you those. As I've assumed those numbers, those are not real. Of course don't. So don't try to find out where I got those from. I've made those up completely. It's a given, OK, The following probabilities are also known the probability that a Republican president will cut taxes 85%

Speaker 0:
OK, the probability that a Democrat will cut taxes

Speaker 0:
25% everyone comfortable with it. And we're going to call the probability of a tax cut. Guys,

Speaker 0:
we're just gonna call it a. You're unhappy with that. Is everybody comfortable with that?

Speaker 0:
Look, what I'm doing now is so before the election, what do I know? I know certain information. I know four things. What did I know? Guys, let's go. I know the probability of a Republican president 50% probability of a Democratic president 50 50 that's worked fantastically because we know probability sum to one. I also know what's the probability of a Republican

Speaker 0:
cutting taxes 85% and the probability of a Democrat cutting taxes 25%. Everyone happy with it? OK,

Speaker 0:
look what I'm doing now Let's look at the Republican tax cut, OK? The probability of him cutting taxes

Speaker 0:
And now this is not. Hopefully this makes sense now the probability of a a tax cut given that he's a Republican. 85%. Everyone happy with that to give What's the other side? The probability of him not cutting taxes and that should have a little dot next to it. I apologise. OK, on top of the A because that's the probability of not cutting taxes. Is the naughty event is 15. What do you notice again? Guys at the 85

Speaker 0:
and the 15? What are they sum to? Of course they sum to one, don't they? They're uncomfortable. OK, let's have a look at the Democrat. The probability of a Democrat cutting taxes

Speaker 0:
25. The probability of

Speaker 0:
Democrat

Speaker 0:
not cutting taxes then is 75 and that makes sense. Hopefully again. What do we see is some of the probabilities sums to one. OK,

Speaker 0:
we do another calculation now, OK? And the and and And the calculation says What is the probability? And now I'm not sure you asked the question. What's the probability of an overall tax cut? By the way, when I use the words overall, what am I saying? What rule do I want?

Speaker 0:
That's my total rule. Can you see how total rule ties into bath? Because remember, if I take you back over here, what did you notice, Guys? We said I. I stood over that time period zero.

Speaker 0:
Then I'm a time period one and an election has happened. And what do I know? What's the only bit of information that I know?

Speaker 0:
Texas.

Speaker 0:
That's what I'm gonna work with, aren't I? So now what? I wanna find out, guys, I know that. What, guys? And I wanna highlight it again. We know that after the election, taxes have been cut. What am I gonna try and work out? The total probability rule Of what? Of a tax cut. And you see what I'm doing over here? Guys,

Speaker 0:
OK? And we use the total rule over here. The total rule of a and look at my total rule over here. The probability of it being a Republican president. 50% uncomfortable times. What's the probability of him cutting taxes 85 because it's the total rule. What have I got? Guys, there's a big plus over here.

Speaker 0:
Last, the probability of it being a a Democratic president, 50%. And what's the probability of him cutting taxes?

Speaker 0:
Given that he's a Democrat? 25 what's the overall total probability of a tax cut? 55%. So can you see over here, guys that irrespective of who the president is gonna be,

Speaker 0:
there's a probability of 55% chance of a tax cut using which rule the total rule.

Speaker 0:
That's what base has come along. So Bay says to me, Take the information that you know what's changed. What do you know? Well, we know that

Speaker 0:
is a tax cut. If I'm happy with that, we know there's been a tax cut.

Speaker 0:
OK, what's the probability of a tax cut? Well, the probability of a tax cut needs. Why do I need to use the total rule? Because I've got the probability of a tax cut being done by who? A Republican. 85% chance And then, on the other side, the property of a tax cut. Given that what he's a Democrat, total rule and everybody comfortable that I come out at the end of that after all of that maths OK over there. There's a 55% probability that the person

Speaker 0:
that the the taxes being cut well, that that after the election, taxes will be cut 55% chance. And what do you know that, of course, guys, that there's a 45% chance of taxes

Speaker 0:
not being cut because we know probability is always some too one. Nice and easy, Everybody comfortable.

Speaker 0:
OK, comes along Bay. What do we know? Let's have a look over here and I'm gonna take you straight to the formula.

Speaker 0:
OK? I wanna work out. We're trying to work out. Look at what I'm trying to work out. In my example, I'm trying to work out. What is the probability

Speaker 0:
that the president could we know the taxes have been cut? That's a given. We know that.

Speaker 0:
What's the probability that it was done by a Republican president?

Speaker 0:
So if I'm comfortable

Speaker 0:
PFR given a what does that mean? What's the probability that he's a Republican president? Given that I know what after the election given, I know that a

Speaker 0:
taxes have been cut. Is everyone comfortable with that. That's what I'm trying to work out. The the biggest difficulty in Bay guys sometimes is to work out what's being asked.

Speaker 0:
Is uncomfortable that I've expressed that correctly. It because I wanna know what's the probability that the president that cut the taxes, How do I know that? Well, I know the tax have been cut that I knew. I just didn't know which president did it. So I want to say, What's the probability that he was a Republican? So, in other words, probability that he's a Republican president? Given that what taxes have been cut, everybody comfortable.

Speaker 0:
The numerator for Bayes is what. And this is easy. Now you've done all this work already,

Speaker 0:
nothing more to do. Really. Let's Let's do it. OK, um,

Speaker 0:
everyone can. It's nice and easy, OK,

Speaker 0:
Numerator. The probability that taxes would be cut given that he was a Republican. Everybody comfortable, 85%. We knew that done already. Next one denominator to the P FA. What's the probability of a tax cut? We've done that already as well. That is 55%.

