CFA_ETHICS_MC
A company has a defined benefit plan that is currently under-funded. The plan sponsor has instructed the portfolio manager of the plan to invest more aggressively to bring the funding level up to an adequate amount. Which of the following statements best describes the course of action the portfolio manager should take? The portfolio manager should: A) not invest more aggressively since this may expose the plan to too much risk and may not be in the best interest of the plan's beneficiaries. B) not invest more aggressively because this is not the method used to increase the funding level of a plan. C) invest more aggressively because his fiduciary duties lie with the plan sponsor.
A
A firm produces regular proprietary research reports on various companies. According to Standard VI(B), Priority of Transactions, which of the following would be an “access person?†A) A supervisory analyst who reviews all research reports prior to dissemination. B) An independent auditor with access to material, non-public information on a company being analyzed. C) A person working in the mail room.
A
A member who is an investment manager is least likely to breach his duty to clients by ______. A. using client brokerage to purchase goods or services that are used in the investment decision-making process B. disclosing confidential client information to the CFA Institute Professional Conduct Program C. consistently supporting management's recommendations by voting with management on proxies related to non-routine governance issues
A
According to CFA Institute Standards of Professional Conduct, members should do all of the following to meet the compliance procedures for having a reasonable basis for recommendations, EXCEPT: A) distribute a detailed, written research report to clients with each recommendation. B) analyze the client's investment needs. C) analyze the investment's basic characteristics before recommending a specific investment to a broad client group.
A
All of the following are required by the GIPS for composite construction except for ______. A. portfolios terminated two periods ago B. actual assets under management C. new portfolios
A
An analyst has several groups of clients who are categorized according to their specific needs. Compared to research reports distributed to all of the clients, reports for a specific group: A) may generally exclude more basic facts. B) will not be allowed because it violates the Standard III(B), Fair Dealing. C) will definitely include more basic facts.
A
An analyst likes to trade options in her own account. She does not deem any of her client accounts suitable for option trading. When she finds a favorable options position, in accordance to Standard VI(B), Priority of Transactions, she should: A) act on it on her own behalf as she sees fit. B) first tell her clients about it before acting herself. C) refrain from acting until she notifies her supervisor.
A
An analyst needs to inform his supervisor in writing of which of the following? A) An annual bonus, sent to the analyst by a client, which varies with the performance of the client's portfolio that the analyst manages as an employee even though no verbal or written agreement exists about the bonus. B) A client and the analyst alternate paying for lunch at a local sandwich shop. C) Both the lunch and the bonus mentioned in the other answers.
A
Andy Rock, CFA, is an analyst at Best Trade Co. The company is going to announce a sell recommendation on Biomed stock in one hour. Rock was a member of the team who reached the decision on Biomed. Rock's wife has an account at Best Trade Co. that contains Biomed stock. According to the Code and Standards, trading on Rock's wife's account can begin: A) as soon as the information is disseminated to all clients. B) only after the recommendation is announced to the general public. C) only after Rock, as a beneficial owner, has given an appropriate amount of time for clients and his employer to act.
A
David Oregan enrolled to take the Level III CFA examination in the current year. However, he did not take the exam. Oregan advised his employer that he passed Level III. Subsequently, he registered to take the Level III exam the next year. Which CFA Institute Standard of Professional Conduct did Oregan least likely violate? A. Duty to Employer B. Professional Misconduct C. Referencing Candidacy in the CFA Program
A
During an onsite company visit, Aidan Goodfellow, CFA, accidentally overheard the CEO of Skogland, Inc. discussing the company's tender offer to purchase Ames Enterprises, a retailer of Skogland products. According to the CFA Institute Standards of Professional Conduct, Goodfellow most likely can not use the information, because ______. A. It relates to a tender offer. B. He does not have a reasonable and adequate basis for taking investment action. C. It was overheard and might be considered unreliable.
A
Fernando Abrea, CFA was an analyst for Pacific Investments. In October he left Pacific and joined Global Securities as manager of a local office. Abrea’s change of employment came about in the following manner: In April, Abrea contacted Global about a possible position he saw advertised in a financial publication and had exploratory meetings with Global. In July, Abrea submitted a strategic plan to Global and signed an agreement to join Global. He then contracted for office space on behalf of Global. On October 15, Abrea's resignation from Pacific became effective. He did not take any client lists from Pacific. On October 16, Abrea mailed a letter that explained his new undertaking with Global to prospective clients, including his former clients at Pacific. With respect to Standard IV(A) Loyalty, Abrea: A) did not violate the Standard. B) violated the Standard by contracting for office space on behalf of Global. C) violated the Standard by contacting his former clients at Pacific.
A
Gary Ply, a member of a large investment firm, has just secured a new client. In terms of CFA Institute's Standards of Professional Conduct when dealing with the procedures for compliance per Standard III (C) Suitability, which of the following factors need to be considered when looking at the new investor's constraints? I. liquidity needs II. time horizon III. tax considerations IV. proxy voting responsibilities and guidance A. I, II, III and IV B. II, III and IV C. I, II and III
A
Glassia Red is making a presentation to the firm BB, seeking investment banking business. During the presentation she offers to start coverage (generate research reports) of the firm. If BB agrees to provide Glassia with investment banking business on the understanding that Glassia's firm will begin coverage, ______. A. Glassia would not have violated the Standards as long as the research reports were objective. B. Glassia would have violated Standard I (B) Independence and Objectivity. C. Glassia would not have violated the Standards as long as she discloses to BB what the report will say prior to receiving the investment banking business.
