Ethics Questions Flashcards
1
Q
- Don Wilson and Nadine Chavis, both CFA charterholders, are investment advisors at Uptown Securities. Wilson recommends that one of his clients buy Alpha Company based on research conducted by Uptown. Chavis recommends that one of her clients sell Alpha Company based on research conducted by another brokerage firm for general distribution. Both recommendations are consistent with each client’s investment objectives and within the context of their entire portfolios. Neither Wilson nor Chavis has reason to suspect that any information contained in the research reports from these two sources is inaccurate or inadequately supported. According to Standard V(A) Diligence and Reasonable Basis, do Wilson and Chavis have a reasonable basis for making their investment recommendations?
A)
Both of these advisors have a reasonable basis for their recommendations.
B)
Only one of these advisors has a reasonable basis for his or her recommendation.
C)
Neither of these advisors has a reasonable basis for their recommendations.
A
A
Wilson and Chavis have a reasonable and adequate basis if they recommend an investment transaction based on sound research prepared by their firm or an independent third party.
2
Q
- David Saul, CFA, heads the trust department at Savage National Bank. Fairway Enterprises invites Saul to sit on its Board of Directors. In return for his services on the Board, Fairway offers to provide Saul and his family with access to the facilities at Wilmont Country Club at no cost. Saul will not receive any monetary compensation for his services on the Board. According to CFA Institute Standards of Professional Conduct, which of the following actions must Saul take?
A)
Saul must reject the offer to serve on the Board of Directors.
B)
Saul must obtain written consent from Savage Bank and Fairway Enterprises if he decides to accept the offer to serve on the Board of Directors.
C)
Saul must disclose in writing to Savage Bank the terms of the offer whether or not he accepts the offer to serve on the Board of Directors.
A
B Standard IV(B) requires that members obtain written consent from all parties involved before accepting monetary compensation or other benefits that they receive for their services that are in addition to compensation or benefits conferred by a member's employer. The phrase "all parties" is referring to Saul's employer and Fairway's Board of Directors.
3
Q
- An analyst has not paid his CFA Institute dues for several years but has filed a professional conduct statement annually. Which of the following statements is CORRECT regarding his status with CFA Institute? The analyst:
A)
is no longer an active member.
B)
cannot refer to ever having been a member.
C)
is still an active member.
A
A Standard VII(B), Reference to CFA Institute, the CFA Designation, and the CFA Program, applies. In order to use the CFA designation, the member must pay annual dues and submit a yearly Professional Conduct Statement.
4
Q
- 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)
is permitted to manage Peters’ account without any knowledge of his risk preferences.
B)
may accept Peters’ account but may only manage his portfolio to a benchmark or index.
C)
must decline to enter into an advisory relationship with Peters.
A
A
Hull would not violate Standard III(C), Suitability, by managing Peters’ account without knowledge of his risk preferences. She made a reasonable inquiry into Peters’ investment experience, risk and return objectives, and financial constraints, as the Standard requires. If a client chooses not to provide some of this information, the member or candidate can only be responsible for assessing the suitability of investments based on the information the client does provide.
5
Q
- 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, and urge Venture to persuade Martinez to cease the activity.
B)
disassociate herself from the activity, urge Venture to persuade Martinez to cease the activity, and inform CFA Institute of the violation.
C)
disassociate herself from the activity, urge Venture to persuade Martinez to cease the activity, and inform CFA Institute and regulatory authorities of the violation.
A
A Standard I(A), Knowledge of the Law requires members who have knowledge of colleagues engaging in illegal activities to disassociate from the activity and urge their firms to persuade the individual to cease such activity. Reporting to regulatory authorities may be prudent in certain circumstances, but is not required. Reporting to CFA Institute is not required. * the question asks about "obligated to", so make sure you are not answering what "should be done".
6
Q
- A CFA Institute member, undertaking independent practice that could result in compensation or other benefit:
A)
must notify his employer of the types of service to be rendered, the expected duration, and the expected compensation.
B)
must notify his employer and clients of the types of service to be rendered and the expected compensation.
C)
must notify the entities for whom he plans to undertake independent practice of the compensation he receives from his employer.
A
A
According to Standard IV(A), Loyalty to Employer, a CFA Institute member, undertaking independent practice that could result in compensation or other benefit, must notify his employer of the types of service to be rendered, the expected duration, and the expected compensation.
注意呢题同#2的区别。#2答案有提到需要notify employer以及新的employer，呢度答案B提到的是client，而C提到要求向新employer提供compensation info好明显是不对的
7
Q
- Janet Thompson, CFA, is employed as an analyst by Nationwide Securities. According to CFA Institute Standards of Professional Conduct, which of the following statements about Thompson’s duty to Nationwide is NOT correct? Thompson must refrain from:
A)
making arrangements to go into a competitive business before terminating her relationship with Nationwide.
B)
engaging in any conduct that would injure Nationwide.
C)
engaging in independent competitive activity that could conflict with the business of Nationwide unless she receives written consent.
A
A Standard IV(A) permits Thompson to make preparations to go into a competitive business before terminating her relationship with Nationwide provided that such preparations do not breach her duty of loyalty.
8
Q
- Jack Salyers, CFA, is considering starting his own firm to compete with his current employer. He takes several actions before turning in his resignation. Which of the following actions is NOT in violation of Standard IV(A), Loyalty to Employer?
A)
Before leaving, Jack solicits his employer’s current clients.
B)
Jack copied the employer’s computer models and other property.
C)
Jack told his employer that he was considering leaving and requested that the employer write him a letter of recommendation.
A
C
Asking for a letter of recommendation is perfectly acceptable. Soliciting clients and taking the employer’s property like client lists, computer programs, etc. are not permissible.
9
Q
- Grant Starks, CFA, has been working for Advisors, Inc., for eight years. Starks is about to start his own money management business and has given his two-week notice of his resignation. A few days before his resignation takes effect, a current client of Advisors calls him at his office to inquire about some services for her account at Advisors. During the conversation, Starks tells the client that his new business will have lower commissions than Advisors. Starks has most likely violated:
A)
Standard V(B), Communication with Clients and Prospecitve Clients.
B)
Standard IV(A), Loyalty to Employer.
C)
Standard VI(B), Priority of Transactions.
A
B
This is a breach of loyalty to his current employer. By telling a current client of his employer about the lower commissions he will charge in his new business, Starks is placing himself in direct competition with Advisors, and this is a violation of Standard IV(A).
10
Q
- Jennifer Gates is an individual portfolio manager who only uses mutual funds for her clients; she has therefore never created a portfolio of stocks. She enters an Internet chat room on investments and starts answering questions about investments. She states in the chat room that she has a CFA designation. One woman in particular is interested and questions her about the viability of creating her own stock portfolio. Gates feels that this would be a mistake because she only has $150,000 to invest, and states, “I have experience creating stock portfolios, and it does not make sense to do so with only $150,000.” The woman she has chatted with sends her an e-mail and eventually becomes a client of hers. Gates has:
A)
not violated the Standards.
B)
violated the Standards by soliciting business over the Internet.
C)
violated the Standards by misrepresenting her experience.
A
C
One cannot misrepresent their experience, even over the Internet.
11
Q
- Jill Marsh, CFA, works for Advisors where she manages various portfolios. Marsh’s godfather is an accountant and has done Marsh’s tax returns every year as a birthday gift. Marsh’s godfather has recently become a client of Advisors and asked specifically for Marsh to manage his account. In order to comply Standard IV(B), Disclosure of Additional Compensation Arrangements, she needs to:
A)
have her godfather cease doing her taxes.
B)
liquidate from her personal portfolio any stocks her godfather owns and verbally tell her supervisor about the tax services.
C)
do neither of the actions listed here.
A
C
Standard IV(B) requires that members disclose to their employer in writing all benefits that they receive in addition to their regular compensation for services they perform on behalf of their employer. It is not unreasonable for an individual’s godfather to give them a birthday gift. Moreover, since the tax services were a regular birthday present before her godfather became a client, this implies that they are unrelated to any investment management services.
*注意呢题同前面的有关disclosure的题目的区别。答案解释有提到ongoing before beginning of clientship以及birthday gift
12
Q
- When measuring and presenting their investment performance, GIPS compliant firms are required to:
A)
disclose the performance of the best-performing accounts in each composite.
B)
include terminated accounts in their performance history.
C)
exclude time periods that are unrepresentative of the firm’s performance history.
A
B
Because excluding terminated accounts introduces survivorship bias, GIPS requires firms to include these accounts in their performance history. The other two choices describe misleading performance presentation practices that GIPS are designed to avoid.
13
Q
- To prepare a GIPS-compliant performance presentation, a firm must:
A)
restate the performance history of its composites if the firm’s organization has changed materially.
B)
maintain a complete list of the firm’s composites and their descriptions.
C)
disclose which specific performance calculations are made in compliance with GIPS.
A
B
GIPS Section 0, “Fundamentals of Compliance,” states that firms:
Must provide a complete list of the firm’s composites, including those that have been discontinued within the last five years, to any prospective client who requests one.
Must not claim any partial compliance with GIPS or state that a specific calculation is in compliance with GIPS.
Must not alter historical performance of composites based on a change in the firm’s organization.
14
Q
- According to CFA Institute Standards of Professional Conduct, which of the following is least likely a form of misrepresentation?
A)
Presenting statistical estimates of forecasts prepared by others with the source identified, but without qualifying statements or caveats that may have been used.
B)
Attibuting specific quotations to “leading analysts” and “investment experts” without specific reference.
C)
Using factual information published by recognized financial and statistical reporting services or similar sources without acknowledgment.
A
C Standard I(C) provides that "factual information published by recognized financial and statistical reporting services or similar sources" may be used without an acknowledgment.
15
Q
- Calvin Doggett, CFA, has been contacted by the CFA Institute Professional Conduct Program (PCP) regarding allegations that he has taken investment actions that were unsuitable for his clients. Doggett is questioned by PCP concerning the identity of his clients he considered suitable for investing in a very risky start-up company that eventually went bankrupt.
Doggett will:
A)
not violate the Code and Standards by revealing the names, financial condition and investment objectives of his clients to PCP.
B)
not violate the Code and Standards only if he reveals the financial condition and investment objectives of his clients on an anonymous basis and does not reveal the names of his clients to PCP.
C)
violate the Code and Standards by fully cooperating with a PCP investigation if it means revealing confidential information.
A
A Standard III(E) requires members to preserve client confidentiality. An exception to this standard is a PCP investigation. Because PCP will also keep the clients' information confidential, members are expected to fully cooperate with PCP investigations. *remember PCP is the exception
16
Q
- Which of the following statements regarding GIPS is least accurate?
A)
A GIPS objective is to promote global “self-regulation.”
B)
To stay GIPS compliant, a firm must abide by GIPS guidelines even when conflicting with local or country-specific regulations.
C)
GIPS allows clients to have more confidence in reported performance.
A
B
To stay GIPS compliant, firms are required to comply with local laws even if they conflict with GIPS. However, the discrepancy must be disclosed.
17
Q
- Janine Walker is an individual investment advisor with 200 individual clients. When she first obtains a client, Walker solicits personal data that helps her formulate an investment recommendation, including tax status, income, expenditure needs, and risk tolerance. The Standards:
A)
only require to update a client’s data when a material change is being made to the clients’ portfolio.
B)
require updating a client’s data only when a material change occurs to the personal data.
C)
require Walker to update the data regularly.
A
C
According to Standard III(C), Suitability, Members and Candidates must reassess client information and update regularly.
18
Q
- 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
A
Members are not required to report violations of others to regulatory authorities, either verbally or in writing, but such reporting may be prudent.
*注意答案B和C提到的disclosure的要求。
Session 1 > Reading 3-I > LOS (A)
19
Q
- In the course of reviewing the Corn Co., an analyst has received comments from management that, while not meaningful by themselves, when pieced together with data he has accumulated from outside sources, lead him to recommend placing Corn Co. on his firm’s sell list. What should the analyst do?