Speaker 0:
And where did I get that from now you can see guys That was What guys? This little bit over here, the P FA is equal to the That's the total rule. That's why I needed it. So work out, guys in bay, work out what you need. OK, work out what you need for Bayes or work out. What's the thing that's changed that? You know, in this example, what do we know? Taxes have been cut,

Speaker 0:
OK, and the last little component of base is P Times R. In other words, what's the probability that the president would be a Republican? There's 0.5 nice and easy do all the maths

Speaker 0:
and we come out with a probability that the Republican that that it was a Republican president. Given that

Speaker 0:
we know taxes have been cut 77.2%. Which makes sense because it was much more likely, guys that a Republican president would cut the taxes.

Speaker 0:
Now if we had to say to them, Oh, by the way, what if I had to say to you guys, do me a favour, give me the P? The the probability of it being a Democratic president, given that taxes have been cut, you're not gonna do with all the stuff again, are you? What are you gonna say? You're gonna say one, which is the sum of all the permanent 0. 0.772. Because

Speaker 0:
naught 0.772 is the probability of it being a Republican President, given that tax have been cuts, you've worked it out already. And what do we know? Probability. Sum to one. So then what's the probability of it then? Being a Democratic president, I think that's 0. 0.2 to eight. Something like that.

Speaker 0:
Does that make sense? Guys, So base is very powerful. And, uh, based on the question that was asked before, how does bay and Total Probability work together? OK, well, that's your denominator, by the way there,

Speaker 0:
P, I

Speaker 0:
Yeah,

Speaker 0:
I hope we've cleared up a little bit of base where everybody made it a little bit clearer.

Speaker 0:
Yeah, Uh, not an easy topic.

Speaker 0:
OK, um but hopefully we've opened up, uh pro both probabilities, uh, and bay a little bit for for everybody tonight. Um, we are now moving on to economics. OK, let me stop sharing this particular any questions over there. Guys, um can we apply Bayes formula to the market hypotheses?

Speaker 0:
Well, you got You need to see Well, why you need to define that a little. Uh, I don't wanna Don't Don't mean to be disrespectful, but you need to define that a little bit better as to what you're trying to do with it in order to use bases. But yes, we can use Ba ba is very powerful.

Speaker 0:
Very, very powerful. OK, but it is economics. Let us get ourselves going. I want to make this just a little bit bigger for everybody and let's get going straight away. Just a quick word, guys. Then on the economics syllabus for C FA level one. OK, as you can see over here again, guys at with an 8 to 12% exam We

Speaker 0:
OK? And for those that perhaps were in C FA level one in 2022 2021 as well. Could be the only change that has come about in. Uh uh um

Speaker 0:
the economic syllabus is what we're gonna cover tonight. Introduction to geopolitics and it really is just an introduction. They don't go into any, uh, fantastic detail surrounding geopolitics. What's important to remember? Of course, guys. OK, and it's interesting. I, I got a a recent survey on my desk from, uh, FRMFRM. Uh and they are the risk guys. OK, um I'm just trying to think what the number was and they were looking at what do

Speaker 0:
fellow FRM charter holders believe to be the biggest risk out there at the moment? And of course, they the things things that they were uh, uh, asked to comment on are things like, um shrinking of, of credit, inflation, risk, risk of inflation, all that kind of good stuff. Over 60

Speaker 0:
60% of the respondents and there was a big survey came out and said that geopolitics is the next biggest risk. OK, and it's not. It's not a surprise because we we'll look, we'll start to look at geopolitics in a second. It's not a big surprise, given the the massive conflict. OK, geopolitical conflict between Ukraine and Russia, China and the US. OK, and I don't know if you guys were following OK, but

Speaker 0:
must have been 34 weeks ago. Something like that. Where II, I don't know if we've got any, uh uh currency Guys on our call today. OK, but if memory serves, the rand nearly touch 20 OK, and isn't it incredible? OK, that in South Africa at the moment OK, we're experiencing unprecedented. OK, uh load shedding power cuts.

Speaker 0:
Ok, um this last week what happened? It got even worse. What happened to the rand guys as we were following it, the rand strengthened. Now you could also say there's a bit of a a bit of US dollar weakening II, I concede. But what's interesting that has weak. When we had this massive fallout, guys

Speaker 0:
and everybody thought that South Africa was supporting Russia and that if, uh I'm not sure what his name is Putin or Putin I don't know what you call him, ok? Was allowed to come into South Africa. Ah, that would be terrible. Would we arrest him? He's a a war criminal. I don't know what all the rumblings were going on. All of these are called geopolitical issues. OK, what happened to the Rand when all this was going on? The rand nearly touched 20.

Speaker 0:
Wow. OK, so, um

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yeah, so you can see guys. It's it's It's a it's a massive Ok, um uh uh Impact that that geopolitic can have on a currency on a country a massive risk never to be under underestimated. Ok, um I just see, we we do have a question. Over here economic

Speaker 0:
has the most content per marks out of all of the readings. Do you have any tips on what to focus on and what to ignore? Ok, um I would rather make sure I'm 90% on other sections and 60% of economics OK. Feels like a better use of time. OK, now,

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II, I don't want you to be the controversial one here, but let me give you I I'm gonna answer your question with a story,

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OK? My story goes as follows

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one week before C FA level level one exam, OK,

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about five or six years ago. And by the way,

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ratings haven't changed much since then. I can tell you that economics again that was quite a a low amount of marks for a massive amount of readings. OK, it was about a week out from the exam and I get a phone call from one of my students.