A
Greg Stiles, CFA, may withhold from CFA Institute information about a client acquired in the regular performance of his duties: A) for neither of the reasons listed. B) only if Stiles is a relative of the client. C) only if Stiles has a special confidentiality agreement with the client.
A
Harold Kilmer's boss instructed him to assume coverage of a stock and maintain a buy rating. If Harold were to do so, would this be ethical? A. Only if the stock maintained a buy rating objectively. Harold's opinion must remain objective and independent. B. If Harold's boss offers him a raise in order to bias his information, this is acceptable. C. Because Harold's boss instructed him to be dishonest in order to maintain the buy rating, Harold can not ethically assume coverage of the stock.
A
Jake Stan, a CFA Charterholder, is writing an unfavorable research report on a company called PKO. Larry Spelt, who is Jake's supervisor and who is NOT a CFA Charterholder, informs Jake that the firm is about to underwrite a large stock offering for PKO. Larry tells Jake to please upgrade his research report on PKO to reflect a purchase recommendation. Jake does this without disclosing the underwriting activity. According to the Standards of Professional Conduct, which Standard/s of Professional Conduct has/have been violated? I. Standard V (A) Diligence and Reasonable Basis II. Standard VI (A) Disclosure of Conflicts to Clients and Prospects A. Both I and II B. I only C. II only
A
Jan Hirsh, CFA, is employed as manager of a college endowment fund. The college’s board of directors has recently voted to consider divesting from companies located in a country that has a poor civil rights record. Hirsh has personal investments in several firms in the country. Hirsh needs to: A) do nothing since the board has not made a decision yet. B) disclose her ownership in the stocks to both her supervisor and the board. C) disclose her ownership in the stocks to her supervisor only.
A
Jeremy Gotes is an analyst at a large brokerage house. Jeremy receives a call from company KLJ informing him that they are about to launch a new product that will increase sales dramatically. This news has already been presented to a group of analysts at a meeting held last week. Jeremy writes a report recommending this stock to all of his clients. Has Jeremy violated the Standards of Professional Conduct? A. Yes, because he used material non-public information. B. No C. Yes, because he did not consult with his supervisor prior to issuing the opinion.
A
John Hill, CFA, has been working for Advisors, Inc., for eight years. Hill is about to start his own money management business and has given his two-week notice of his resignation from Advisors. A few days before his resignation takes effect, a former client of Advisors calls Hill at his home about his new firm. The former client says that he is very happy that Hill is leaving Advisors because now he and Hill can resume a professional relationship. The client says that he would never become a client of Advisors again. Hill promises to call the client back after he has left Advisors. Hill does not tell his employer about the call. Hill has most likely: A) not violated the Standards. B) violated the Standard concerning disclosure of conflicts. C) violated the Standard concerning loyalty to employer.
A
Madeline Green, CFA, was recently promoted to senior portfolio manager. In her new position, Green is required to supervise three portfolio managers. Green asks for a copy of her firm's written supervisory policies and procedures, but is advised that no such policies are required by regulatory standards in the country where Green works. According to the Standards of Practice Handbook, Green's most appropriate course of action would be to ______. A. decline to accept supervisory responsibility until her firm adopts procedures to allow her to adequately exercise such responsibility B. require the employees she supervises to adopt the CFA Institute Code of Ethics and Standards of Professional Conduct C. require her firm to adopt the CFA Institute Code of Ethics and Standards of Professional Conduct
A
Rhonda Meyer, CFA, is preparing a research report on Moon Ventures, Inc. In the course of her research she learns the following: Moon had its credit rating downgraded by a prominent rating agency 3 years ago due to sales pressure in the industry. The rating was restored 3 months later when the pressure resolved. Moon’s insider trading has been substantial over the last 3 months. Holdings of Moon shares by officers, directors, and key employees were reduced by 50% during that period. In Meyer’s detailed report making a buy recommendation for Moon, both the credit rating downgrade and the insider trading were omitted from the report. Meyer has: A) violated the Code and Standards by not including the insider trading information in her report. B) violated the Code and Standards by not including the insider trading information and by not including the credit rating downgrade in her report. C) not violated the Code and Standards in her report.
A
Standard VI(C), Referral Fees, is applicable to: A) all consideration received or paid for the recommendation of products or services. B) only cash consideration received for the recommendation of products or services. C) only consideration paid in soft dollars for the recommendation of products or services.
A
Susan Tigra, CFA, is a portfolio co-manager for the Sandia Energy pension fund. Sandra Bulow, a research analyst under Tigra’s supervision, creates a new trading model and immediately begins to trade. Susan stops Bulow from trading, but notes that the firm has no guidelines for testing new models. Tigra should most likely: A) encourage her firm to develop detailed, written guidance that establishes minimum levels of testing for all computer-based models as recommended by Standard V(A) "Diligence and Reasonable Basis." B) encourage her firm to develop detailed, written guidance that establishes minimum levels of testing for all computer-based models as required by Standard III(C) "Suitability." C) report Bulow to the firm’s compliance department for violation of Standard V(A) "Diligence and Reasonable Basis."
A
The CFA Institute Standards of Practice Handbook requires CFA Institute members to do all the following EXCEPT: A) to disclose in writing to the proper regulatory authority all observed violations of the securities laws and regulations. B) receive written permission from both their employer and outside clients to engage in investment consulting outside the firm. C) to inform employer, clients, and potential clients of benefits received for recommending products or services.