A)
Show his report to his own manager and counsel for their review since this information has become material once it was combined with his analysis.
B)
Not issue the report until the comments are publicly announced.
C)
The comments are non material and the report can be issued as long as he maintains a file of the facts as supplied by management.
A
C
This is an example of the mosaic theory where separate pieces of nonmaterial information are pieced together to make an investment recommendation.
20
Q
- Steve Phillips is the new director of equity research for a brokerage company. He receives a call from a reporter at the Financial News, a weekly publication that comes out on Mondays. The reporter explains the relationship she had with his predecessor. They would share information that they both learned on stocks-the former director would benefit the company’s clients by news he obtained from the reporter in exchange for information he gave to her. The former director could ask her not to publish any information he gave her until after a certain date, ensuring that the brokerage clients would be informed before the publication date. After the conversation, Phillips called the former director, who confirmed that the reporter was trustworthy with respect to honoring the agreement for delaying publication until clients have been informed. Philips should:
A)
disclose research not yet disclosed to clients, as long as the reporter promises not to publish the information until after all clients have received the research, and the reporter provides valuable information of her own.
B)
only disclose research that has already been disseminated to clients, as long as the reporter is providing valuable information of her own.
C)
not disclose any research even after it has been disseminated to clients regardless of the value of the information that the reporter may have.
A
B
In no case should information be disclosed to a reporter before all clients are provided with the research-doing so will violate the Standard on fair dealing. However, once clients have been informed, there is no violation in releasing the information to the reporter, and in doing so Phillips might obtain information that can further help his clients.
*第一次选的是C。。
21
Q
- Rickard Advisors recently had a trading error in a customer account that was subsequently discovered by Rickard. The firm felt embarrassed by the disclosure of this error, and, in order to induce the client to continue its relationship, Rickard offers the client preferential access to a new issue that is expected to be “hot.” Which Standard is violated, if any?
A) The Standard concerning Fiduciary Duty. B) The Standard concerning Independence and Objectivity. C) The Standard concerning Fair Dealing.
A
C
Rickard is in violation of the Standard concerning Fair Dealing by offering the client preferential access to a “hot” new issue. There is no obvious violation of Fiduciary Duty, since there is no evidence that Rickard is placing its own financial interest ahead of the client.
22
Q
- Chuck Daniels has just been hired to manage a security analysis group for Aaron Asset Management. Daniels performed a similar function at another firm and finds the compliance system at Aaron inadequate. He develops a system that he feels is appropriate, but senior management tells him he will have to wait six months to implement the system. Daniels should:
A)
protest in writing the delay, listing the potential dangers that can occur.
B)
decline in writing to accept supervisory responsibility until a satisfactory compliance system is put into place.
C)
resign his position immediately.
A
B
According to the Standard on supervisory responsibilities, Daniels should decline in writing to accept supervisory responsibility until a satisfactory compliance system is put into place.
Question From: Session 1 > Reading 3 > LOS a, b, c
23
Q
- According to Standard III(C) Suitability, which of the following is least likely to be considered a relevant factor in determining the appropriateness and suitability of investment recommendations or actions for each portfolio or client?
A)
Basic characteristics of the total portfolio.
B)
Needs and circumstances of the portfolio or client.
C)
Best interests of the investment professional.
A
C
Determining appropriateness and suitability focuses on the portfolio or client, not on the investment professional. Investment professionals should take particular care to ensure that their goals in selling products or executing security transactions do not conflict with the best interests of the client.
24
Q
- An analyst, who is a CFA charterholder, is working in a foreign country. Which of the following statements is CORRECT? The analyst is:
A)
governed by the laws and standards of the country in which he is living and working.
B)
governed by CFA Institute’s Code and Standards.
C)
covered by the strictest of the following laws and rules: his own country’s, the foreign country’s or CFA Institute’s Code and Standards.
A
C
The analyst is covered by the strictest of the following laws and rules: his own country’s, the foreign country’s or CFA Institute’s Code and Standards.
25
25. Dave Kline, CFA, is a personal investment advisor. After a dispute with a coworker on margin policy, he formally resigns his position by giving suitable notice. However, he does not follow his firm's established "Transition and Exit Policies" regarding discussion of the reason for his departure. During his final two weeks of employment, Kline routinely discusses the margin policy dispute, stating "...anyone who would lend that much money on securities of such low quality does not belong in this business..." Kline's statements are in direct violation of the firm's "Transition and Exit Policies," but he considers it a free-speech issue. Kline is most likely:
A)
in violation of Standard IV(A) "Loyalty" recommended procedures for failing to follow the employer's policies and procedures related to termination policy.
B)
not in violation of the Code and Standards.
C)
in violation of Standard IV(A) "Loyalty" recommended procedures for failing to notify regulators of the dangerous margin policy.
A
Kline is in violation of Standard IV(A) "Loyalty" recommended procedures for failing to follow the employer's policies and procedures related to termination policy. Members and candidates should understand and follow their employer's policies and operating procedures. Also, members and candidates planning to leave their current employer must continue to act in the employer's best interest.
*第一次选的是B
26
26. The Konkol Company implements a new methodology for portfolio valuation that is licensed to them by ABC Statistics. Konkol complies with the CFA Institute Code and Standards by:
A)
discussing the new methodology with clients only when a change in the security selection process is involved.
B)
not discussing the new methodology with clients because there is no need to, as it will not change their risk and yield preferences.
C)
discussing the new methodology with the clients, in its entirety.
```
C
Standard V(B), Communication with Clients and Prospects, requires any change in the scope, valuation methodology, or focus of the portfolio to be discussed with clients.
```
27
27. While attending his wife's office party, Donald North, CFA, overhears two top executives from Parker Industries discussing that the company's Board of Directors just approved to omit its cash dividend due to unexpected losses during the quarter. Parker has paid a quarterly dividend for the past ten years. The next day, North calls his broker and instructs her to sell short Parker's common stock.
While in a coffee shop, Diane South, CFA, overhears two top executives from Ryland Products say that their company is about to be acquired by another company for a substantial premium over the market price. The next day, South calls her broker and instructs him to buy 500 shares of Ryland's common stock.
Which of the following statements about whether North and South violated Standard II(A), Material Nonpublic Information, is CORRECT?
A)
North violated Standard II(A) but South did not violate Standard II(A).
B)
Both North and South violated Standard II(A).
C)
Neither North nor South violated Standards II(A).
B
According to Standard II(A), a member or candidate must not act or cause others to act on material nonpublic information until that same information is made public. In both cases, the information was material nonpublic information; therefore, both North and South are in violation.
28
28. According to the CFA Institute Standards of Professional Conduct, which of the following statements about members with supervisory responsibility is least accurate? Members with supervisory responsibility:
A)
are relieved of their supervisory responsibility if they delegate their supervisory duties to other members of CFA Institute.
B)
must make reasonable efforts to detect violation of laws, rules, regulations, and the Code and Standards.
C)
are expected to have in-depth knowledge of the Code and Standards and to apply this knowledge in discharging their supervisory responsibilities.
A
Although members who supervise large numbers of employees may delegate supervisory duties, such delegation does not relieve them of their supervisory responsibility.
29
29. An analyst preparing a report needs to cite which of the following?
A)
Estimates of betas provided by Standard & Poor's.
B)
A recent quote from the Federal Reserve Chairman.
C)
The individual who developed a chart from the same firm.
B
Statistics provided by a recognized agency, such as Standard and Poor's, do not need to be cited. Charts, quotes, and algorithms developed by the firm would need to be cited when they are used but the individual(s) who developed the materials within the firm do not need to be cited.
30
30. Which of the following would be a violation of Standard III(B), Fair Dealing?
A)
Trading for regular accounts before discretionary accounts.
B)
Having well defined guidelines for pre-dissemination.
C)
Limiting the number of employees privy to recommendations and changes.
A
Do not discriminate against a client when disseminating investment recommendations. If the firm offers different levels of service, this fact must be offered and disclosed to all clients. The other choices are necessary parts of the Standard. The Standard actually says to have published personal guidelines for pre-dissemination, which implies that the guidelines be well-defined.
31
31. Which of the following statements most accurately describes the requirements for GIPS verification?
A)
A firm must select a representative set of composites for third-party GIPS verification.
B)
Third-party verification is required for a firm to claim compliance with GIPS.
C)
Verification of GIPS compliance is recommended, but not required.
c
Verification of GIPS compliance is recommended but not required. If a firm chooses verification, GIPS require the verification to be performed by a third party and apply to the entire firm's methods and practices, rather than that of selected composites.
*B应该是错在"claim compliance"呢个部分 （见#34）
Question From: Session 1 > Reading 4 > LOS c
32
During 2004 Nancy Arnold received an undergraduate business degree with a management major and completed all requirements for the CFA designation imposed by CFA Institute. She is applying for employment at several brokerage firms. Her resume states, "I was awarded the CFA degree in 2004 by CFA Institute." Her resume also states that she graduated "with honors" and majored in finance. Her grade point average was 3.48 but "with honors" requires a 3.50 grade point average.
Which of the following statements about Standard VII(B), Reference to CFA Institute, the CFA Designation, and the CFA Program, and Standard I(C), Misrepresentation, is CORRECT? Arnold:
A)
violated Standard I(C) but she did not violate Standard VII(B).
B)
did not violate either Standard VII(B) or Standard I(C).
C)
violated both Standard VII(B) and Standard I(C).
C
Arnold violated Standard VII(B). The CFA designation should not be referred to as a degree. Arnold also violated Standard I(C) because her claim that she graduated "with honors" is not true.
33
33. Janet Coleman, CFA, is preparing a research report on Union Power and Light. Due to deregulation, utility companies face increased competition. During the past year, three of the five utility companies in her region have cut their dividends by 50%, on average, to provide more internal funds for investment purposes. In a discussion with Union's chief executive officer, Coleman learned that Union expects to have a record amount of capital expenditures during the next year. Although Union subsequently issued a press release about its capital expenditure plans, it did not make any public statements about a change in dividend policy. Coleman reasons that the management of Union will be under pressure to cut its dividends within the next year to remain competitive. Coleman issues a research report in which she states:
"Union Power and Light will decrease its dividend from $2 to $1 a share by the second quarter. We expect that Union will strengthen its competitive position by using more internally generated funds to finance its investment opportunities. If investors buy the stock now at around $50 a share, their total return could exceed 20% on the stock."
Based on CFA Institute Standards of Professional Conduct, which of the following statements about Coleman's actions is most accurate?
A)
Coleman did not violate the Standards.
B)
Coleman violated the Standards because she failed to separate opinion from fact in her research report.
C)
Coleman violated the Standards because she used material nonpublic information.
B
Coleman is required to distinguish between facts and opinions in her research reports. Her statement that Union will decrease its dividend from $2 to $1 a share is a prediction, not a fact, and therefore should be distinguished clearly as an opinion.
34
34. Which of the following statements most accurately describes verification under the Global Investment Performance Standards (GIPS)? GIPS verification:
A)
requires verification of individual composites.
B)
requires a verification report to be issued for the entire firm.
C)
is required for a firm to claim GIPS compliance.
B.
A single verification report is issued with respect to the entire firm; GIPS verification cannot be carried out for a single composite.
*选项C同#31一样，应该是错在claim compliance
Question From: Session 1 > Reading 4 > LOS c
35
35. Bob Douglas, CFA, is considering leaving his current employer to compete in the same field. He did not sign a non-compete clause when he was hired. He may:
A)
begin competing with his current employer as long as the employer has been informed of Douglas' future intentions.
B)
may not prepare to compete, begin competing, or anything related to competing with his current employer.
C)
plan and prepare to compete with his current employer, but not begin competing until his resignation is effective.