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Ok, um and he said to me, he said he's battling with economics, really battling.

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What should he do? OK, so I said to him let me explain something to you, I said. Remember in those days economics was 10% 10% of the pain.

Speaker 0:
OK, now you guys are gonna help me here because we've just done probability. So this is a It's a nice time to tell my story. He had just done

Speaker 0:
OK. He he he was battling with economics. OK,

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he says he just can't get it. There's too much and there's supply and demand curves. And there's long range and long. He was just getting confused. OK, we all get confused with economics. Good news is it gets much more exciting and easy. A level two and three. So get through this one, guys it It only gets better. But he says to me, He says, You've got a problem with economics. What should you do? I said, Let me explain something. What I said, What's your name? He said, Oh, no,

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OK.

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He then says to me, Remember the remember the name guys OK, He then says to me, He says what he'd rather do is firm up on the other 90%

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OK, which he's fairly comfortable with, but he can really clean up in this last week. And then I said, Let me explain to you what I want you to do. And this is I'm not giving you this as a strategy. Guys, this is a story

Speaker 0:
I said to him. I said, Honour, do me a favour. Ignore economics now, he said, Ignore it completely. I said Yes, ignore it completely. Now pretend it's not in your exam.

Speaker 0:
Take the next week that you've got and spend nine Spend all that time the next week before the exam, polishing, cleaning that other 90% of the syllabus ethics, quants, equities, fixed income, OK, derivatives, ALTs portfolio Manage all that kind of good stuff. Corporate issues. Clean that up,

Speaker 0:
get it brilliant. Ignore it. He said, Well, what must I do with the economics in the exam? I said, let me tell you something you're gonna do. I said, because you know when you're in the economic section But in those days they told you you are now entering the economic section, OK? And I said, What are you gonna do? I said, when you get to economics, your name is a So for that 10% you're just gonna put a a for a If your name is Benita, you put a BK.

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Whatever happens to be Conrad, you put AC makes no difference. Pick a pick a letter if you don't have one of those. OK, um,

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pick your surname. Pick a letter that you co but pick the same letter. Guys. OK, I said I said Oh, no, please don't go A When you get to economics, don't go a, uh CD. Uh uh uh, Pick one letter. OK?

Speaker 0:
I said by picking one letter only A is for all of the economics. What is your pro? No, no, that's why that's why I said we we've just covered probabilities. What's your What's your likely mark for economics?

Speaker 0:
Well, remember, there's only a SBS and CS WW. What? What do you What are you likely to get for economics?

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3.333%

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on balance of probabilities, am I right? Because you're picking all A's. How many are they all together, So one out of three.

Speaker 0:
OK, so you're gonna get anywhere in economics between 3 to 4% by just picking one letter.

Speaker 0:
If you do that for the whole exam, you're gonna fail. Of course. Aren't you but your 90% you've done nicely. And for economics, you're gonna pick up another three or 4% for free.

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Yeah, so

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he couldn't believe that that was the strategy, But it was what I was recommending to him. That's what he did. He phoned me five weeks out and said to me, You can't believe that he's passed. I said, Of course you passed. Why? Why do you think you wouldn't? I said you got 90% of it, right? And the 324. Ok, um,

Speaker 0:
OK, Um uh percent you got over there. OK, so everybody's gonna have their own strategy. Your own strategy will be dependent upon how close you are to the exam. But I hope I've answered the question in a much more general way, but giving you a bit of a sense of of how to how to go about it. But yes. And by the way, OK, that's what they're addressing. OK, with what I mentioned in the first little bit guys with the pre readings that they're moving a lot of the

Speaker 0:
what they call the easiest stuff. I'm not sure if it is economics, financial statement, analysis and quants. OK, into a pre read section. I was What are they saying to you? We're not examining you on that.

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Taking up too many marks,

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but we're assuming that you know it. OK, which puts students in a bit of a pickle. Because if you don't know that stuff, you can't really move on to the more advanced stuff. So you gotta do it anyway. But it doesn't count for any marks. It's a pre read.

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OK,

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quick question over here, guys. OK, when we say that the rand nearly touched 20 Yes, against the US dollar. Ok, um, it's come back nasty if if, uh uh um I I do track it quite a bit. OK, um I think it's about at 17. 90 roundabout there. So it's come back quite strongly, OK, I'm not sure. I think the the the the Brics Summit started today. If memory serves, I'm not sure if Putin arrived or not, but hey,

Speaker 0:
um, it didn't Maybe it didn't come because the Rand didn't weaken it. Who knows? OK, but But guys, let's get ourselves going straight away and just it's important to remember the huge impact

Speaker 0:
that geopolitics has on, uh, on anything OK, let's guys, it is quite a theoretical section. We will. It will take us about half an hour just to go through it just to get a bit of a sense of it. Let us get going and just remember Of course, guys, this is the only new section in economics for for a while OK, geopolitics. Ok, what is geopolitics? OK,

Speaker 0:
It's the study of how geography impacts politics and international relations. OK, And if you look within a geopolitical environment, who are the players? These individuals, these organisations is companies there? National governments. OK, interesting. When we talk about companies guys OK,

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it's attracting a lot of information a lot of, uh uh media space at the moment. But they say that a company like BlackRock sure you're all familiar with BlackRock controls the world.

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Ok, um a company like Apple Corporation. OK,

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these are companies that got a massive amount of impact on a global scale. OK, geopolitical risk, ok, is the risk that is linked OK with relationships between the various people.