A
The Investment Performance Council (IPC) is composed of 36 members from 15 countries and serves as the global committee responsible for the Global Investment Performance Standards (GIPS). The principal goal of the IPC is to have: A) all countries worldwide adopt the GIPS standards as the standard for investment firms presenting historical performance. B) all countries with developed financial markets adopt the GIPS standards as the standard for investment firms presenting historical performance and become members of the IPC. C) all firms in the IPC-represented countries adopt the GIPS standards as the standard for investment firms presenting historical performance.
A
The purpose of composites in a GIPS-compliant performance presentation is to: A) provide information about a firm’s performance in various asset classes. B) clearly distinguish the entity that is presented to the public as a GIPS-compliant firm. C) present overall firm performance in a single statistic that is comparable across firms.
A
Viroqua DeSoto, CFA, is reading a discussion in an online forum about the construction and purpose of composites in performance reporting. She finds these statements from participants: Statement 1: The purpose of composites is to let investors know how well a firm has performed managing different types of securities or investment strategies. Statement 2: A managed portfolio should have a performance history of at least one year before the firm assigns it to a composite. With respect to both statements: A) only one is correct. B) both are correct. C) both are incorrect.
A
Which of the following are recommended procedures of compliance according to Standard I(D), Misconduct? A) Conduct background checks on potential employees to ensure that they are of good character. B) Refer to the Professional Conduct Program for arbitration of disputes with other members or candidates. C) Enroll employees in a continuing education program that would provide updates on required ethical behavior.
A
Which of the following is false for GIPS Verification? A. A verification report must cover a minimum of five years. B. A verification report must confirm whether a firm has complied with all firm-wide composite construction requirements. C. A verification report must confirm whether processes and procedures are designed to calculate and present compliance-performance results.
A
Which of the following most accurately states a limitation that the Fair Dealing standard imposes? A) Clients should not be discriminated against when disseminating investment recommendations. B) Referral fees may be disclosed after proceeding with an agreement for service. C) Before trading on her own portfolio, a CFA charterholder must wait for employer and client deals to be executed.
A
According to CFA Institute Standards of Professional Conduct, which of the following statements about the prohibition against plagiarism is most correct? The prohibition against plagiarism applies to written materials: A) only. B) oral communications, and telecommunications. C) and oral communications only.
B
An analyst notices that for most years that a given class of assets has an abnormally high rate of return, the asset class often has an abnormally low rate of return the next year. Based upon this information, according to Standard V(A), Diligence and Reasonable Basis, the analyst can recommend: A) short selling assets that have had a good previous year to all clients. B) neither of these choices. C) an increased allocation of Treasury bills (T-bills) for all portfolios of assets that have increased dramatically in the previous year.
B
An analyst preparing a report needs to cite which of the following? A) A recent quote from the Federal Reserve Chairman. B) Estimates of betas provided by Standard & Poor's. C) The individual who developed a chart from the same firm.
B
Based on CFA Institute Standards of Professional Conduct, which of the following statements is a violation of Standard I(C), Misrepresentation? A) An investment manager recommends to a prospective client an investment in GNMA bonds because they are guaranteed by the federal government. B) A young trainee bond trader tells a prospective client that she can assist the client in all the client's investment needs: equity, fixed income, and derivatives and based on her years of experience as an analyst in the business that an investment looks like it has lots of potential. C) A broker says XYZ stock is very likely to double in value over the next six months.
B
Bill Fence, CFA, supervises a group of research analysts, none of whom have earned the CFA designation (nor are they CFA candidates). On several occasions he has attempted to get his firm to adopt a compliance system to ensure that applicable laws and regulations are followed. However, the firm's principals have never adopted his recommendations. Fence should most appropriately: A) report the inadequacy by submitting a complaint in writing to the CFA Institute Professional Conduct Program. B) refuse supervisory responsibility. C) take no further action, because by encouraging his firm to adopt a compliance system he has fulfilled his obligations under the Code and Standards.
B
Bill is a portfolio manager at Whitewater Advisors (WA). Bill manages two mutual funds along with a number of individual accounts. All of the portfolios, including the mutual funds, have similar return objectives, risk tolerances, and tax constraints. When Bill allocates shares from block trades, he fills the mutual fund orders first and then allocates the remaining shares to the individual accounts based on their portfolio size. When allocating shares from block trades, does Bill violate any CFA Institute Standards? A. No B. Yes, with respect to Fair Dealing. C. Yes, with respect to Priority of Transaction.
B
CFA Institute believes: A) that a maximum level of professional responsibility and conduct dictates that members be aware of and comply with laws, rules, and regulations governing their conduct. B) that a minimum level of professional responsibility and conduct dictates that members be aware of and comply with laws, rules, and regulations governing their conduct. C) that firms should comply with all domestic laws and regulations and that these laws also govern behavior in foreign markets, regardless of foreign laws and requirements.
B
Cam Bourque, CFA, and Grace Lee work for 21 Century Investment, where Lee reports to Bourque on a daily basis, working in the same department. It has come to the attention of Bourque that Lee received a Notice of Enquiry from the Professional Conduct Program at the CFA Institute regarding a potential cheating violation when she sat for the CFA exam in June. As Lee's supervisor, Bourque is afraidLee's behavior will be seen as a violation of the CFA Code and Standards. Does Bourque have cause for concern? A. Yes B. No, because her responsibilities do not apply. C. No, not until Lee is found guilty of cheating.
B
Carol Hull, CFA, is an investment advisor whose prospective client, Frank Peters, presents special requirements. To construct an investment policy statement for Peters, Hull inquires about Peters’ investment experience, risk and return objectives, and financial constraints. Peters states that he has a great deal of investment experience in the capital markets and does not wish to answer questions about his tolerance for risk or his other holdings. Under Standard III(C), Suitability, Hull: A) may accept Peters' account but may only manage his portfolio to a benchmark or index. B) is permitted to manage Peters' account without any knowledge of his risk preferences. C) must decline to enter into an advisory relationship with Peters.