C
Douglas may plan and prepare to compete with his current employer, but may not begin competing until his resignation is effective or he gets permission from his employer. Members must provide notification to their employer describing the types of services to be rendered, the expected duration, and compensation for the services.
Question From: Session 1 > Reading 3-IV > LOS (A)
36
36. Lee Roth, who is an investment advisor, is riding in a taxi and finds a file of information labeled "Genco Valuation." The folder contains a great deal of financial data, projections and nonpublic information concerning the food products industry that lead Roth to believe that Genco will be worth 50% more than its current stock value. Roth also finds some correspondence that leads him to believe that the file belonged to Tom Hagan. Roth tries to find out where Hagan works so he can return the file. Roth can recommend Genco to his clients unless Hagan works for:
A)
Roth cannot recommend Genco to his clients at this time.
B)
the corporate finance department for Genco.
C)
the equity research department for a brokerage firm.
A
| The information is material and nonpublic; therefore, Roth cannot act or cause others to act at this time.
37
37. A member or candidate who produces issuer-paid research should most appropriately negotiate a:
A)
fee that may include equity or warrants.
B)
flat fee prior to writing the report.
C)
fee based on the performance of the issuer's shares.
```
B
Standard I(B) Independence and Objectivity states that the best practice for issuer-paid research is to negotiate a flat fee before writing the report. Compensation that depends on the performance of the issuer's securities can compromise an analyst's objectivity by creating an incentive to write a positive recommendation.
```
38
38. Sanctions that CFA Institute may impose on a member or candidate under the Professional Conduct Program include:
A)
public censure.
B)
suspension from employment in the financial services industry.
C)
returning of all profits gained through violations of the Code and Standards.
** what are the sanactions imposable by CFA institution? (4)
A
Sanctions that CFA Institute may impose include public censure, suspension from membership and use of the CFA designation, revocation of the CFA charter, or suspension of a candidate's participation in the CFA program.
*记！！
39
39. Betsy Fox is an investment advisor who has a client, Don Gordon, who is an employment lawyer. At lunch, Fox noticed Gordon and the Chief Financial Officer of Blue Star Company at the next table. She overhears them talking and ascertains that Blue Star is about to announce higher than expected earnings. Before the earnings release, Gordon contacts Fox and asks her to purchase 3,000 shares for his portfolio. Fox:
A)
can only purchase shares for her personal account after informing all of her clients about the potential of the increase in earnings.
B)
must refuse to purchase shares for Gordon.
C)
can purchase shares for Gordon, but cannot ever purchase shares for her personal account.
B
According to Standard II(A), Material Nonpublic Information, Fox cannot act or cause others to act on material nonpublic information until the information is made public. The information overheard at lunch was material and nonpublic; therefore, Fox must wait until the information is made public before accepting Gordon's order.
*cannot act or cause others to act! 虽然唔系佢主动去communicate但仍然唔可以做呢个order
40
40. When verifying a firm's compliance with Global Performance Investment Standards (GIPS), the verifier must:
A)
clearly identify the composites for which verification has been performed.
B)
disclose whether the verification was performed by the firm's internal auditors or a third party.
C)
attest that the firm's processes and procedures are established to present performance in accordance with GIPS requirements.
C
The verifier must attest that the firm has complied with all GIPS requirements for composite construction on a firm-wide basis and that the firm's processes and procedures are established to present performance in accordance with the calculation methodology, data, and format requirements of GIPS. Verification is not a GIPS requirement. If performed, verification applies to the firm as a whole, not to individual composites, and must be performed by an independent third party, not the firm itself.
41
41. In 1995, the CFA Institute sponsored and funded the Global Investment Performance Standards (GIPS) in response to:
A)
an increase in insider trading.
B)
a need to address issues, such as portability of investment results.
C)
both of the reasons listed here.
**what is GIPS established to address? (3)
B
The GIPS were created to address the portability of investment results, varying time periods, and survivorship biases. Insider trading was not an issue.
42
42. Which of the following best describes the underlying principles upon which the Global Investment Performance Standards (GIPS) are based?
A)
Uniformity and consistent application of standards for the global regulation of the securities industry.
B)
Full disclosure and fair representation of performance results.
C)
Fair and consistent application of a global set of regulatory requirements.
B
The GIPS standards are a set of voluntary standards based on the fundamental principles of full disclosure and fair representation of performance results.
43
43. An analyst belongs to a nationally recognized charitable organization, which requires dues for membership. The analyst has worked out a deal under which he provides money management advice in lieu of paying dues. While performing services for the organization, the analyst discovers some useful computer programs that his predecessor developed and left as the property of the organization. The analyst decides to use the computer programs in his consulting business. This action is:
A)
a violation of Standard III(B) concerning fair dealing.
B)
appropriate since the analyst is technically an employee of the organization.
C)
a violation of Standard I(D) concerning misconduct.
C
Since the programs are the property of the organization, the analyst can only use them for the organization. It does not matter whether the analyst is an employee or not. Personal use of the programs without permission from the charitable organization is dishonest and prohibited.
44
44. Jess Green, CFA is the research director for Castle Investment, Inc., and has supervisory responsibility over eight analysts, including three CFA charterholders. Castle has a compliance program in place. According to CFA Institute Standards of Professional Conduct, which of the following is least likely an action that Green should take to adhere to the compliance procedures involving responsibilities of supervisors? Green should:
A)
issue periodic reminders of the procedures to all analysts under his supervision.
B)
incorporate a professional conduct evaluation as part of the performance review only for the three CFA charterholders.
C)
disseminate the contents of the compliance program to the eight analysts.
B
Green should incorporate a professional conduct evaluation as part of his review of all eight analysts under his supervision, not just the three CFA charterholders.
45
45. 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)
violated the Standard concerning loyalty to employer.
B)
violated the Standard concerning disclosure of conflicts.
C)
not violated the Standards.
C
Based on the information here, Hill has done nothing wrong. He took a call at his home, presumably on his own time, and the client made it clear that he would never be a client of Advisors. Therefore, there was no breach of loyalty to Advisors by Hill, nor is there a conflict of interest.
*第一次选的是b
46
46. A CFA Institute member is a citizen of Abdhari and lives and works in Balwalla for a company based in Abdhari. Balwalla has no laws against the use of material non-public information. Based on this information, the CFA Institute member may:
A)
trade using material non-public information.
B)
not trade using material non-public information.
C)
trade using material non-public information in Balwalla but not in Abdhari.
Explanation
B
CFA Institute Standard II(A) prohibits trading using material non-public information. A member may not trade using such information regardless of the laws of Abdhari and Balwalla.
*must follow the strictest of 1）working country, 2)living country, 3) CFA standard
47
47. In dealing with the public and others, the CFA Institute Code of Ethics requires that CFA Institute members act with:
A)
candor, skill, and honor.
B)
honesty, professionalism, and high ethical standards.
C)
integrity, competence, and respect.
C
| Integrity, competence, and respect are mentioned by name in the first component of the Code of Ethics.
48
48. Marc Randall, CFA, is an investment analyst. During a meeting with a potential client, Randall's boss states that, "You can be sure our investments will always outperform Treasury Bonds because of our fine research staff members, like Marc." Randall knows that this statement is:
A)
not in violation of the Code and Standards.
B)
a violation of the Standard concerning prohibition against misrepresentation.
C)
a violation of fiduciary duties owed to clients under the Standards.
B
Under Standard I(C), members are forbidden from guaranteeing a specific rate of return on volatile investments. Therefore, the statement is in violation of the Standard.
49
49. Bertrand Greene, CFA, is preparing a report on Blanding, Inc. Blanding's earnings have increased in each of the last six years by an average of 11.8%. Based on his analysis, Greene projects that Blanding's earnings will increase by 12.5% in each of the next two years. Greene will violate the Code and Standards if he states:
A)
"Blanding's earnings have been compounding at approximately 11.8% annually."
B)
"I expect Blanding's earnings growth to increase to 12.5% annually in the next two years."
C)
"Blanding's earnings will grow at 12.5% annually in each of the next two years."
```
C
Standard V(B) Communication with Clients and Prospective Clients requires members to distinguish between fact and opinion. "Blanding's earnings will grow at 12.5% annually in each of the next two years" states an uncertain future outcome as a fact and thus violates this Standard. Preceding the statement with "I expect..." identifies the forecast properly as an opinion.
```
50
50. Which of the following statements is an acceptable reference to the CFA designation?
A)
Most of our portfolio managers are CFAs and are committed to the highest ethical standards.
B)
All members of our research team are CFA charterholders who passed their exams on their first tries.
C)
Tom and Elizabeth are Chartered Financial Analysts.
B
The CFA or Chartered Financial Analyst designation must be used as an adjective, not as a noun. It is acceptable to mention passing the exams on the first try if this is a statement of fact.
**Weird but CFA must be an adj.
51
51. Rey Sanchez, CFA, covers the specialty chemical industry for Rock Advisory Associates. Until today he has had a buy recommendation on ChemStar, and many of the firm's customers have purchased shares based upon his recommendation. The firm's client accounts are divided into two fundamental categories: trading and buy-and-hold accounts. The firm holds discretionary trading authority over the trading accounts, but not the buy-and-hold accounts. Sanchez has recently come to believe that the fundamentals are changing for the worse at ChemStar, and is preparing a sell recommendation. He calls a meeting of the firm's portfolio managers with accounts holding ChemStar and tells them of the pending release of the sell recommendation. On this basis, the portfolio managers sell all positions in the discretionary accounts but not in the buy-and-hold accounts. Sanchez completes and mails the report to all clients two days later, and, shortly thereafter, many of the buy-and-hold accounts sell their ChemStar positions. With regard to these actions, Sanchez is:
A)
in violation of the Standard on Fair Dealing; the portfolio managers are not in violation of the Standard on Fair Dealing.
B)
in violation of the Standard on Fair Dealing; the portfolio managers are in violation of the Standard on Fair Dealing.
C)
not in violation of the Standard on Fair Dealing; the portfolio managers are in violation of the Standard on Fair Dealing.
B
Sanchez is in violation of the Standard III(B), Fair Dealing, since he has disseminated his recommendation preferentially to the portfolio managers in advance of making the report available to all clients who hold shares of ChemStar. The portfolio managers are in violation of the Standard since they are effectively giving preferential treatment to the trading accounts over the buy-and-hold accounts in the placement of orders based upon the change in recommendation.
52
52. Ron Taylor, a Level I CFA candidate, trades cotton contracts for a small commodity broker. Taylor convinces a government cotton inspector to issue a warning that the Texas cotton crop is in danger from insect infestation. The price of cotton soars. Taylor immediately shorts cotton futures. Once the position is created, the government inspector issues a second report reversing his original opinion and cotton prices plummet.
Cedric Sims, a Level III CFA candidate, would like to generate a tax loss on a security held in his personal portfolio; however, he believes the security has significant upside potential. To avoid the wash sale provisions of the income tax code, Sims sells the security and simultaneously creates a synthetic long position using derivatives.
With regard to Standard II(B) Market Manipulation, which of the following statements concerning Taylor's and Sims's conduct is CORRECT?
A)
Both Taylor and Sims are in violation of Standard II(B).
B)
Neither Taylor nor Sims is in violation of Standard II(B).
C)
Taylor is in violation of Standard II(B), but Sims is not in violation.
C
Taylor is in violation of Standard II(B) Market Manipulation by creating a scheme that caused others to trade on false information. Sims is not in violation of Standard II(B). The Standard does not prohibit transactions conducted for tax purposes.
53
53. Fern Baldwin, CFA, as a representative for Fernholz Investment Management, is compensated by a base salary plus a percentage of fees generated. In addition, she receives a quarterly performance bonus on a particular client's fee if the client's account increases in value by more than 2 points over a benchmark index. Baldwin had a meeting with a prospect in which she described the firm's investment approach but did not disclose her base salary, percentage fee, or bonus.