Speaker 0:
Ok, now, as you can see within the South African context, the minute the world thought that we were supplying arms to Russia and that they were getting, uh uh uh uh uh uh South African weapons through to Russia via one ship that was there? I don't know. Was there There was some story about it. I don't follow it that close, The tanked OK, they thought Oh, hold on a second. Uh uh. The West thought Oh, no. South Africa is aligning itself with Russia.

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Yeah, and it was a big set off of the land.

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OK, that's called geopolitical risk. OK?

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National governments and political cooperation Two key players in the geopolitical system. They're state actors, national governments, political organisations, country leaders. OK, And isn't it amazing when you look at some of our country leaders, This all some geopolitics is when Donald Trump makes a comment, Can shake the world a little bit. OK? When these big players, when When Putin says, Oh, he thinks maybe he's gonna push that little button, you know, the nuclear button that can blow up half the world.

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It's got an impact, OK? And we've also got non state actors OK companies, multinational companies, OK, nongovernmental organisations, et cetera, et cetera. OK,

Speaker 0:
we we talk about this concept, I'm just gonna move through it quite quickly, guys, just to give you a bit of a sense of what's in here. Guys cooperation. What is cooperation? OK, when countries work together towards a shared goal, that's the cooperation. And

Speaker 0:
there's there's always a bit of an amusement. OK, you see that? For example? OK, uh, and again guys, not to get political at all, not the intention. But you see that for example, the US supports Israel in the Middle East and and that's what they believe to be their ally. OK, why do they pick that? Who knows? OK, But you can see they've got a bit of a a cooperation

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relation between them, for example, America and unfortunately, Iran and Iraq and those countries, there's not much cooperation. We wish that their work would solve a lot of problems, but there's not, and we'll get to see what that term is in a second. OK, so for whatever reason you see guys between America and China, there's not a lot of cooperation. What doesn't IIII I don't know the steps behind all of this. As I say, I'm not familiar with all of it, but

Speaker 0:
but you can see between certain countries America and Russia. There's not a lot of cooperation going on America and the UK. Yes, they they do cooperate Ame and I think they call them the all the the the various countries Together there's NATO as well. That seems to that is this concept called cooperation countries align with each other for whatever reasons and they work together. OK,

Speaker 0:
we look over here. A cooperative country engages in what kind of practises role standardisation they harmonise tariffs. What does America always say to China when things get a bit rough? Are we just gonna raise your tariffs so you can't import into the US?

Speaker 0:
That's not a cooperative agreement, guys. International agreements on trade, immigration and free flow of information. Remember, guys, you're never gonna get it that perfect in terms of cooperation. But yeah, we can get it fairly close. OK, what about a non cooperative country? Let's let's look at the relationship now between perhaps China and the US. OK, a non cooperative country.

Speaker 0:
Well, let let let let's pick on Russia, for example, not to pick on Russia. I hope there's no not too many Russians in, uh but I'm not picking on them specifically But But if you look at the relationship guys specifically between Russia now and the US, it's one of non cooperation. There's inconsistent and arbitrary rules between the countries, restricted movement of goods, services, people and capital across borders. There's a fair amount of retaliation. We see that going on, that that could, uh, that's a terrible thing going on at the moment

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and limited technology exchange. That's what that that's what goes on between non cooperative countries.

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The following reasons are why a country may wish to. Why is it good to cooperate? National security or military interest? That's often why people why countries cooperate with each other to have a military presence somewhere,

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OK, and an economic interest as well.

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OK,

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these these are the certain terms that I just want you guys to know.

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Resource endowment.

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OK, uh, what do you call geophysical resource Endowment things factors like livable area climate, access to food and water. OK, II, I was very amused, guys, I had a a zoom call with a guy from the UK about, uh, two weeks ago, three weeks ago. OK, um

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and he says to me, he says he saw me in a t-shirt on the call and he says to me, But hold on a second, isn't it winter in South Africa? So I said, let me explain something to you, our winters and your summers because he was in. He was in London. I said midday. I think the weather the temperature I think we we were a little bit warmer than you. OK? And that's what we we're blessed with here in Africa. We've got a nice little areas. Good climate. OK, etcetera, etcetera. OK, uh, we've got a bit to harness all of those resources

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Standardisation. OK, um,

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at when? For example, governments work together, they standardise rules, tariffs and things like that. An interesting concept guys called soft power. OK, um, soft power, OK is when one country can influence another country without force,

Speaker 0:
still influence them. OK. And uh um, you you watch it a lot with the Americans. I think, uh, I hope I'm not offending the Americans here. Well, we'll offend everybody equally. I suppose you know, you get you get like the American president, kind of like bullying a lot of the smaller countries and nations saying, Well, you have to do this and you have to do that. And, um I don't know if you guys caught II. I was wildly impressed. Ok, um, by our government, the South African government,

Speaker 0:
I'm not sure who he was. I think it 11 of our ministers is I don't follow politics that much, but I did catch this interview, you know, that that comes through on the LinkedIn and that kind of stuff. And he was being interviewed by an American or a British, uh, journalist

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giving South Africa some kind of a rebuke on how we're managing Russia.