B
Christina Boyer no longer pays her dues to the CFA Institute and is no longer a member, although she successfully acquired her charter ten years ago. She no longer practices as a financial analyst and has been a homemaker for the past three years. At a dinner honoring her as the Volunteer of the Year for the local high school girl's softball team, the brochure has printed her name as Christina Boyer, CFA, and she is introduced as such by the president of the softball league. A. No standard has been violated, since Christina had successfully performed all the charter requirements ten years ago. B. Christina has violated Standard VII by using the designation CFA after her name. C. The brochure was not published by Christina, so she can claim that no violation on her part has occurred.
B
Francisco Perez, CFA, CPA, is a portfolio manager for an investment advisory firm. Due to the prominence of his position, he is often invited to attend free marketing and educational events hosted by firms which seek to inform the investment community about their investment processes. One such firm, Unlimited Horizons, has invited Perez to attend free educational events which qualify for Continuing Education credits which could help Perez maintain his CPA designation. Perez should most likely: A) accept the invitation as no cash compensation is involved and the primary intent is to educate and inform the investment community. B) decline to attend the event as it could result in a violation of Standard I(B) "Independence and Objectivity." C) decline to attend the event as it could result in a violation of Standard I(A) "Knowledge of the Law."
B
In terms of CFA Institute's Standards of Professional Conduct when dealing with the purpose and scope of Standard V (A) Diligence and Reasonable Basis, which of the following statements are correct? I. Members must establish a reasonable basis for all investment recommendations and actions. II. This standard is meant to address only the member-client relationship. III. Diligence must be exercised to avoid any material misrepresentation. IV. Records and documentation must be maintained in order to support investment recommendations and actions. A. I and II only B. I and III C. I, III and IV only
B
Josh is an investment banker in a country with strict confidentiality laws. He is working on an acquisition for ABC Mining Co. While performing due diligence, Josh notices that ABC has a number of questionable offshore partnerships. He investigates the legality of the partnerships and finds evidence of illegal activity. According to the Standards of Professional Conduct, Josh's best course of action would be to ______. A. alert CFA Institute B. consult outside counsel C. notify regulatory authorities
B
Joshua Charlton, CFA, is the Managing Director for Business Development at Skogland Financial (SF), a large U.S.-based mutual fund organization. In order to secure business from a large hedge fund manager based in Asia, Charlton recently approved flexible terms for the fund's client agreement. To allow for time zone differences, the agreement permits the hedge fund to trade in all of SF's mutual funds six hours after the close of U.S. markets. Did Charlton violate any CFA Institute Standards of Professional Conduct? A. Yes, with regard to Fair Dealing. B. Yes, with regard to Fair Dealing and Material Nonpublic Information. C. No
B
Judy Albert and Bob Tye, who recently started their own investment advisory business, plan to take the Level III CFA examination next year. Albert's business card reads, "Judy Albert, CFA Candidate." Tye has not put anything about the CFA on his business card. However, the firm's promotional materials describe the CFA requirements and indicate that Tye participates in the CFA program and has completed Levels I and II. According to CFA Institute Standards of Professional Conduct: A) Both Albert and Tye have violated the Standards. B) Albert has violated the Standards but Tye has not. C) Neither Albert nor Tye has violated the Standards.
B
Member compliance on issues relating to corporate governance or to soft dollars is primarily addressed by the Standard concerning: A) Disclosure of Referral Fees. B) Loyalty, Prudence, and Care. C) Disclosure of Conflicts to Clients and Prospects.
B
Roger Halpert, CFA, prepares a company research report in which he recommends a strong "buy." He has been careful to ensure that his report complies with the CFA Institute Standard on research reports. According to CFA Institute Standards of Professional Conduct, which of the following statements about how Halpert can communicate the report is most correct? A) Halpert can transmit his report by computer on the Internet. B) Halpert can make his report in person, by telephone, or by computer on the Internet. C) Halpert can make his report in person.
B
Ron Vasquez is registered to sit for the Level II CFA exam. Unfortunately, Vasquez has failed the exam the past two years. In his frustration, Vasquez posted the following comment on a popular internet bulletin board: "I believe that CFA Institute is intentionally limiting the number of charterholders in order to increase its cash flow by continuing to fail candidates. Just look at the pass rates." Which of the following statements regarding Vasquez's conduct is most accurate? Vasquez is: A) in violation of Standard VII(A) Conduct as Participants in CFA Institute Programs, but not in violation of Standard I(D) Misconduct. B) not in violation of Standard I(D) Misconduct or Standard VII(A) Conduct as Participants in CFA Institute Programs C) in violation of both Standard I(D) Misconduct and Standard VII(A) Conduct as Participants in CFA Institute Programs.
B
The El Rey Investment Company, located in Barcelona, Spain, is in the process of adopting the Global Investment Performance Standards (GIPS) for the current fiscal year. One of the GIPS standards is in direct conflict with Spanish investment reporting regulations. In order to be in full compliance with GIPS, El Rey must: A) comply with the GIPS standard and make full disclosure of the conflict. B) comply with the local regulation and make full disclosure of the conflict. C) choose either the GIPS standard or the local regulation, whichever is the more conservative approach, and make full disclosure of the conflict.