Baldwin has:
A)
violated the Standards by not disclosing her performance bonus.
B)
violated the Standards by not disclosing her salary, fee percentage, and performance bonus.
C)
not violated the Standards because there is no conflict of interest with a potential prospect in the employment arrangements.
```
A
Standard VI(A) requires members to disclose all matters that could reasonably be expected to impair the member's ability to make unbiased and objective recommendations. Compensation based on a percentage of fees generated does not create an inherent bias. If, however, a performance bonus is paid for investment results, it may unduly encourage the manager to take more risk than is proper and prudent, and so the existence of the bonus opportunity must be disclosed to the client.
```
54
54. The following information pertains to the Galaxy Trust, a trust established by Stephen P. House and managed by Gamma Investment LLC:
At the time the trust was established House provided $5 million in cash to fund the trust, but Gamma was aware that 93% of his personal assets were in the form of Oracle stock.
Gamma has been asked to view his funds and the trust as a single entity for planning purposes, since House's will stipulates that all of his estate will pass to the trust upon his death.
The investment policy statement, developed in September 1996, stipulates that the trust should maintain a short position in Oracle stock and use the proceeds to diversify the trust more adequately.
House was able to sell all of his Oracle shares back to the corporation in January 1999 for cash.
The policy statement redrawn in September 1999 continues to stipulate that the trust hold a short position in Oracle stock.
House has given the portfolio manager in charge of the trust an all expenses paid vacation package anywhere in the world each year at Christmas. The portfolio manager has reported this fact in writing to his immediate supervisor at Gamma.
Which of the following is most correct? The investment manager is:
A)
not in violation of the Code and Standards for not properly updating the investment policy statement in light of the change in the circumstances and is not in violation with regard to the acceptance of the gift from House.
B)
in violation of the Code and Standards by not properly updating the investment policy statement in light of the change in the circumstances and is in violation with regard to the acceptance of the gift from House.
C)
in violation of the Code and Standards by not properly updating the investment policy statement in light of the change in the circumstances but is not in violation with regard to the acceptance of the gift from House.
C
The investment manager is in violation of the Standard requiring him to make a reasonable inquiry into the client's financial situation and update the investment policy statement since such a dramatic change in the client's circumstances would undoubtedly alter the investment policy statement and would probably eliminate the need to hold a short position in Oracle. The investment manager is not in violation of the Standard concerning additional compensation, since the gift has been reported to his supervisor and has come from a client. If there was a failure to report such a gift, if the firm had a rule in place against the acceptance of gifts from clients, or if the gift had come from a non-client, there would be a violation of the standard.
55
55. A framework for ethical decision making is most appropriately applied to:
A)
determine whether actions are legal.
B)
aid decision makers in considering alternatives and their potential impacts.
C)
reduce the need to maintain a large compliance department.
B
A framework for ethical decision making is a way to help decision makers consider alternatives and their impact on stakeholders.
56
56. WEB, an investment-banking firm, is the principal underwriter for MTEX's upcoming debenture issue. Wendy Berry, CFA, an analyst with WEB, has found out from an employee in MTEX's programming department that a serious glitch was recently discovered in the software program of their major new product line. In fact, the glitch is so bad that most of their orders have been canceled. Berry checked the debenture's prospectus and found no mention of this development. The red herring prospectus has already been distributed. Berry's best course of action is to:
A)
notify potential investors of the omission on a fair and equitable basis.
B)
inform her immediate supervisor at WEB of her discovery.
C)
keep quiet since this is material non-public inside information.
B
Berry should report this information only to her immediate supervisor. Subsequently, she and her supervisor may consult with legal counsel concerning the competing issues in this situation. For the present, she should avoid disclosure to colleagues who do not need to know the information and she should also avoid disclosure to clients.
57
57. 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)
only after Rock, as a beneficial owner, has given an appropriate amount of time for clients and his employer to act.
B)
as soon as the information is disseminated to all clients.
C)
only after the recommendation is announced to the general public.
B
Family accounts that are client accounts should be treated like any other firm account and should neither be given special treatment nor be disadvantaged because of an existing family relationship with the member or candidate. Members or candidates may undertake transactions in accounts for which they are a beneficial owner only after their clients and employers have had adequate opportunity to act on the recommendation. Personal transactions include those made for the member or candidate's own account, for family (including spouse, children, and other immediate family members) accounts, and for accounts in which the member or candidate has a direct or indirect pecuniary interest, such as a trust or retirement account. It could be argued that Rock is a beneficial owner of his wife's account and the reason why his wife's account should be treated like any other client account is because it does not state that Rock makes the trades in his wife's account. From that we are to infer that another person other than Rock is managing his wife's account thus she should be treated like any other client.
58
58. Jan Hirsh, CFA, is employed as manager of a college endowment fund. The fund's board has recently voted to divest any stocks of tobacco companies from the portfolio. Hirsh currently owns shares of a major tobacco company. According to the Standards, Hirsch must:
A)
disclose her ownership in the stocks to the board or sell her shares.
B)
disclose her ownership in the stocks to her supervisor or compliance officer.
C)
do nothing.
C
| From the given information, there is no conflict of interest and no violation of Standard VI(A) Disclosure of Conflicts.
59
59. Which of the following statements about the responsibilities of CFA charterholders is CORRECT? CFA charterholders:
A)
need not comply with the laws and rules governing their profession or must not engage in any individual behavior that reflects adversely on the entire profession.
B)
must comply with the laws and rules governing their profession and must not engage in any individual behavior that reflects adversely on the entire profession.
C)
are only obligated to comply with securities laws in the U.S.
B
CFA charterholders must comply with the laws and rules governing their profession and must not engage in any individual behavior that reflects adversely on the entire profession. While they should act honorably and follow U.S. securities laws, they are obligated to more than that, as set forth in the Code and Standards.
60
```
60. Which of the following would be the least important proxy issue?
A)
Takeover defense and related actions.
B)
Election of internal auditors.
C)
Compensation plans for officers.
```
B
| Election of internal auditors is not a major proxy issue.
61
61. According to the Code of Ethics, a member reflects credit on the profession when a member:
A)
practices in a professional and ethical manner.
B)
places the clients first.
C)
consults with other members on a regular basis.
A
Component four of the Code says that a member shall "Practice and encourage others to practice in a professional and ethical manner that will reflect credit on members and the profession." Neither of the other choices are implied by the Code.
62
62. 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)
violated the Standard by contacting his former clients at Pacific.
B)
violated the Standard by contracting for office space on behalf of Global.
C)
did not violate the Standard.
C
According to Standard IV(A) Loyalty, preparations to leave employment are not prohibited. Even though Abrea engaged in significant preparatory activities prior to beginning his new venture, none of these actions suggest Abrea did not continue to act in Pacific's interests while he was employed by Pacific. Abrea may contact his former clients on behalf of Global after his employment by Pacific has officially ended, as long as he did not misappropriate their contact information from Pacific.
63
63. Which of the following is least likely a recommended procedure for supervisors and compliance officers to comply with Standard IV(C) Responsibilities of Supervisors?
A)
Disseminate the firm's compliance procedures to employees.
B)
Incorporate a professional conduct evaluation into the employee's performance review.
C)
Hold hearings when violations have occurred to determine the severity of the violations.
C
While a supervisor should respond promptly and investigate violations, there is no obligation to hold hearings when violations have occurred.
64
64. An investment advisor takes a trip for which his firm will pay the expenses. Upon his return he alters some of the numbers on restaurant receipts to inflate the expenses by $64. Is this a violation of Standard I(D)?
A)
Yes, because it reflects adversely on the charterholder's professional reputation.
B)
No, if such a crime carries less than a one-year prison term.
C)
Yes, because the amount involved is over $50.
A
| Professional conduct involving dishonesty, fraud, or deceit is a direct violation of Standard I(D), Misconduct.
65
65. Jack Stevens is employed by a company to provide investment advice to participants in the firm's 401(k) plan. One of the investment options is a stable value fund run by the company. Stevens' research indicates that the fund is far riskier and less liquid than the typical stable value fund and has a fundamental asset value lower than the book value of the assets. He tells Jessica Cox, the head of employee benefits, about his research, and indicates that he will advise new employees to not invest in the fund and will advise employees who already own the fund to reduce their holdings in the fund. Cox points out that the fund is not in any current danger because there are very few redemptions requested of the fund. Cox also states that a sell recommendation may become a self fulfilling prophecy, causing investors to redeem their shares and forcing the fund to liquidate, which in turn will cause the remaining investors to receive less than their promised value. Stevens agrees with this assessment and feels his fiduciary duty is to all employees. Stevens should:
A)
tell investors he cannot give advice on the fund because of a conflict of interest.
B)
continue to recommend that new investors do not invest in the fund, but not advise existing investors to reduce their holdings.
C)
continue to recommend that new investors do not invest in the fund and existing investors reduce their holdings.
C
The employees to whom Stevens owes fiduciary duty are the ones who are seeking his advice, even if acting on that advice hurts other employees who might eventually become clients.q
66
66. While on a business trip, John Hayes, CFA, found a notebook that had apparently been left in the waiting area of an airport. Hayes opened the notebook and read the title: Confidential: Level II CFA Examination. Before returning the notebook to CFA Institute, he made a copy and gave it to Linda Sacket, one of his firm's analysts, who was a candidate for Level II of the CFA examination. Sacket read the questions and guideline answers before taking the Level II examination. According to the CFA Institute Standards of Professional Conduct:
A)
Sacket violated the Standards, but Hayes did not.
B)
both Hayes and Sacket violated the Standards.
C)
Hayes violated the Standards, but Sacket did not.
B
Both violated Standard VII(A) Conduct as Participants in CFA Institute Programs because they compromised the validity of the examinations.
67
67. Nichole Zeller and Randy Toffler have both passed Level II of the CFA Exam Program and have registered for Level III. Zeller circulates a resume stating that she is a candidate for the CFA designation and has passed Level II of the CFA program. Toffler circulates a resume stating that he is a CFA II. Which of the following statements is CORRECT?
A)
Only Toffler has violated the Code of Standards.
B)
Only Zeller has violated the Code of Standards.
C)
Both Zeller and Toffler have violated the Code of Standards.
A
The Code and Standards permit an individual to state that he or she is a candidate for the CFA designation as long as the person is registered for the next CFA exam. The same individual may state the fact that he or she has passed Level I or II of the CFA program. There is no partial designation, such as CFA II.
68
Marion Klatt, CFA, is a representative for Thiel Financial Network. Klatt received a phone call at home from William Kind, a junior executive at Westtown Development Company, asking whether Klatt had heard that Westtown had just reached an agreement to acquire a major shopping mall chain at a very favorable price. (Klatt had not heard this news, and Klatt was able to confirm that the information had not yet been made public.) Kind requested that Klatt acquire 10,000 shares of Westtown for Kind's personal account.
Klatt should:
A)
not acquire the shares until he has contacted Westtown's management and encouraged them to publicly announce the merger discussion.
B)
not acquire the shares.
C)
not acquire the shares until the information is made public.
```
C
Standard II(A) prohibits members from taking investment action if they possess material nonpublic information. Kind has a duty to keep information confidential that he acquired in the course of his duties at Westtown. The information is clearly material, so Klatt is not permitted to trade on it. Klatt should make reasonable efforts to achieve public dissemination of the information by contacting management and encouraging them to make the information public. Klatt may not trade on the information until it is made public.
```
69
69. For the past 5 years, Karen Beckworth, CFA, has served as a proctor for the CFA exam. Beckworth tells her assistant, a Level III CFA candidate, that she normally receives the examinations on the Thursday before the exam. Given the low pass rate at Level III, Beckworth asks her assistant if he would like an advance copy of the next exam. Beckworth's assistant declines the offer.