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And this South African minister really gave it back. And he said, Listen, you know, um, excuse me, uh, does the do the Americans and British have such a clean record that you can now start to criticise what we do here? Um, it was a lovely interview to see, because it was, you know, America was trying to use what we call soft power, and we were having absolutely none of it, which I, which I thoroughly enjoyed, I must say, OK,

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the role of institutions Take a look over there, guys. Hierarchy of interest and costs of cooperation. Ok, um,

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and depending on each country will have a AAA different. OK, a reason to cooperate. Ok, um some people, some countries may have a really strong gold. Uh uh uh Base base like South Africa. Ok, uh, why would we need to cooperate with somebody else? Whatever reason,

Speaker 0:
why would the US want to cooperate? Ok, each country has got their own specific reason. We call this the hierarchy of interests. In other words, why do you want what? What? What's your key reason for cooperation? Well, we've got no oil. Well, we've got No if you look at the Middle East countries specifically OK, um

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you know, there's a AAA massive amount of oil in those countries. They're oil rich countries. OK, they've got a certain power coming from that. Ok, um

Speaker 0:
I don't know if you guys caught the the The CEO of a Ram Co which is the biggest oil company in the world, has just been appointed to the board of uh, BlackRock. Interesting Watch. Watch the space. OK, let's go. OK, top of page four, power of the decision maker. OK, O. Often people say that the the US president is the most powerful man in the world OK, Political non cooperation. OK, um

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and some countries say Listen, hands off. We're not interested. We don't wanna cooperate. Leave us alone and OK, there we go. We come to a concert over here guys called Globalisation,

Speaker 0:
OK And we all know what globalisation is. It's the bringing together of people, companies, governments, et cetera across the globe. OK? And if you ever needed to to to to try and work out is globalisation real well, you You needed to look at the the the 2007 8 and perhaps even went into 2009 Global financial crisis and you saw how everybody was impacted the interrelationships and the links between the various countries companies OK was incredible.

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There's a massive amount of linkage on a macro and a micro level Guys OK, um uh between the various countries and we saw that Ok,

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OK, The globalisation

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contain certain cultural and communicative features. OK, for example, a grocery store in one country can have can hold certain products OK from many different countries. OK, social media, now we know, you know, and it's the most incredible thing, you know, um,

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sit, sit at home on your computer on your zoom call or on your team's call, whatever it happens to be and you can talk to everybody around the world and see their faces, it really has become a very powerful, a powerful tool.

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Some of the features of globalisation OK, globalisation comes about as a result of economic and financial cooperation. OK, often it's we look at it in terms of the various companies, individuals, organisations OK, that all get together to to form a A unit. Ok, um

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over our yeah, why would people What's the purpose of globalisation? Why doesn't each country just stay within their own four walls, manage themselves and then leave everybody alone? What is the purpose then, guys? Of all the motivations for globalisation, number one is increased profits. Ok, If you can increase your sales base, you can increase your profits ok either by increasing sales or by reducing costs

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OK, access to resources and markets. You've now got access to everywhere in the world, um, to source your raw materials

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and an intrinsic gain as well. Ok, um intrinsic gain is, for example, it's it's intrinsic, not extrinsic. It's a, um uh uh intrinsic means that it, it's and it's gonna be quite difficult to measure. For example, if two countries are

Speaker 0:
are working together OK, there's much less chance of conflict isn't there or much less chance of a geopolitical threat because they're working so nicely together. OK, obviously, when things don't work so nicely and they're not playing so nicely, then yes, that threat does. That does increase. OK, some disadvantages of globalisation, unequal economic and financial gains. OK, um

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and I I I'm not sure if it's a fair criticism, but we see China takes a fair amount of fleck criticism, um, for the way that it invests in a lot of the African countries in in kind of like saying, well, it's not really an equal relationship.

Speaker 0:
OK, low environmental, social and governance standards, OK, and there are times that certain countries have got higher or lower standards in terms of, uh, things like carbon emissions and things like that. Um, and some have got higher standards, but, uh, depending on on where you are, you may either be increasing your standards or reducing them

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political consequences OK, and interdependence often, you know, um, there there comes a point where one country becomes too dependent on the other. Um, which also may not necessarily be such a good thing. OK,

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we have a look at the I. I still I still haven't worked out how to pronounce this. I think it's archetypes, I think. OK of country behaviour. There are four different behaviours. OK, we've got Otaki

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hegemony, multilateralism and bilateralism. And guys, by the way, you know you you can see so far on the work that we've covered. Um Where, uh you may, uh, get exam questions, but I do think that this is definitely one of those that I would know fairly well the definitions of these four. Ok, let's go through them.

Speaker 0:
And what do you By the way, what do you notice on this diagram? As you have a look at it, we we we've got all the words that we've spoken about thus far. Globalisation on the top, versus what? Anti globalisation. The last word for anti globalisation is nationalism.

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Don't know if it's a completely opposite word, but

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on the right hand side we've got countries that have got a high level of cooperation. And on the left hand side you have got non cooperative countries. So you can see we we we work through as you work through geopolitics. Guys, we're gonna work through globalisation as a big word. OK, I'm trying my absolute best to spell it correctly. OK? And then you've got also cooperation.

Speaker 0:
Everybody comfortable. Those are your two big words coming out of geopolitic that you need to be fairly fairly familiar with. OK? And of course, globalisation. The other side of globalisation is nationalism and cooperative behaviour is non cooperative behaviour. Now let's go through those Otaki, Where does Otaki fit it? It's It's a horrible one. Where does where does Otaki fit?

Speaker 0:
Yeah, which means that it's quite non cooperative and nationalistic. OK,

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what kind of countries would opt for this type of model? In other words, a model of being non cooperative, OK and nationalistic.

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James,

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these countries seek to be self sufficient politically independent in terms of trade and finance. OK,

Speaker 0:
if you want to do that, you better make sure that you've got complete control over the supply of your goods and services. Well, you often find in an an OK that the government controls the media political messaging as well. OK, what they say over here

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is that a state of Otaki will often result

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in a gradual loss of economic and political development within a certain country.