B
The following scenarios refer to two analysts who are employed at Global Securities, a large brokerage firm. Paula Linstrom, CFA, is instructed by her supervisor to write a research report on Delta Enterprises. Delta's stock is widely held by institutional and individual investors. Although Linstrom does not own any of Delta's stocks, she believes that one of her friends may own 10 shares of Delta. The stock currently sells for $25 per share. Linstrom does not believe that informing her employer about her friend's possible ownership of Delta shares is necessary. Hershel Wadel, a member of CFA Institute, is asked by his supervisor to write a research report on Gamma Company. Wadel's wife inherited 500 shares of Gamma Company from her father when he died five years ago. Gamma stock currently sells for $35 per share. Wadel does not believe that informing his employer about his wife's ownership of Gamma shares is necessary. According to CFA Institute Standards of Professional Conduct, which the following statements about Linstrom and Wadel's conduct is most accurate? A) Neither of these analysts must disclose a potential conflict of interest. B) Only one of these analysts must disclose a potential conflict of interest. C) Both of these analysts must disclose a potential conflict of interest.
B
Which of the following best describes the underlying principles upon which the Global Investment Performance Standards (GIPS) are based? A) Fair and consistent application of a global set of regulatory requirements. B) Full disclosure and fair representation of performance results. C) Uniformity and consistent application of standards for the global regulation of the securities industry.
B
Which of the following is (are) correct regarding a member's duty under the Code and Standards? I. In the absence of specific applicable laws or other regulatory requirements, the Code and Standards govern the member's actions. II. A member is required to comply with applicable local laws, rules, regulations, or customs, even though the Code and Standards may impose a higher degree of responsibility or a higher duty on the member. III. A member who trades securities in a foreign securities market where no applicable local laws or stock exchange rules regulate the use of material nonpublic information may take investment action based on material nonpublic information. A. I only B. I and II only C. II and III only
B
Which of the following is not a correct statement concerning the creation and maintenance of composites under GIPS? A. All actual fee-paying discretionary portfolios must be included in at least one composite. B. Performance of the composite must be stated after investment management fees have been deducted. C. Asset-only returns must not be mixed with asset-plus-cash returns.
B
Which of the following statements is a violation of Standard VII(B) if it is included on a CFA charterholder’s resume? A) Both of these are violations of Standard VII(B). B) My earning the CFA designation indicates my superior ability. C) My earning the CFA designation indicates my desire to maintain high standards.
B
Which one of the following least accurately describes the CFA Institute Standard about using material nonpublic information? A) An analyst may use nonmaterial nonpublic information as long as it has been developed under the Mosaic Theory. B) An analyst using material nonpublic information may be fined by CFA Institute. C) An analyst may violate this Standard by passing information to others even when it has been obtained from outside the company.
B
A CFA candidate was responsible for developing presentations regarding New Vision Asset Managers' investment process and historical investment performance. When the candidate moved to another firm, he brought with him the presentation he developed for New Vision, changed the name of the company, and presented it to a client of his new employer. The client asked the candidate if he had New Vision's permission to use their presentation. The candidate responded, "I created the presentation in my last month working there. It was after my resignation, so it's mine to use. Besides, the investment performance is what I achieved for my clients at New Vision." According to the Standards of Practice Handbook, the CFA candidate is least likely to have violated the CFA Institute Standards of Professional Conduct that relate to ______. A. Loyalty B. Misrepresentation C. Communication with Clients and Prospective Clients
C
A CFA charterholder is asked to review her firm's soft dollar practices. As part of the review, she notes that her firm has failed to disclose the practices to the firm's clients in writing as required by law. The charterholder quickly prepares and distributes the appropriate disclosures. She does not report the firm's violation to the appropriate regulatory authority. According to the Standards, by not reporting the violation to the regulatory authority, has the charterholder violated any CFA Institute Standards of Professional Conduct? A. Yes, because she failed to act in the best interest of her employer. B. Yes, because she is required to report legal violations to the appropriate authority. C. No
C
A member or candidate that receives consideration from others for the recommendation of products or services, must disclose the estimated dollar value of the consideration paid in: A) cash or soft dollars only. B) cash only. C) cash, soft dollars, or in kind.
C
A money manager, who is a member of CFA Institute, suggests during phone calls to his clients that, “I hope you will relay to your friends the great returns I earned for you this past year.†The manager had generated above average returns in the past year. Is this a violation of Standard III(D), Performance Presentation? A) Yes, because the Standard forbids members asking their clients to say anything about how well the member has done. B) Not if it is true. C) Yes, because the intended message fails the test of completeness as required under the standard.
C
After eight years of claiming compliance, a firm has to present a minimum ______-year performance. A. five B. eight C. ten
C
An analyst belongs to a nationally recognized charitable organization, which requires dues for membership. The analyst has worked out a deal where he provides money management advice in lieu of paying dues. Which of the following must the analyst do? A) Resign from the position because the relationship is a conflict with the Standards. B) Nothing since he is not an employee of the charitable organization. C) Must treat the charitable organization as his employer.