Beckworth's assistant has been very vocal about expressing his opinions about the low pass rate. The assistant claims, "there are too many charterholders and CFA Institute is deliberately failing candidates because the prestige of the CFA charter is becoming diluted."
With regard to Standard VII(A) Conduct as Participants in CFA Institute Programs, which of the following statements concerning Beckworth's and her assistant's behavior is most accurate?
A)
Both Beckworth and her assistant are in violation of Standard VII(A).
B)
Neither Beckworth nor her assistant is in violation of Standard VII(A).
C)
Beckworth is in violation of Standard VII(A), but her assistant is not in violation.
C
Beckworth is in violation of Standard VII(A), Conduct as Participants in CFA Institute Programs. Beckworth compromised the integrity of the exam by offering her assistant an advance copy. Beckworth's assistant is allowed to express his opinion without violation of any Standards.
70
70. A money management firm has the following policy concerning new recommendations: When a new recommendation is made, each portfolio manager estimates the likely transaction size for each of their clients. Clients are notified of the new recommendation in the order of their estimated transaction size-largest first. All clients have signed a form where they acknowledge and consent to this allocation procedure. With respect to Standard III(B), Fair Dealing, this is:
A)
a violation of the standard.
B)
not a violation because the clients are aware of the policy.
C)
not a violation because the clients have signed the consent form.
A
| Such a policy is a violation of the Standard and client acknowledgement and/or consent does not change that fact.
71
71. Anderson, Baker and Chang all received their CFA charters and ordered new business cards. Their business cards are as follows:
G. J. Anderson, CFA
B. K. Baker, Chartered Financial Analyst
M. S. Chang, C.F.A (C.F.A are larger than name)
Which of the business cards use the CFA marks improperly?
```
A)
Baker and Chang.
B)
Anderson and Chang.
C)
Chang.
```
C
Consistent with Standard VII(B), members must use the CFA marks in a proper manner. Members may indicate "CFA" or "Chartered Financial Analyst" after their names, but the designation should not be given more prominence than that used in printing the name itself. Also, periods should not be used to separate the letters.
72
72. A money manager is meeting with a prospect. She gives the client a list of stocks and says, "These are the winners I picked this past year for my clients. Their double-digit returns indicate the type of returns I can earn for you." The list includes stocks the manager had picked for her clients, and each stock has listed with it an accurately measured return that exceeds 10%. Is this a violation of Standard III(D), Performance Presentation?
A)
No, because the manager had the historical information in writing.
B)
Yes, unless the positions listed constitute a complete presentation (i.e., there were no stocks omitted that did not perform in the double digits).
C)
Yes, because the manager cannot reveal historical returns of recent stock picks.
```
B
Standard III(D) requires fair representations concerning past and potential future performance. Unless the list of the "winners" includes all the positions that the firm held, the manager is misrepresenting past performance. The following statement is questionable: "Their double-digit returns indicate the type of returns I can earn for you," but the action of submitting a partial list is clearly a violation. The manager should have information on past performance in writing.
```
73
73. Janet Reilly has just approached Betty Miller, CFA, about purchasing 10,000 shares of Brookshire Co., a newly incorporated real estate development firm. Reilly is a retired schoolteacher living off the income from her late husband's life insurance policy. This investment will represent a significant shift in her investment portfolio. Miller believes this trade is unsuitable with respect to Reilly's investment policy statement. Consistent with the Standards, Miller should most appropriately:
A)
not accept the order, because it is not a suitable investment for Reilly.
B)
discuss with Reilly whether she wishes to update her investment policy statement.
C)
follow her firm's procedures for obtaining Reilly's approval to carry out the unsolicited trade request.
B
According to the guidance for Standard III(C) Suitability, a member who receives an unsolicited trade request that is not suitable for the client should discuss the trade with the client before carrying it out. The nature of this discussion depends on whether the trade has a material effect on the client's portfolio. Because this trade will have a material effect, Miller's most appropriate action is to discuss with the client whether this trade request reflects a change in her investment objectives and risk tolerance and thus whether she wishes to update her IPS.
74
74. Paul Clark, CFA, has just learned from a financial analyst at Corvac Industries that orders for their core products are running ahead of last year's orders by 15%, information that has not been publicly disclosed by the company. Clark currently has a hold rating on Corvac based on his expectation of a 5% increase in revenues for the current year. Based on Standard II(A) Material Non-public Information, Clark's most appropriate course of action is to:
A)
disclose the information publicly prior to making any changes in his recommendation.
B)
encourage Corvac to publicly release the order information and not act on that information until it is publicly disclosed.
C)
put Corvac on his firm's restricted list and not make a recommendation until the increase in orders is publicly disclosed.
B (first time picked C)
The Standard recommends that an analyst who possesses material non-public information encourage the company to release the information publicly. The Standards prohibit Clark from acting on the information until it is publicly disclosed. Since the information is only known by Clark, putting it on a restricted list is not necessary. Public disclosure of material non-public information by an analyst would likely be considered a violation of the Standard.
* when to put on restricted list
75
75. Analysts who undertake an independent consulting practice while employed must get permission from their employer and should disclose all of the following EXCEPT:
A)
the clients contact information.
B)
the compensation or benefit to be received.
C)
the anticipated duration of the service to be rendered.
A
The Member or Candidate is not required to disclose confidential information about his independent clients.
76
76. The following scenarios refer to recommendations made by two analysts.
```
Jean King, CFA, is a quantitative analyst at Quantlogic, Inc. King uses computer-generated screens to differentiate value and growth stocks based on accounting numbers such as sales, cash flow, earnings, and book value. Based on her analysis of all domestically traded stocks in the U.S. over the past year, King concludes that value stocks as a class have underperformed growth stocks over that period. Using only this analysis, she recommends that account executives at Quantlogic sell all value stocks from the portfolios for which they have discretionary authority to trade and replace these stocks with growth stocks.
James Capelli, CFA, is a fundamental analyst at Wheaton Capital Management, which focuses on regional stocks. His analysis of Branson Wireless includes the investment's basic characteristics such as information about historical earnings, ownership of assets, outstanding contracts, and other business factors. In addition to conducting both a general industry analysis and a company financial analysis, Capelli interviews key executives at Branson. Based on his analysis, he concludes that the company's future prospects are strong and issues a "buy" recommendation.
According to CFA Institute Standards of Professional Conduct, did King and Capelli have a reasonable and adequate basis for making their recommendations?
```
A)
Both King and Capelli have a reasonable basis for their recommendations.
B)
Capelli has a reasonable basis for his recommendation, but King does not.
C)
King has a reasonable basis for his recommendation, but Capelli does not.
B
Capelli appears to have exercised diligence and thoroughness in making his recommendation. King's recommendation is not based on thorough quantitative work because the period used in her study is only one year. Also, her recommendation does not consider the client's specific needs and circumstances.
Question From: Session 1 > Reading 3-V > LOS (A)
77
77. Theresa Hatcher, CFA, is making arrangements to establish her own investment advisory business before terminating her relationship with her current employer, Elite Brokers, Inc. Elite is a small company consisting of only six investment professionals and a small support staff. According to CFA Institute Standards of Professional Conduct, which of the following activities is least likely a violation of Hatcher's duty to Elite?
A)
Hatcher leases office space, furniture, and other equipment for her new business.
B)
Hatcher solicits Elite's clients before her termination of employment at Elite.
C)
Hatcher engages in secret negotiations with two other investment professionals and her administrative assistant to leave Elite in order to join her new business.
A
Standard IV(A) permits Hatcher to make preparations to begin a new practice, such as leasing office space, furniture, and other equipment, but not to engage in the other activities that may violate her duty to employer.
78
78. Don Roberts, a CFA Institute member, resides in Country L, where the securities laws and regulations are less strict than the CFA Institute Code and Standards. Roberts also does business in Country N, which has no securities laws or regulations. Thus, Country N has no laws prohibiting the use of material nonpublic information. Roberts has clients in both Country L and N. Country L's law states that the law of the locality where business is conducted governs. According to CFA Institute Standards of Professional Conduct about the use of material nonpublic information, Roberts may:
A)
not take investment action on the basis of this information.
B)
take investment action based on this information only for his clients in Country N but not for his clients in Country L or himself.
C)
take investment action based on this information for clients in both Country N and Country L and for himself.
A
Because applicable law states that the law of the locality where the business is conducted governs and local law is less strict than the Code and Standards, the member must adhere to the Code and Standards. Standard II(A) prohibits the use of material nonpublic information.
79
79. Martin Tripp, CFA, is vice-president of the equity department at Walker Financial, a large money management firm. Of the twenty analysts in his department for whom he has supervisory responsibility, eight are subject to CFA Institute Standards of Professional Conduct. Tripp believes that he cannot personally evaluate the conduct of the twenty analysts on a continuing basis. Therefore, he plans to delegate some of his supervisory duties to Sarah Green, who is subject to the Standards, and some to Bob Brown, who is not subject to the Standards. According to CFA Institute Standards of Professional Conduct, which of the following statements about Tripp's ability to delegate supervisory duties is most accurate?
A)
Tripp may not delegate any of his supervisory duties to either Green or Brown.
B)
Tripp may delegate some or all of his supervisory duties to Brown, even though Brown is not subject to the Standards.
C)
Tripp may delegate some or all of his supervisory duties only to Green because she is subject to the Standards.
```
B
Standard IV(C) Responsibilities of Supervisors permits Tripp to delegate supervisory duties to Green, Brown, or both, but such delegation does not relieve Tripp of his supervisory responsibility.
*delegate does NOT mean release of responsibility, so it doesn't have to be CFA (that takes some of the tasks)
```
80
80. 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 _______
(how many areas and what are they)
original question options:
1) written material only
2) written material, oral communications, and telecommunications
3) written material and oral communications only
Answer is B
81
81. Joan Platt, CFA, operates an investment advisory service in New York but maintains an office in Xania. Xania recently established a stock market, which is not very efficient. None of the Xanian stocks trade in the U.S. market. Xania legally permits the use of material inside information. Platt believes that using inside information would help her compete against other Xanian investment advisors and also help some of her Xanian clients reach their investment objectives. Platt is considering adopting local investment practices in Xania. According to CFA Institute Standards of Professional Conduct, Platt may:
A)
use material inside information, but only after notifying CFA Institute.
B)
not use material inside information.
C)
use material inside information because Xania legally permits this practice.
B
Because applicable law involving material inside information is less strict than the Code and Standards, Platt must adhere to the Code and Standards. Standard II(A) prohibits against use of material nonpublic information.
82
82. Arthur Harrow, CFA, is a pharmaceuticals analyst at Dominion Asset Management. His supervisor directs him to prepare separate research reports on Miracle Drug Company and Wonder Drug Company. Harrow serves on the board of Miracle and owns 2000 shares of Wonder, which is currently trading at $25 per share. According to CFA Institute Standards of Professional Conduct, which of the following actions, if any, is Harrow required to take if he writes the research reports?
A)
Harrow must disclose to Dominion his relationship with Miracle but not his ownership of shares in Wonder.
B)
Harrow must disclose to Dominion both his relationship with Miracle and his ownership of shares in Wonder.
C)
Harrow must disclose to Dominion his ownership of shares in Wonder but not his relationship with Miracle.
```
B
Standard VI(A) requires that Harrow disclose to Dominion conflicts that reasonably could be expected to interfere with his independence and objectivity. Both Harrow's relationship with Miracle and his ownership of a substantial dollar amount of Wonder's shares represent potential conflicts of interest and must be disclosed prominently and in clear language in the research report, giving clients the ability to weigh the possible effects of these potential conflicts on his analysis and conclusions.
```
83
83. All of the following are required by fiduciaries under Standard III(A), Loyalty, Prudence, and Care, EXCEPT:
A)
support the sponsor's management during proxy fights.
B)
place the client's interest before the employer's interest.