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OK,

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and the two examples of Otaki that they give over here and I'll write them in for you is China and North Korea. OK,

Speaker 0:
we have to be a little bit careful when we go through. This is not meant to be a political class, of course, but this is straight from the C FA textbook. OK, hegemony. What's hegemony? Hegemony is a country OK, that is

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high on the globalisation side, but not so cooperative.

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OK, you see where where he fits in over there

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Highly global, but not so cooperative. Let's have a look at who this guy is. OK?

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These are regional or global leaders. They make use of the political and economic influence they control their resources

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but and their systems that they employ are valuable benefits to themselves as well as to others within the international system, they are quite a global force. Ok, um

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if you look at the Hegeman OK, if you

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align with them, you're their friend. If you don't OK,

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um countries that align with them

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enjoy the benefits

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provided to them, so they kind of like see themselves as a bit of a boss, don't they? OK, um, countries like these OK include the US and Russia.

Speaker 0:
OK, Um and the problem with these is they like to see themselves as a bit of a boss. To the extent that they start to lose a bit of influence in the international environment, they're not seeing themselves as such a boss anymore. The risk of geopolitical issues become even greater. OK, so under hegemony, let's put the US and let's put Russia there as well.

Speaker 0:
OK, let's look at multilateralism now. Multilateral seems like a fantastic one. Why? Because it exhibits

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cooperation among various countries. Globalisation. It's it's it's on the global market. Let's have a look over here, OK? And multilateralism? OK,

Speaker 0:
it's mutually beneficial trade relationship. It's not. It's not the relationship of like the Americans, who kind of like see themselves as top dog. OK, this is more. It's it's a it's an even equal relationship. OK, Germany, Singapore,

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they highly dependent on cooperation and innovation to survive. OK, why are they so dependent on innovation and things like that? Because they've got limited natural resources. Now, if you've got limited natural natural resources, you need to rely on your partners to be able to provide that for you. So we've got Singapore in and Germany.

Speaker 0:
OK, um Singapore. It is ethnically and racially diverse and got a very high skilled workforce. OK, um, the challenge with this with a multilateral system ok, is these countries are a little bit vulnerable within the geopolitical environment. They're not bosses. They need to rely on other people. There is cooperation. Um, and let's put over here we've got let's put Singapore

Speaker 0:
and let us put Germany guys. By the way,

Speaker 0:
I want you thinking already. I want an answer from you guys where we would put I know we've got other African countries on board as well. Here, guys, I think we've got Zim and Botswana as well. We'll come on board, guys, OK, but I'm actually asking more specifically

Speaker 0:
and give it some thought as we go through the final one, which is called bilateralism, where you believe South Africa would fit Which what is South Africa or Taki? Hegemony, Multilateralism. And the last one I'm gonna go through is bilateralism. Bilateralism is nationalistic but they do cooperate. Look over here Bilateralism. OK, they conduct political, economic, financial and other cooperation.

Speaker 0:
OK, there's a There's a fair measure of cooperation. OK, um

Speaker 0:
and they've got relations with many different countries. OK, um and it ranges between bi bilateralism and multilateralism. We call that regionalism. OK, in other words, they co cooperate with within regions, not the whole world, but because if you look over here guys, it is they are OK.

Speaker 0:
There's a fair measure of globalisation, but it's not all over the show. It's more regional. It's more among regions. OK, um I know we didn't give any examples over there. If I could just maybe stop here for a minute and see if anyone can help me here. Where do we believe South Africa fits on our table here?

Speaker 0:
Yeah. What do you guys think? I'm hoping hopefully gonna get some nice comments here. I got

Speaker 0:
where does South Africa fit on this table? Now let's have a quick look, Otaki,

Speaker 0:
ok? Is what OK, uh, China and North Korea. I hope no one puts us there. Ok, Um

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OK, um

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and and and? And we can almost get there by way of uh um Yeah, um,

Speaker 0:
elimination in a sense, OK? Because if we have a look at where South Africa would fit now first and foremost guys, we are not a boss,

Speaker 0:
OK? For good or for bad. Call it what you wish. We are not a US and we're not a Russia. We are not a hegemony. Everyone happy with that? OK,

Speaker 0:
we are not an Otaki either. By the way, I, I really hope you know, one put us there together with China and North Korea. OK,

Speaker 0:
I wouldn't put us ok, um

Speaker 0:
in terms of Singapore and Germany either. And one of the reasons I wouldn't is primarily because we are quite resource rich, by the way. OK, we're not that dependent. We are to some extent, we're not that dependent. Uh, over there I would put us OK, almost by process of elimination, I would put us over here.

Speaker 0:
Ok, um bordering on regionalism. OK, I think we've got some lovely relationships with regions as you can see guys with things like bricks.

Speaker 0:
OK, but remember, bricks fucks with other countries, don't they? You know, the minute America hears that there's a thing called bricks that they They get a bit of a anyone that's associated there gets tarred with a certain brush to an extent. OK, um

Speaker 0:
so if if you had to ask my my two cents worth, I would say South Africa would fit under bilateralism with quite a regional component to it as well. I think we do very nasty within an African context. OK, I don't know that much about

Speaker 0:
politics, as I said, but I do think we get on fairly nasty with our neighbours. I hope we have to ask the guys from Zim and and and a little bit up from us, um if we are good neighbours or not. But I do think that's probably where we would fit in if you had to, um, had to ask them, OK.