C
Anderb, a portfolio manager for XYZ Investment Management Company, a registered investment organization that advises investment companies and private accounts, was promoted to that position three years ago. Bates, her supervisor, is responsible for reviewing Anderb's portfolio account transactions and her required monthly reports of personal stock transactions. Anderb has been using Jonelli, a broker, almost exclusively for portfolio account brokerage transactions. For securities in which Jonelli's firm makes a market, Jonelli has been giving Anderb lower prices for personal purchases and higher prices for personal sales than Jonelli gives Anderb's portfolio accounts and other investors. Anderb has been filing monthly reports with Bates only in those months in which she has no personal transactions, which is about every fourth month. Which of the following apply (applies)? I. Anderb violated the Code and Standards in that she failed to disclose to her employer her personal transactions. II. Anderb violated the Code and Standards by breaching her fiduciary duty to her clients. III. Bates violated the Code and Standards by failing to enforce reasonable procedures for supervising and monitoring Anderb in her trading for her own account. A. I and II only B. II and III only C. I, II, and III
C
Brian Williams is a portfolio manager with Santo Capital and works on the Banks Company's account. Santo has a policy against accepting gifts over $500 from clients. The Banks' portfolio has a fantastic year, and in appreciation, a Banks manager sends Williams a rare bottle of wine that he estimates is worth $300. Williams must: A) return the bottle to the client. B) report the pension fund manager to the CFA Institute Professional Conduct Program. C) inform his supervisor in writing that he received additional compensation in the form of the wine.
C
Dave Jones is a compliance officer at a large brokerage house. As part of his job description, he is required to put in place procedures to ensure that all trades are allocated fairly and accurately, and in a timely and efficient manner. In terms of CFA Institute's Standards of Professional Conduct per Standard III (B) Fair Dealing, what are some of the factors that he will need to consider? I. All orders should be in writing with the date stamped on them. II. Orders should be processed on a first-in, first-out basis. III. All clients in a block should be given the same execution price. IV. Establish procedures for determining material change in opinions. A. I and III only B. All of the above C. I, II and III only
C
For the past decade, Mark Gastel, CFA, has managed the account of Michael Griffin; in that time, he has developed a close relationship with his client. Griffin has a beach house in the Bahamas which he offers to Gastel and his family free use of for two weeks as a reward for the excellent returns generated by his account. Gastel is so busy at work that he does not tell anyone where he is going for vacation. When accepting Griffin's offer, Gastel least likely violates the CFA Institute Standard relating to ______. A. Disclosure of Conflicts B. Independence and Objectivity C. Loyalty to Employer
C
Harold Black is a portfolio manager who manages the pension portfolio of Company XCG. In addition to the normal compensation that Harold's company provides, Harold is entitled to use all of Company XCG's facilities at their offices. Harold does not mention this benefit to anybody at his firm. According to CFA Institute's Standards of Professional Conduct, which Standard of Professional Conduct has been violated? A. Standard I (D) Misconduct B. Standard I (B) Independence and Objectivity C. Standard IV (B) Additional Compensation Arrangements
C
Hilary Waters, a CFA charterholder, is an investment analyst who has accumulated several pieces of nonpublic information through her contacts with drug firms. Although none of the information is material, Waters correctly concluded by analyzing the nonpublic information that the earnings of one of the drug firms would be unexpectedly high in the coming year. Under current U.S. law, ______ A. Waters cannot legally invest or make investment recommendations based on this information. B. Waters may use the information, but only after approval from a compliance officer or supervisory analyst attesting to its non-materiality. C. Waters can use the information to make investment recommendations and decisions.
C
In terms of the Standards of Professional Conduct per Standard II (A) Material Non-public Information, which of the following pieces of information is considered to be material non-public? I. A company plans on doubling its dividend. II. The chairman of a company states that the company is going to double its profits by the beginning of the year. III. An offer is going to be made for all the securities of a company. A. I and II B. II and III C. I and III only
C
Jack Lilly, CFA, a portfolio manager for Skogland Investments, plans to manage the portfolios of several family members in exchange for a percentage of each portfolio's profits. As his family members have extensive portfolios requiring substantial attention, they have requested that Lilly provide the services outside his employment with Skogland. Lilly notifies his employer in writing of his prospective outside employment. Two weeks later, Lilly begins managing the family members' portfolios. By managing these portfolios, did Lilly violate any CFA Institute Standards of Professional Conduct? A. Additional Compensation B. Disclosure of Conflicts C. Both Additional Compensation and Disclosure of Conflicts
C
Janet Ver is a portfolio manager managing large institutional clients. Janet does not act on a sale recommendation from the firm's equity division until she has sold her personal holding in the stock. Once she has sold her personal holding, she will sell the stock from her institutional clients' portfolios. Has Janet violated CFA Institute's Standards of Professional Conduct per Standard VI (B) Priority of Transactions? A. No, since she is allowed to sell her stock before her clients'. B. Yes, since her early sale could result in losses to her clients. C. Yes, since her early sale is not an ethical practice.
C
Jeff Riches, CFA, is an analyst at Save-on-Investment (SOI). Riches receives compensation for referrals to the bank's brokerage and personal financial-planning divisions. His recent referrals are long-time clients from his previous employer; Riches does not mention SOI's referral arrangement. Does Riches violate any CFA Institute Standards? A. Yes, with respect to Misrepresentation. B. No C. Yes, with respect to Conflicts of Interest.
C
Joe James, CAIA, CPA, is a Level II CFA candidate living in Boston. In the course of his accounting practice, James often refers clients to a local law firm specializing in estate planning. James does not violate client confidentiality and does not receive compensation for the referral. However, the law firm often gives James tickets to the theater and major sporting events. Which of the following statements regarding disclosure is CORRECT? James: A) need not disclose the benefits received for referring clients because no compensation is received. B) need not disclose the benefits received for referring clients because the clients were developed in the course of his accounting practice. C) must disclose the benefits received for referring clients to the law firm.
C
John Snider earned the right to use the CFA designation in September 1988. He recently retired from the investment management profession. Since he is retired, John no longer attends CFA Institute society meetings and has stopped paying his CFA Institute dues. According to the Standards, how should John refer to his affiliation with the CFA Program? A. John Snider, CFA B. John Snider, CFA (retired) C. "I was awarded the CFA charter in 1988."