C)
act solely in the interest of the ultimate beneficiaries.
A
Members are required to act in the interest of their clients. In voting proxies, the client's interest must prevail over management's interest.
Question From: Session 1 > Reading 3-III > LOS (A)
first time picked B
84
84. Lee Hurst, CFA, is an equity research analyst who has recently left a large firm to start independent practice. He is able to re-create several of his previous recommendation reports, based on his clear recollection of supporting documentation he compiled at his previous employer. He publishes the reports and obtains several new clients. Hurst is most likely:
A)
in violation of Standard V(A) Diligence and Reasonable Basis.
B)
in violation of Standard V(C) Record Retention.
C)
not in violation of any Standard.
B
Hurst is most likely in violation of Standard V(C) Record Retention because the supporting documentation is unavailable. He needs to recreate the supporting records based on information gathered through public sources or the covered company. He may have a reasonable basis for his recommendations and have been diligent in his analysis, but must reconstruct the records of this analysis before issuing the reports.
*recollection of supporting files he compiled at his previous employer = stealing records. Doesn't have to be a flash drive or written down
85
35.
Sue Parsons, CFA, works full-time as an investment advisor for the Malloy Group, an asset management firm. To help pay for her children's college expenses, Parsons wants to engage in independent practice in which she would advise individual clients on their portfolios. She would conduct these investment activities only on weekends. She is currently only in the preparation stage and has not started independent practice yet. Which of the following statements about Standard IV(A), Loyalty to Employer, is most accurate? Standard IV(A):
A)
requires Parsons to notify Malloy in writing about her intention to undertake an independent practice.
B)
does not require Parsons to notify Malloy of preparing to undertake independent practice under the current conditions.
C)
requires Parsons to obtain written consent from both Malloy and the persons from whom she undertakes independent practice.
B
Standard IV(A), Loyalty to Employer, requires that Parsons obtain written consent only from her employer before she undertakes independent practice that could result in compensation or other benefit in competition with Malloy. It is not required to get permission from your employer when only preparing to go into independent practice.
*no competition, no need to notify
Session 1 > Reading 3-IV > LOS (A)
*a little uncleared..
86
86. Which of the following is NOT part of the CFA Institute Code of Ethics. Members of CFA Institute will:
A)
recommend investments that maximize returns for a given level of risk.
B)
use reasonable care and exercise independent professional judgment.
C)
strive to maintain and improve their competence and the competence of others in the profession.
A
| Standard of Professional Conduct III(C), not the Code of Ethics, requires that investments be appropriate and suitable.
87
87. Which of the following characteristics distinguishes a profession from an occupation? Members of a profession:
```
A)
are better compensated for their services.
B)
abide by a code of ethics.
C)
view their work as a calling.
```
One of the defining characteristics of a profession according to the Level I CFA curriculum is that its members agree to abide by a common code of ethics.
88
88. 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 (picked A at first try, didn't read thoroughly)
| The Standards require that he inform his supervisor in writing about the gift.
89
89. An analyst provides services for a charitable organization and in return gets free membership in the organization. Part of her job is to manage the liquid assets of the organization, and those assets include stocks. Her supervisor in the organization calls her and tells her to buy a certain stock for the portfolio based upon insider information from a board member in the organization. The analyst objects, but the supervisor says this is what they have always done and sees no reason for changing now. The analyst complies with the request. With respect to Standards IV(A), Loyalty to Employer, and II(A), Material Nonpublic Information, the analyst violated:
A)
only Standard II(A) that prohibits insider trading.
B)
only Standard IV(A) requiring duty of loyalty.
C)
both Standards IV(A) and II(A).
A
An employee/employer relationship does not necessarily mean monetary compensation for services. Complying with the request is a violation of II(A) which prohibits trading on insider information. Standard IV(A) Loyalty deals with going into business for yourself, leaving an employer and continuing to act in the employer's best interest until their resignation becomes effective, and whistleblowing which means that the member's interests and their firm's interests are secondary to protecting the integrity of capital markets and the interests of the clients.
90
90. Will Lambert, CFA, is a financial analyst for Offshore Investments. He is preparing a purchase recommendation on Burch Corporation for internal use. According to the CFA Institute Standards of Professional Conduct, which of the following statements about disclosure of conflicts is not required? Lambert would NOT need to disclose to his employer that:
A)
his wife owns 2,000 shares of Burch Corporation.
B)
he is a beneficiary of a pension plan of his former employer that owns a large number of shares of Burch's stock.
C)
Offshore is an OTC market maker for Burch Corporation's stock.
```
C
Standard VI(A), Disclosure of Conflicts, requires members to disclose to their employer all matters, including beneficial ownership of securities, that reasonably could be expected to interfere with their duty to their employer or ability to make unbiased and objective recommendations. Disclosure of an employer's own involvement with the security is not necessary in this instance. If the report had been for external use, it would have been necessary to make all of the disclosures given as choices.
```
91
91. If a CFA Institute member knows that a fellow member has violated the Code and Standards, according to Standard I(A) the member is:
A)
strongly encouraged to dissociate from the activity.
B)
required to report the activity.
C)
required to dissociate from the activity and strongly encouraged to report it.
```
C
Standard I(A) does not require a CFA Institute member to report potential violations by others, but "strongly encourages members and candidates to report potential violations of the Code and Standards committed by fellow members and candidates."
```
92
92. With respect to the professional conduct of a member or candidate, CFA Institute staff will consider a complaint from:
A)
anyone.
B)
only other members and candidates or professionals in the investment industry.
C)
only other members and candidates.
A
| Complaints to the Professional Conduct Program may be filed by anyone.
93
93. Greg Stiles, CFA, CAIA, is liquidating a large portion of a client's portfolio because the client is planning to buy a vacation home. Stiles informs one of his colleagues at the firm that the client is looking for a vacation home, because the colleague's wife is a licensed real estate broker. With respect to Standard III(E) Preservation of Confidentiality, this action:
A)
violates the Standard unless the client has given explicit permission to disclose his plans.
B)
does not violate the standards because he did not share the information outside the firm.
C)
Does not violate the standards because he did not disclose any details about the client's portfolio or other financial resources.
A
According to Standard III(E) Preservation of Confidentiality, Stiles must keep client information confidential and limit the information to others in his firm that are involved in the work being performed for the client. The confidentiality standard applies to any information that a member has learned in the performance of his duties for the client.
94
94. A manager has pointed out that his firm has experienced significant expansion over the past few years. Until recently, its Legal Department was responsible for the firm's compliance activities. Now, however, the legal and compliance functions have been separated. A compliance officer has been formally designated and a comprehensive compliance program has been put in place.
In order to function effectively, the compliance officer must have the authority:
A)
which is consistent with the most senior partner or executive officer in the firm.
B)
to hire and fire personnel.
C)
to affect, control, and guide employee behavior and to respond to employee misconduct.
C
Compliance officers must be able to guide employee behavior and respond to employee misconduct, otherwise there will be no effective compliance procedures in place. Unless the compliance officer can effectuate compliance procedures, the compliance program has no chance of responding to or preventing violations of the Standards.
95
95. The following information involves two research analysts at a brokerage firm.
Erik Bagenot, CFA, is preparing a research report on Global Enterprises, Inc. In preparing the report, he uses materials from many sources. For example, he uses factual information published by Standard & Poor's Corporation without acknowledging the source. He also uses excerpts from a research report prepared by another analyst. Bagenot makes only a slight change in wording for these excerpts, but acknowledges the source.
Sally Wain, who is currently enrolled in the CFA program, is preparing a research report on Manson Telecommunications. She attends a conference in which several investment experts provide their views about the future prospects of this company. Wain cites several quotations from these investment experts in her report without specific reference.
According to CFA Institute Standards of Professional Conduct involving prohibition against plagiarism, which of the following statements is CORRECT?
A)
Bagenot violated the Standards, but Wain did not.
B)
Wain violated the Standards, but Bagenot did not.
C)
Both Bagenot and Wain violated the Standards.
B
Bagenot complied with Standard I(C), which permits publishing factual information from Standard & Poor's without acknowledgment and using excerpts with acknowledgment. Wain committed plagiarism because she failed to give specific references for the quotations that she used.
*first time picked C.
*Standard and poor's articles could be cited without quote
96
96. An analyst meets with a new client. During the meeting, the analyst sees that the new client's portfolio is heavily invested in one over-the-counter stock. The analyst has been following the stock and thinks it will perform well in the long run. The analyst arranges through a brokerage firm to simultaneously sell a large number of shares of the stock via a series of cross trades from the new client's portfolio to various existing clients. He arranges the trades to be executed at a price that approximates the current market price. This action is:
A)
a violation of Standard III(A), Loyalty, Prudence, and Care.
B)
a violation of Standard III(B), Fair Dealing.
C)
not in violation of the Standards.
C
There is no violation. It is in the best interest of the client to be diversified and selling via a series of cross trades will likely reduce price impact costs when compared to selling directly into the market. The analyst appears to have reasonable basis for putting the securities in the accounts of other clients.
97
97. Bill Valley has been working for Advisors, Inc., for several years, and he just joined CFA Institute. Valley routinely writes research reports on Pharmaceutical firms. Valley has recently been asked to serve on the board of directors of an organization that promotes the search for a cure of a certain cancer. Serving on the board is an unpaid position without any direct benefits other than meeting new people and potential clients. To comply with Standard VI, Disclosure of Conflicts, Valley needs to:
A)
only disclose the position on the board to his supervisor.
B)
do nothing.
C)
both disclose the position on the board to his supervisor and describe his responsibilities on the board.
C
Valley could be affected by his position on the board because he may tend to favor investments in firms that do cancer research. To comply with Standard VI(A), Disclosure of Conflicts, Valley must inform his supervisor of this relationship and describe his responsibilities on the board. Even if his supervisor does not find the relationship troublesome, any subsequent action that could lead to a conflict of interest should be discussed with the firm's compliance officer.
98
98. Jake Miles, CFA, includes the following phrase on his business card: "Jake Miles is your trusted local CFA." Is this a violation of Standard VII(B)?
A)
Yes, because he cannot put the initials "CFA" on his business card.
B)
No, because his CFA Institute membership indicates that he is indeed trustworthy.
C)
Yes, because he uses CFA as a noun.
C
The initials CFA cannot be used as a noun. The initials can appear on a business card but cannot be used to exaggerate the meaning or implications of membership.
99
**What should be provided about the outside service? (3)
99. When providing outside services, a member should provide all of the following information to her current employer EXCEPT:
A)
the types of services to be provided.
B)
a promise to remit an agreed-upon percentage of the proceeds to the current employer.
C)
the compensation she will receive.99.
B
She should provide information about the type of services, the compensation arrangement and the expected duration of the project.
100
100. A CFA charterholder may disclose confidential information about a client when:
A)
it is a necessary step in proceeding with research on client preferences.
B)
the information is nonmaterial.
C)
the CFA Institute Professional Conduct Program requests it.
C
According to Standard III(E), Preservation of Confidentiality, a CFA charter holder cannot discuss client information received in the process of performing services for them except when related to an illegal action or when requested by the CFA Institute Professional Conduct Program.
101
101. An analyst who is a CFA Institute member receives an invitation from a business associate's firm to spend the weekend in a high-quality resort. In order to abide by the Standards, the analyst should (may):
A)
refuse the invitation if the associate is from a firm he analyzes for his employer.
B)
obtain written consent from his supervisor if the offer is contingent on achieving a target investment return.
C)
do both of the actions listed here.
C
According to Standard I(B) Independence and Objectivity, the analyst should refuse the invitation if it is from a firm the analyst covers for his employer. The analyst can accept the invitation if it is from a client but the analyst must get written consent from his employer if the offer is contingent on future performance, to comply with Standard IV(B) Additional Compensation Arrangements.