Speaker 0:
And guys, thank you for all those those answers. I think everybody kind of like concurred. OK, um, we've got quite a lot of bilateral agreements here. We mentioned regionalism. Yep, Multilateralism, bilateralism. But yeah, I think so. I. I agree with all of all of your guys' comments. Thank you for that. Ok,

Speaker 0:
let's move on just a little bit over here. We've got some what are some of the geopolitical tools that we've got available. We divide those into three major categories national security tools. OK, and we use these tools the national security tools to either directly or indirectly impact. OK on the country's resources, people or borders. OK, they may be active.

Speaker 0:
OK, you know, for example, an army and armed force OK may not be used at the moment. There's no armed conflicts, things like that we see in America and the

Speaker 0:
what's called NATO the North Atlantic Treaty Organisation, OK, and they use that to try and hopefully deescalate any kind of potential conflicts among members and outside states. OK,

Speaker 0:
you've also got and you see this used very often guys, economic tools OK, and economic tools are also used. OK, um, you know, if you do this, we'll give you that. If you don't do this, we'll give you that. And it's, uh, you know, uh, if you raise our tariffs, we'll raise your tariffs. I'm sure everyone's fully familiar,

Speaker 0:
uh, with those and you included, and there's also the financial tools as well, which is quite similar as well. Ok, um, and at the moment it's it's it's undeniable at the moment. I don't know for how long, but at the moment everybody knows the US dollar to be the international reserve currency. It's the main currency. But for how long will that be? Ok, how long will the US be the boss for?

Speaker 0:
You know, there's a lot of knockers on the door that I can tell you. The Chinese are are are knocking. There's a lot of big economies out there as well. So watch the space at the moment. The US dollar is all powerful.

Speaker 0:
OK, watch the space. OK, let's have We'll keep an eye on that one, OK, you've got multi tool approaches when you can use Uh uh uh um many, uh different approaches. OK, um and I'm gonna throw in a nice word over here. And why am I throwing this word in? Because when you see fancy words in the syllabus, just make sure that you know what they are. In case they ask them,

Speaker 0:
not sabotage, but cabotage OK, And what is cabotage OK? It's the right to transport passengers or goods within a country by a foreign firm. And you can you see over here that if you're letting foreign firms, transport goods and services in your country.

Speaker 0:
OK, it's a risk to you, isn't it? So there needs to be a fair measure of cooperation. I can't imagine many US trucks or many South African trucks, uh, driving freely, uh, through North Korea. Can we? OK, because that's because there's not much cooperation going on over there.

Speaker 0:
We'll also talk a little bit about guys, political risk and comparative advantage. And again, we always need to make sure every country should be fully aware of where their their their advantages are comparatively what they can produce, manufacture, trade at a at a better rate than other countries. OK? And use that, of course, to their to their advantage. OK,

Speaker 0:
the different types of geopolitical risk. We break it down into three events exogenous and thematic. Remember, XO OK is external as opposed to the word risk. Remember, guys often you see exogenous versus endogenous, which is internal. OK, let's have a look at the three types of risks we've got over here. Event risk. OK, uh, event risk

Speaker 0:
can be a a political risk. OK, A nice example of an event risk. OK, is

Speaker 0:
when they asked the uh uh, the British, whether or not they still wanted to be part of the EU. The European Union. And of course, I'm sure everybody's aware. Uh, the British decided to leave. The EU had some consequences. As I'm sure everyone's aware, that's an interest now.

Speaker 0:
A lot of stuff was dependent upon that, wasn't it? Now, to the extent that you were looking to get a a AAA visa or anything like that, well, remember if you could get into the to to the UK before if you had a UK visa, you could go anywhere in the EU, couldn't you? You can't do that anymore. That's got a big impact, doesn't it?

Speaker 0:
Exogenous risk. OK, so it's external. It's more sudden. OK, something like an invasion. Like, for example, when Russia invaded Ukraine. Anything like that. Those are those are sudden and they can be quite big risks as well. And the last one is thematic risk. They change over time, a little bit slower climate change, the ongoing threat of terrorism, cyber attacks, things like that.

Speaker 0:
OK, when we're looking to assess geopolitical risks, we look at it in terms of number one, the likelihood that the event will occur OK and first and foremost is if it's not likely to occur.

Speaker 0:
Monitor it. But OK, but unlikely to occur. We look, then look and obviously, if it's something that is very likely to occur, we need to see what what's its impact? We we'll look at that one in a second point. Number two. The velocity and speed OK of the impact. OK, we've got things like

Speaker 0:
Look at these short term high velocity impact, Short term boom. It hits quite hard quite quickly, OK? Exogenous or external risks or black SWAT events fit into this category. What's a black swan event? Something that's unanticipated. You couldn't have predicted it,

Speaker 0:
although many people say after that Oh, I could I saw that coming. We've seen that story before. You got medium term impacts, OK, and then you've got long term or low velocity impacts. OK, long term care, things like ESG environmental, social and governance impacts. OK, um

Speaker 0:
and generally speaking, the impact of that will be limited on an investor's portfolio and lastly guys, we look at the size and the nature of the impact. OK? Investors should always consider the size OK, Uh, but If it's tiny and small, it may be a huge It may be a massive thing, but if it's not, uh, the size may be a big, uh, impact. But the size of it's small then no, no, no, not much to worry about at all. OK,

Speaker 0:
some things we can look at guys we can look at in terms of monitoring and managing geopolitical risk. We can look at things like scenario analysis. OK, We can also use an interesting thing called sign post, which is an indicator OK, that keep that monitors that risk and says, Oh, that risk is getting bigger or that risk is getting smaller. OK, it's called a sign post OK,

Speaker 0:
and look at those as well and lastly, guys acting on geopolitical risk. OK, remember as an investor, if you've got a portfolio or you're managing uh, portfolio on behalf of your clients, you need to determine the Likelihood number one.