C
Joni Black, CFA, works for a portfolio management firm. Black is a partner of the firm and is primarily responsible for managing several large pension plans. Black has just finished a research report in which she recommends Zeta Corporation as a “Strong Buy.†Her rating is based on solid management in a growing and expanding industry. She just handed the report to the marketing department of the firm for immediate dissemination. Upon returning to her desk she notices a news flash by CNN reporting that management for Zeta Corporation is retiring. Black wishes she did not recommend Zeta Corporation as a “Strong Buy,†but believes the corporation is still a good investment regardless of the management. What course of action for Black is best? Black: A) may send out the report as written as long as a follow up is disseminated within a reasonable amount of time reflecting the changes in management. B) should report the new information to her immediate supervisor so that they can determine whether or not the marketing department should send out the report as written. C) should revise the recommendation based on this new information.
C
Ken James has been an independent financial advisor for 15 years. He received his CFA Charter in 1993, but did not feel it helped his business, so he let his dues lapse this year. He still has several hundred business cards with the CFA designation printed on them. His promotional materials state that he received his CFA designation in 1993. James: A) can continue to use the existing promotional materials, and can use the cards until his supply runs outâ€"his new cards cannot have the designation. B) must cease distributing the cards with the CFA designation and the existing promotional materials. C) must cease distributing the cards with the CFA designation, but can continue to use the existing promotional materials.
C
Maria Valdes, CFA, is an analyst for Venture Investments in the country of Newamerica, which has laws prohibiting the acceptance of any gift from a vendor if the gift exceeds US $250. Valdes has evidence that her Venture Investments colleague, Ernesto Martinez, CFA, has been receiving gifts from vendors in excess of US $250. Valdes is obligated to: A) disassociate herself from the activity, urge Venture to persuade Martinez to cease the activity, and inform CFA Institute of the violation. B) disassociate herself from the activity, urge Venture to persuade Martinez to cease the activity, and inform CFA Institute and regulatory authorities of the violation. C) disassociate herself from the activity, and urge Venture to persuade Martinez to cease the activity.
C
Maria is a portfolio manager for an investment advisory firm. Maria delegates some of her supervisory duties to Roger, CFA, after educating Roger on methods to prevent and detect violations of the firm's compliance procedures. Despite these efforts, Maria discovers that an employee reporting to Roger may have violated the procedures. According to the Standards of Practice Handbook, Maria's least likely initial course of action must be to ______. A. increase supervision of Roger B. initiate an investigation to determine the extent of the wrongdoing C. suspend the employee
C
Michael Griffin, CFA, and Judy Miller, CFA, began a joint research report on Tyson Corporation. Griffin visited Tyson's corporate headquarters for several days and met with all company officers. Prior to the completion of the report, Griffin was reassigned to another project. Miller utilized her and Griffin's research to write the report but did not include Griffin's name on the report because she did not agree with Griffin's conclusion, which was included in the final report. Did Miller violate any standards? A. Yes, with respect to Misrepresentation. B. Yes, with respect to Diligence and Reasonable Basis. C. No
C
Perry Rakimov, CFA, is the General Partner in a real estate development project and is responsible for completing the project within an 18-month period and within budget. Rakimov is expected to receive equity of 20% if the project comes within budget. Concerned that project costs could escalate, the Limited Partners require Rakimov to cap expenses at 15% above budget. Costs were within expectations until the last month of construction, when the costs of imported lighting fixtures (accounting for roughly 5% of total costs) escalated by more than 50%. As a result, the overall return declined below the partners' expected 35% ROI. Rakimov did not inform the Limited Partners about the increased costs. Did Rakimov violate the Standards? A. Yes, because returns were lower than expected by the Partners. B. Yes, because he did not disclose the increased costs to his Partners. C. No
C
Selma Brown, CFA, is a portfolio manager for Mainland Securities. Rick Wood, one of her clients and owner of Wood Fitness Centers, offers to permit Brown and her immediate family to use the facilities at his fitness centers at no cost during 2003. To get this benefit, Brown must achieve on Wood’s portfolio at least a 2-percentage point return above the total return on the S&P’s 500 index during 2002. Brown orally informs her immediate supervisor of the nature and duration of the proposed arrangement. Arnold Turley, a CFA Institute member, is a portfolio analyst at Mainland Securities. He was just elected to the Board of Directors for Omega Services, which pays him $1,000 plus expenses for attending each of its quarterly board meetings. Turley e-mails Mainland’s compliance officer informing her of this arrangement with Omega and receives a reply informing him that the agreement is acceptable. Did Brown or Turley violate CFA Institute Standards of Professional Conduct? A) Brown: No, Turley: No. B) Brown: Yes, Turley: Yes. C) Brown: Yes, Turley: No.
C
Susan Brown has recently received her CFA charter. She sends a letter to her clients announcing her new designation. In the letter, she describes the examination series and other requirements that she has fulfilled. A. She has violated the Standards because she sent the information in an unsolicited letter. B. She has violated the Standards because she must not use the abbreviation "CFA." C. She has not violated the Standards.
C
The section of the Global Investment Performance Standards (GIPS) that outlines defining the firm and documenting firm policies and procedures is: A) Presentation and Reporting. B) Disclosures. C) Fundamentals of Compliance.