Question From: Session 1 > Reading 3-I > LOS (B)
102
102. Kim Lee manages a variety of accounts at Superior Investments. Some are permitted to invest in tax-exempt issues only; others may not invest in a stock unless it pays dividends. Lee is researching a biotech firm specializing in the analysis of "mad cow" disease. While touring company facilities and meeting with management, she learns that they believe they may have found a way to reverse the disease. Moreover, one manager conjectured, "Suppose that we reversed the disease in someone who didn't even have it? We might then be able to boost that individual's IQ into the stratosphere!" Lee returns to her office and buys shares for all accounts under her supervision. This action is:
A)
a violation of the Standard concerning fiduciary duties.
B)
appropriate given the obvious potential of the therapy.
C)
a violation of the Standard concerning appropriateness and suitability of investment actions.
C
Given the variety of accounts under her supervision, it is not likely the shares of a speculative biotech firm would be suitable for all accounts. Placing such shares in all accounts indicates that she has failed to consider the appropriateness and suitability of the investment for each account, and this places her in violation of Standard III(C).
103
103. Trude Front, CFA, is a portfolio manager. While in the normal course of her duties, she happens to overhear material non-public information concerning the stock of VTT Bowser. She purchases several exchange traded funds which contain VTT Bowser, while shorting similar exchange traded funds which do not contain VTT Bowser. This is most likely:
A)
not a violation of Standard II(A) "Material Non-Public Information."
B)
only a violation of Standard II(A) "Material Non-Public Information" because Front is simultaneously shorting the funds which do not contain VTT Bowser.
C)
a violation of Standard II(A) "Material Non-Public Information."
C
This is a violation of Standard II(A) "Material Non-Public Information" irrespective of whether Front is simultaneously shorting the funds which do not contain VTT Bowser. Her trades are motivated by material non-public information.
104
104. 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 definitely include more basic facts.
C)
will not be allowed because it violates the Standard III(B), Fair Dealing.
A
According to Standard V(B), an analyst can use reasonable judgment regarding the exclusion of some facts and should include more basic facts for reports to wider audiences. The key issue is that analysts should tailor their reports to the intended audience.
*Exclude is ok = tailor fit report
105
105. An analyst has the opportunity to offer his clients shares in a "hot new issue." One of the analyst's clients is his brother. When the new issue comes out, for those clients he deems it would be appropriate, he offers them an equal share. He includes his brother in that group. With respect to Standard VI(B), Priority of Transactions, this is:
A)
congruent with the Standard even if he has a direct personal interest in his brother's account.
B)
congruent with the Standard as long as he does not have a direct personal interest in his brother's account.
C)
congruent with the Standard if his brother is not a 'covered person'.
B
Client accounts that belong to family members should be treated like any other account so long as there is no direct interest on the part of the analyst. In other words, these types of accounts should not be at a disadvantage relative to other client accounts when there is no direct interest on the part of the analyst overseeing the account.
*First picked C, didn't understand the question well （以为系另外加咗brother）
106
106. CFA Institute members should encourage their employers to do all of the following EXCEPT:
A)
make clear that dishonest personal behavior reflects poorly on the profession.
B)
require employees to write personal ethics statements.
C)
conduct background checks on potential employees to ensure that they are of good character and eligible to work in the investment industry.
B
There is no reason to have employees write personal ethics statements. CFA Institute encourages all of the other actions.
107
107. Which of the following is a CORRECT statement of a member's duty under the Code and Standards?
A)
In the absence of specific applicable law or other regulatory requirements, the Code and Standards govern the member's actions.
B)
A member is required to comply only with applicable local laws, rules, regulations, or customs even though the CFA Institute code and Standards may impose a higher degree of responsibility or a higher duty on the member.
C)
A member who trades securities in a country with less strict laws, rules, regulations, or customs may follow those laws if he discloses this information to his client.
A
| Members are always, at a minimum, subject to the Code and Standards.
108
A candidate or member is least likely violating the Standard regarding the confidentiality of client information if he shares confidential client information, when not required by law, with:
A) the CFA Institute Professional Conduct Program.
B) the client's attorney.
C) the co-owner of the client's account.
```
A
Standard III(E) Preservation of Confidentiality states that sharing information with the PCP when requested as part of an investigation is not a violation unless it is prohibited by law. Disclosure to those outside the firm in other cases is a violation unless the client has given specific permission or disclosure is required by law.
```
109
Michael Bellow, CFA, CAIA, is an investment banker who is involved with an initial public offering (IPO) of NewCo. Because this is Bellow's first involvement in an IPO, he reports to an experienced supervisor. While reviewing past financial statements provided by NewCo, Bellow suspects that NewCo deliberately overstated its earnings for the past several quarters. Bellow seeks the advice of his firm's highly competent general counsel and follows the advice given without deviation. Based on the general counsel's advice, Bellow consults his immediate supervisor about the suspected overstatement of earnings. After reviewing the situation, Bellow's supervisor explains why NewCo's calculations of its earnings are correct. Bellow realizes that his inexperience and exuberance initially led him to an incorrect conclusion about NewCo's earnings.
Which of the following statements about Bellow's actions involving Standard I(A), Knowledge of the law, and Standard I(C), Misrepresentation, is CORRECT? Bellow:
A) violated both Standard I(A) and Standard I(C).
B) violated Standard I(A) but did not violate Standard I(C).
C) did not violate either Standard I(A) or Standard I(C).
C
Bellow did not violate Standard I(A), Knowledge of the law, because he sought advice of counsel and followed that advice. Bellow did not violate Standard I(C), Misrepresentation, because he made reasonable and diligent efforts to ensure the accuracy of the information and to avoid any material representation.
110
(intermediate) Noah Johnson, CFA, is a broker with a money management company, Factor, Inc. In a conversation with Tom Williams, Johnson describes the activities of Factor and discusses the characteristics of portfolio construction. Which of the following statements would NOT, on its face, be considered a misrepresentation?
A) Factor guarantees the portfolio will achieve its goal return.
B) If Williams is not satisfied with the current target return, Johnson can always improve it by increasing his T-bills share.
C) The portfolio securities were carefully selected by Factor to minimize Williams' risk.
```
C
Standard I(C), Misrepresentation, prohibits CFA charterholders from misrepresenting characteristics of the portfolio or the services that the company can provide. The only statement that can be accepted as plausible is that the securities were selected to minimize the risk.
```
111
(intermediate) Denise Weaver is a portfolio manager who manages a mutual fund and has pension clients. When Weaver receives a proxy for stock in the mutual fund, she gives it to Susan Griffith, her administrative assistant, to complete. When the proxy is for a stock owned in a pension plan, she asks Griffith to send the proxy on to the sponsor of the pension fund. Weaver has:
A)
violated the Standards by her policy on mutual fund proxies, but not her policy on pension fund proxies.
B)
not violated the Standards.
C)
violated the Standards by her policy on mutual fund and pension fund proxies.
C
Proxies should be taken seriously, and although it is likely that Griffith can understand some of the issues, it is likely that she is not capable of making responsible decisions on all potential proxy issues. Proxies for a pension plan should be voted in the best interests of the beneficiaries, not the plan sponsor. The sponsor's interests will not always be the same as the beneficiary's interest.
112
(intermediate) Julie Stades retired several years ago and relinquished her membership in CFA Institute. She had the CFA designation up until then. She has decided to go back to work and puts the following statement on her resume: "I earned the CFA designation 10 years ago." Is this a violation of Standard VII(B)?
A) Yes, because she uses "CFA" as a noun.
B) Yes, she has used the letters "CFA" in an undignified manner.
C) No, as long as she does not indicate she currently has the designation.
C
Stades is allowed to state that she earned the designation as long as she does not infer that she currently has the designation. The letters "CFA" are only to be used as an adjective, and she does that.
!! CFA can only be used as an adj. or after a name
113
(intermediate) Under Standard IV(A) Loyalty (to employers):
A) it is recommended that members deliver a copy of the Code and Standards to their employer.
B) members are encouraged to leave an employer that does not adopt the Code and Standards as part of its policies and procedures.
C) members are required to deliver a copy of the Code and Standards to their employer.
```
A
Standard IV(A) Loyalty recommends (not requires) that members and candidates provide their employer with a copy of the Code and Standards and notify their employer that they are required to follow the Code and Standards. There is no recommendation to leave a firm simply because the Code and Standards have not been adopted by the firm in its policies and procedures.
```
114
(intermediate) Liam McCoy has lunch with a wealthy client whose portfolio he manages. McCoy advises the client to double his current position in the JKM Corporation due to an anticipated increase in sales. In accordance with Standard (V) Investment Analysis, Recommendations and Actions, when McCoy returns to his office he should:
A)
identify other clients for whom JKM may be a suitable investment and notify them immediately of his recommendation.
B)
verify the suitability of the investment recommendation before placing the client's order.
C)
document the details of the conversation with the client with regard to his investment recommendation.
C
Standard V(C) Record Retention requires that Members and Candidates document all recommendation and communications with clients. McCoy should document the details of the conversation, including any resulting investment decisions and/or actions.
B - The suitability of the investment should have already been considered before the recommendation and McCoy should not execute the order until the client instructs him to.
A - Identifying other clients for this investment would fall under Standard III(B) Fair Dealing.
115
(intermediate) Brendan Duval works as a research analyst for Toby Securities. Duval recommends changing a recommendation from "sell" to "buy" on Dalton Company. His firm, which manages several mutual funds, may be interested in buying Dalton's stock. He also manages the retirement account that his parents established with Toby. Duval wants to buy shares of Dalton's stock because it is an appropriate investment for his parent's retirement account and obtains approval from his employer to do so. Duval is also thinking about personally investing in Dalton stock. According to CFA Institute Standards of Professional Conduct, which of the following best describes the priority of transactions? Duval should give:
A)
priority to Toby's clients and his employer concurrently, followed by his parent's retirement account, and finally his personal account.
B)
Toby's clients and his parent's account equal priority, followed by his employer, and then his personal account.
C)
priority of transactions to Toby's clients, followed by his employer, then his parent's retirement account, and finally his personal account.
B (picked C, did not take into account that his parents' account is also with Toby, so not just "helping parents out")
According Standard VI(B) Priority of Transactions, Duval should give transactions for clients and employers priority over his personal transactions. Because his parent's retirement account represents a client account at Toby, Duval should treat this account just like any other firm account. His parent's retirement account should neither be given special treatment nor disadvantaged because of an existing family relationship with Duval. If Duval treats his parent's retirement account differently from other accounts at Toby, he would breach his fiduciary duty to his parents.
116
(intermediate) All of the following are components of the Code of Ethics EXCEPT:
A)
demonstrating diligence, independence, and thoroughness when preparing investment reports.
B)
using reasonable care and exercising independent professional judgment.
C)
striving to maintain and improve their competence and the competence of others in the profession.
A
Demonstrating diligence, independence, and thoroughness when preparing investment reports is found in the Standards of Professional Conduct.
117
(Intermediate) Shortly after becoming employed by Valco & Co., an investment banking firm, Stan McDowell, CFA, learns that most of Valco's initial public offerings (IPO) are really effected in order to profit management via price manipulation of the shares. McDowell observes an illegal act, sanctioned by senior management, in progress and refuses to sign off on his responsibility. Instead, McDowell takes the documentation to his supervisor and tells him he should sign it in his place. This action is:
A) a suitable reaction, and he is in compliance with the Code and Standards.
B) an overreaction. Senior management's sanctioning of the act absolves McDowell from his ordinary responsibility as a CFA Institute member.
C) a violation of the Code and Standards since he is required not to knowingly participate or assist in such an act.
C
McDowell, by his action in taking the documentation to his supervisor, is knowingly participating in and/or assisting in an illegal act. This is clearly prohibited under Standard I(A), and he is in violation of the Standard.
118
(Intermediate) Regarding non-public information, which one of the following statements is NOT correct?