Speaker 0:
You've seen all of this before.

Speaker 0:
Velocity and impact of geopolitical risk. OK, then you can take action as you believe it to be, For example, if you if you are invested in

Speaker 0:
in a country where you believe there's going to be conflict. You may want to, uh, move out of that country.

Speaker 0:
OK, um and you ask yourself the question What happens if something does happen? Ok, if this particular risk, this geopolitical risk does take place, OK, what can you do about it? Top down approach. OK, we look at it on a top down approach on a macro level. OK, you can also look at it on what we call a portfolio level. Ok, um, individual portfolios, you look at things like factor models perhaps. OK, um

Speaker 0:
and, uh, again, the importance of geopolitical risk as part of the investment process depends on the investors objectives,

Speaker 0:
your risk tolerance as well as the time horizon. Because everybody knows OK, the longer time that you have got guys, the less likely anything will impact a portfolio, particularly something like an equity portfolio. If you are nicely diversified and you've got a fairly long time horizon, we know the market goes up and down like that, but overall it would tend to balance itself out

Speaker 0:
OK And guys, that then brings us to a conclusion of geopolitical risk. In these notes, I've got a little bit for you on currencies as well, but we are out of time for that. So I'm just gonna if if anybody would like a copy of these notes, as I said before, I'm gonna go right to the end. Over here. Guys, um,

Speaker 0:
he's got to the the back page. OK, so, guys, if anybody wants a copy of

Speaker 0:
let me just tell you what we have got on offer for you If anybody wants last night's notes,

Speaker 0:
OK, those notes were the quants notes. With pleasure, you can have those. Today's notes were economics. We looked at geopolitical risk.

Speaker 0:
In fact, by the way, guys, that was almost the entire new chapter on geopolitical. It's fairly small, but just it's it's good to have an understanding of it because it's a massive risk and very likely to come up with at least a question or two in your final paper. And then guys, as promised, um, you are more than welcome to have a free copy of our edge, uh,

Speaker 0:
a formula sheet as well. But again, if you want any of those three resources OK, please don't forget to email me Russell J at EBS dot CO dot Z A. And with absolute pleasure, guys. I will make those available to you at no charge. I got a few emails last night after the session. Guys, uh, requesting information. A couple of guys asked. Is it really free? So the answer, of course, is yes, it is. OK, it's a service that

Speaker 0:
of course, we provide through to the C FA Society, South Africa. Um so yes, those are the notes components. And if you wanted the video component, remember again, guys, you need to log on to a specific resource called Asset TV. Um and it's all over there as well. The videos are there, the notes belong to me. And of course, you are more than entitled to a copy of those.

Speaker 0:
And just to conclude, because I have had a couple of requests for, uh, products and information, so do visit our website edge designations dot com. Ok, um and we are giving a 25% discount to anyone on the course tonight.

Speaker 0:
Please, please, please, please. Guys, when you check out, don't forget to use the coupon code passing C FA 23. And of course, guys,

Speaker 0:
there's a lot of meaning in that particular, um,

Speaker 0:
coupon code. OK, just the last thing we got asked. Uh, I got a couple of questions last night, so I thought I'll just address it with the guys tonight. A couple of emails. What products do I recommend for you? Ok, so, guys,

Speaker 0:
I'm gonna be perfectly honest with you. People often say to me, um why do you say don't buy? Don't you want people to buy your product? I say I'm always the most honest guy in the room. And I and and option number one guys which is the full programme.

Speaker 0:
OK, which is all of our notes. All of our videos. Uh, all of our questions. OK, it's a It's a big package, guys, but it's late for that now We're in July. You guys are writing in August. OK, if you are writing in November,

Speaker 0:
yes, option one might be an option for you. And you are more than welcome to take the 25% discount if you're writing in November. If not guys. So what I would recommend for for anybody is option number two. OK, but particularly for the August writers. What is option number two?

Speaker 0:
You get around about 20 to 24 hours of video. And what do we do in that? By the way? This package is called Revision and exam.

Speaker 0:
And what you get for that 20 to 24 hours we revise or video. We revise the entire C FA level one syllabus again. But remember, guys, it is a summary. So I take the entire C FA level one syllabus all 10 topics, and we go through it with you again in summarised version. You get videos for that,

Speaker 0:
and you get notes for that as well. In addition to option number two, you're gonna get six practise exams as well. So if you are looking for something that's more related to your August writing option number two on our website is probably better suited to you. If you're writing November

Speaker 0:
or you've got a bit more time, then yes, probably look at option number one, which is the full programme. OK, guys, I hope everybody has benefited from the two sessions that we've had. Um, I had some requests. Can't we do tomorrow night as well? Unfortunately not. I move on to, uh, some other things I need to do tomorrow night. Um,

Speaker 0:
but we will hopefully be running sessions again. Um, for the November, we'll probably run those October time or, uh um, end of September or early October for the November sessions. Um and yes. So hop on to those calls as well. At this point, we are done for tonight. I'm gonna wish everybody there's writing in August. The most amount of I never wish people luck because you don't need luck if you studied. But I do wish our candidates the most amount of success.

Speaker 0:
If you've got any questions, queries concerns, guys, you've got my email address over there. Please feel free to reach out. And if you want any of the content that we had tonight, please feel free to reach out. Best of luck, everybody. And hopefully we will see you then. All in, See if I level two Cheers, everybody