C
Tony Calaveccio, CFA, is the manager of the TrustCo Small Cap Venture Fund in Toronto. He places trades for the fund with River City Brokerage. River City provides Calaveccio with soft dollars to purchase research. River City also deals in municipal bonds, some of which Calaveccio holds in his personal portfolio. He periodically uses the soft dollars to request research reports on various small cap stocks and also on the status of the municipal bond market and issues that he holds. These actions are: A) not in violation of the Code and Standards. B) in violation of his fiduciary duties regarding both the small cap research and the municipal bond research. C) in violation of his fiduciary duties regarding the municipal bond research but not so regarding the research on the small cap issues.
C
Tyler Lepire, CFA, is an independent research analyst providing equity research on companies listed on exchanges in emerging markets. He often incorporates statistical data obtained from the web sites of the World Bank and the central banks of various countries into the body of his research reports. While not indicated within the reports, whenever his clients ask where he gets his information, he informs them that the information is in the public domain, so he doesn't keep his own records. When the clients ask for the specific web site addresses, he provides the information. Which Standard has Lepire most likely violated? A. Misconduct B. Record Retention C. Misrepresentation
C
What is the required frequency for updating information on each client’s financial situation, investment experiences, and investment objectives? A) Only during the first meeting with the client. B) Every year. C) Regularly.
C
Which is a key characteristic of GIPS? A. The standards must be applied with the goal of achieving excellence in performance presentation. B. The standards consist of required provisions for firms to follow to achieve best practice. C. The standards rely on the integrity of input data.
C
Which of the following activities would be following a component of the Code of Ethics explicitly? A) Consulting with colleagues about opinions you reach in your research. B) Maintaining a list of colleagues who have violated the CFA Institute standards. C) Attending continuing education seminars on investing and inviting colleagues to come along.
C
Which of the following is NOT a key characteristic of the Global Investment Performance Standards (GIPS)? GIPS: A) require firms to use certain calculation and presentation methods and to make certain disclosures along with the performance record. B) do not address every aspect of performance measurement, valuation, attribution, or coverage of all assets. C) require managers to include all actual fee-paying and non-fee-paying discretionary portfolios in composites defined according to similar strategy and/or investment objective.
C
Which of the following is NOT an objective of the Global Investment Performance Standards (GIPS)? A) To encourage self-regulation. B) To encourage full disclosure and fair global competition without barriers to entry. C) To obtain worldwide recognition by securities regulators of a standard for the calculation and presentation of investment performance in a fair, comparable format that provides full disclosure.
C
Which of the following is least likely required of fiduciaries who are responsible for pension plans? A) Judging investments in the context of the total portfolio. B) Acting solely in the interest of plan participants. C) Supporting the sponsor's management during proxy fights.
C
Which of the following statements about Standard IV(C) Responsibilities of Supervisors is least accurate? A) If the supervisor makes a reasonable effort to detect violations, but fails to detect a violation that occurs, she is in compliance with Standard IV(C). B) If no effort is made to detect violations, the supervisor is in violation of Standard IV(C) even if no violations by her subordinates have occurred. C) If a subordinate violates a securities law, her supervisor is in violation of Standard IV(C).
C
Which of the following statements is least accurate regarding being a part of Standard III(B), Fair Dealing? A) Shorten the time between decision and dissemination. B) Maintain a list of clients and their holdings. C) At the same time notify clients for whom an investment is suitable of a new investment recommendation.
C
Which of the following statements is recommended with regard to personal investing? I. restrictions on participation in an IPO of equity or equity-related securities II. preclearance of all trades III. disclosure of all holdings in which the employee has a beneficial interest A. II and III B. I and III C. I, II and III
C
Which of the following statements most accurately describes verification under the Global Investment Performance Standards (GIPS)? GIPS verification: A) is required for a firm to claim GIPS compliance. B) requires verification of individual composites. C) requires a verification report to be issued for the entire firm.
C
Which of the following statements regarding Standard II(A), Material, Nonpublic Information, is least accurate? A) Material, non-public information regarding a tender offer may not be traded on. B) If you receive the information in a public forum, it has been disseminated, and you can trade on it. C) Information received from an insider who is not breaching his fiduciary responsibility may be traded on.
C
Which of the following statements regarding employee/employer relationships is NOT correct? A) An employee is someone in the service of another. B) A written contract may or may not exist between employer and employee. C) There must be monetary compensation for an employer/employee relationship to exist.
C
While waiting in the business class lounge before boarding an airplane, Dale Broughton, CFA, an equity analyst, overhears a conversation by a group of senior managers, including members of the board, from a large publicly listed bank. The managers discuss staff changes necessary to accommodate their regional expansion plans. Broughton hears several staff names mentioned. Under what circumstances could Broughton most likely use this information when making an investment recommendation to his clients? A. under no circumstances B. if he does not breach the confidentiality of staff names C. if the discussed changes are unlikely to affect the public perception of the bank
C
You are an industry analyst for an investment firm. In your spare time, you form an investment club with former college friends. You agree to manage a portfolio of commingled funds for a fee and a performance incentive and intend to use information gained at your firm to manage the portfolio. You inform your supervisor of this venture in writing and he approves. A. You have not violated the Standard because you informed your supervisor in writing and your supervisor approved. B. You have violated the Standard because it precludes all activities competing with your employer. C. You have violated the Standard because you intend to use information obtained at work.
C
You have completed an analyst's report on a specific company. You have used significant information from an older report written by an individual no longer at your firm and an industry forecast by an economist at another firm. You also include a 52-week high/low price quote from the Wall Street Journal. You must acknowledge ______. A. all 3 sources of information B. information from the Wall Street Journal and the economist only C. information from the old report and the economist only
C