A) A member can be summarily suspended for having received material non-public information.
B) An analyst may use some types of non-public information.
C) Disclosing material non-public information would have an impact on the price of a security or be of interest to a reasonable investor.
A
All of these are true except that a member can be suspended for having received material non-public information. The member can receive such information as part of their regular duties or by accident. Neither is punishable in and of itself, and penalties only apply if the member trades or causes others to trade on the information. The member may have certain duties, such as trying to disseminate the information after receiving it. An analyst may use nonmaterial non-public information.
119
(Intermediate) Jennifer Stewart, CFA, a supervisor at an investment advisory firm, has tried unsuccessfully to convince top management of the firm's need for a formal, comprehensive compliance program. What is Stewart's most appropriate course of action?
A) Rely on the Code and Standards to perform her duties as a supervisor.
B) Decline in writing to accept supervisory responsibility.
C) Resign from the firm if no compliance program is instituted.
B
According to Standard IV(C) Responsibilities of Supervisors, Stewart should decline in writing to accept supervisory responsibility until the firm adopts adequate compliance procedures.
120
(Intermediate) Paul Thomas, CFA, is designing a new layout for research reports his firm writes and issues on individual stocks. In his design, Thomas includes a stock chart on the first page of each report. He does not reference that the charts are copied from the Standard & Poor's web site. Thomas has:
A) not violated CFA Institute Standards of Professional Conduct because these charts are widely available over the Internet.
B) violated CFA Institute Standards of Professional Conduct because he did not state the source of the charts.
C) violated CFA Institute Standards of Professional Conduct because he did not verify the accuracy of these charts.
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B (picked A, data is treated differently from charts/analysis)
Standard I(C) Misrepresentation. Members should not copy or use material prepared by others without acknowledging and identifying the source of such material. Using charts and graphs without stating their source is a violation of the Standard. Data from recognized statistical reporting services may be used without attribution, but charts, analysis, and other such creative content may not.
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121
(Intermediate) Member compliance on issues relating to corporate governance or to soft dollars is primarily addressed by the Standard concerning:
A) Loyalty, Prudence, and Care.
B) Disclosure of Conflicts to Clients and Prospects.
C) Disclosure of Referral Fees.
A
Fiduciary duty on issues relating to corporate governance or to soft dollars is primarily addressed by Standard III(A), Loyalty, Prudence, and Care.
Previous Next
122
(Intermediate) The first component of the Code of Ethics does NOT explicitly say that a CFA Institute member will act in a certain manner with respect to which of the following groups?
A) CFA Institute members and candidates in the CFA Program.
B) Prospective clients.
C) Colleagues.
A
Participants in the CFA Program are not specifically mentioned in the Code of Ethics. Component one mentions duties to the public, clients, prospects, employers, employees, colleagues, and other participants in the global capital markets.
123
(Intermediate) Rachel Young, CFA, is making preparations to start a competitive business before terminating her relationship with her employer, a large money management company. Young asks Dot Wiggins, a colleague, to consider joining her. In subsequent discussions with Young, Wiggins learns that Young has used excerpts from research reports by others with only a slight change in wording without acknowledging the source. According to CFA Institute Standards of Professional Conduct, Young has:
A) violated Standard I(C) Misrepresentation, because she did not acknowledge the source of excepts that she used in research reports.
B) violated Standard IV(A) Loyalty, because she was making preparations to start a competitive business before terminating her relationship with her employer.
C) not violated the Standards.
A
By using excerpts from research reports by others with only a slight change in wording without acknowledging the source, Young committed plagiarism and violated Standard I(C) Misrepresentation. Young did not violate Standard IV(A) Loyalty because preparations to begin an independent business are permitted provided that they do not breach Young's duty of loyalty to her employer. Actions that would violate Standard IV(A) include soliciting clients or taking records or files while still working for the current employer.
124
(Intermediate) A CFA charterholder gathers the closing prices of a security from a widely read publication. The charterholder uses the data as part of a report she is preparing and fails to report the data source in the report. This is:
A) a violation of Standard I(C).
B) not a violation of Standard I(C) if the data can be gathered from several public sources.
C) not a violation of Standard I(C) if the data cannot be gathered from several public sources.
B
Since the security prices represent factual information that can be verified from several sources, there is no violation. It could have been a violation had the information been exclusively published by the source.
125
(Intermediate) Abner Flome, CFA, is writing a research report on Paulsen Group, an investment advisory firm. Flome's brother-in-law holds shares of Paulsen stock. Flome has recently interviewed for a position with Paulsen and expects a second interview. According to the Standards, Flome's most appropriate action is to disclose in the research report:
A) that he is being considered for a job at Paulsen.
B) his brother-in-law's holding of Paulsen stock.
C) his brother-in-law's holding of Paulsen stock and that he is being considered for a job at Paulsen.
A (picked C, brother-in-law doesn't count)
The possibility of employment with Paulsen creates a potential conflict of interest which Flome must disclose. Standard VI(A) Disclosure of Conflicts does not require disclosure of his brother-in-law's ownership of Paulsen stock.
126
(Intermediate) Robert Hamilton, a CFA candidate, is preparing a research report on Pets-R-Us for public distribution. Hamilton's preliminary report contains unfavorable earnings forecasts for the next four quarters. As part of his analysis, Hamilton met with Linda Brisson, the president of Pets-R-Us, and asked her to review the preliminary report for factual inaccuracies. Brisson revised Hamilton's earnings forecasts so that the quarterly earnings showed an upward trend and resulted in positive earnings by the fourth quarter. Hamilton included the revised earnings figures in his report without further review. Although the final report included the basic characteristics of Pets-R-Us, it emphasized certain areas such as projected quarterly earnings but only briefly touched on others. According to CFA Institute Standards of Professional Conduct on research reports, Hamilton:
A) violated the Standard because the report did not give similar attention to all areas but instead emphasized quarterly earnings at the expense of other areas.
B) violated the Standard because he did not thoroughly review and analyze any information provided by Brisson.
C) did not violate the Standard.
```
B
Standard V(B) permits Hamilton to ask company management to review his report for factual inaccuracies, but Hamilton should have taken care to thoroughly review and analyze any information provided by the company. Hamilton is not required to give equal emphasis to all areas but can emphasize certain areas, touch briefly on others, and omit certain aspects deemed unimportant.
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127
(Intermediate) Darlene Hess, CFA, manages a pension fund that has a sizeable position in Knoll Corporation common stock. Hess also holds Knoll common stock in her personal account. Hess participates in an analyst conference call in which Knoll's chief financial officer advises that the company's current-quarter earnings will slip below consensus forecast. Knoll has not disclosed this to the public. Hess believes news of the poor earnings will reduce the stock's value significantly. Hess may:
A) not sell Knoll stock from either the pension fund or her personal account.
B) sell Knoll stock from her personal account but may not sell it from the pension fund.
C) sell Knoll stock from the pension fund but may not sell it from her personal account.
A
Selling Knoll stock from either the pension fund or Hess's personal account would be trading on material nonpublic information, in violation of Standard II(A) Material Nonpublic Information.
128
(Intermediate) An independent analyst has only one client. One of the client's largest holdings is a brokerage firm. Because of the large holding by his client, the brokerage firm recently began allowing the analyst to tap into the firm's computer network to use the firm's research facilities. This is allowable as long as the analyst:
A) does both of the actions listed here.
B) discloses the relationship to the client.
C) uses the resources to help manage the client's account.
A (did not read the answers carefully)
According to Standard III(A), Loyalty, Prudence, and Care, the analyst must put the client first and inform the client of any possible conflicts of interest. The analyst must channel any benefits derived from his service to the client, back to the client, and inform the client of the benefits.
129
(Intermediate) Don Benjamin, CFA, is the compliance officer for a large brokerage firm. He wants to prevent the communication of material nonpublic information and other sensitive information from his firm's investment banking and corporate finance departments to its sales and research departments. The most common and widespread approach that Benjamin can use to prevent insider trading by employees is the:
A) fire wall.
B) legal list.
C) Wall Street Rule.
A (no idea..)
To comply with Standard II(A), a fire wall provides an information barrier that prevents communication of material nonpublic information and other sensitive information from one department to another within a firm.
130
(Intermediate) A code of ethics:
A) may be rules-based or principles-based.
B) provides the public with assurance of a minimum level of ethical behavior.
C) should not be used for marketing purposes.
A
A code of ethics may be rules-based or principles-based. There can be no assurance that none of a group or professionals will violate a code of ethics. There is no requirement that a group of professionals agreeing to a code of ethics cannot be held out to the public as a positive thing for clients.
131
(Intermediate) Nicole Wise, CFA, is an analyst at Chicago Securities. She attends a meeting with management of one of the companies that she covers. During the meeting, management expresses great optimism about the company's recent acquisition of a new business. Wise is excited about these prospects and issues a research report that states that the company is about to achieve significant success with the new acquisition. Wise has:
A) not violated CFA Institute Standards of Professional Conduct because she had reasonable reason to believe that the statements in her report were true.
B) violated CFA Institute Standards of Professional Conduct because she did not check the accuracy of the statements that management made.
C) violated CFA Institute Standards of Professional Conduct because she misrepresented the optimism by turning it to certainty.
C (picked B. B is about fact checking, but this is an opinion, there is no way to verify an opinion)
Standard V(B), Communication with Clients and Prospective Clients. Members must distinguish between fact and opinion in the presentation of a research report or investment recommendation. Wise violated the standard because she misrepresented management's enthusiasm by turning it into certainty.
132
(Intermediate) Which of the following most accurately states a limitation that the Fair Dealing standard imposes?
A) Referral fees may be disclosed after proceeding with an agreement for service.
B) Clients should not be discriminated against when disseminating investment recommendations.
C) Before trading on her own portfolio, a CFA charterholder must wait for employer and client deals to be executed.
B (picked C, misunderstood the word limitation - thought it meant the rule was unable to achieve..)
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Standard III(B) Fair Dealing states that the dissemination of information and recommendations to clients must be handled fairly.
The other choices are related to Standard VI(B) Priority of Transactions (Option C) and Standard VI(C) Referral Fees. (Option A)
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133
(Intermediate) Sharon Pope has been asked by the Chief Investment Officer to develop a firm-wide policy for proxy voting. Which of the following would NOT be acceptable to include in the policy statement?
A) Portfolio managers of active funds must vote in all proxies; portfolio managers of index funds should vote only when they have a definitive opinion.
B) Voting proxies may not be necessary in all instances.
C) The value of proxy voting must be maximized.
A
Proxies for stocks in passively managed funds must also be voted. A cost-benefit analysis may show that voting all proxies may not benefit all clients.
134
(Intermediate) Greg Allen is a security analyst and visits David Dawson, the Chief Financial Officer of Edmonds Company. Dawson reveals a great deal of nonmaterial financial data to Allen, data that Dawson routinely reveals to all security analysts who visit him. From this data and other industry information, Allen conjectures that Edmonds is likely to make a tender offer for another company in the industry, a fact that if true would be considered material to the value of the company. Allen:
A) must not disseminate the information or use it for trading purposes until the tender offer is announced.
B) should send a copy of the report to Dawson for verification before disseminating the report to clients.
C) can publish his conclusion in a research report.
This is related to Mosaic theory - collecting public, non-public and non-material information about a company to determine the underlying value of its securities and to enable the analyst to make recommendations to clients based on that information.
C, but picked A (true if all of them are nonpublic nonmaterial)
While the information that Allen received from the Edmonds CEO may be non-public, we are also told that it is non-material. Because Allen has reached his investment conclusion through an analysis of public information together with items of non-material non-public information (ie. "mosaic theory"), publishing this conclusion is not a violation of the Code and Standards.
135
(Intermediate) While copying some of her research materials at work, Mary Jones comes across a few incomplete research notes written by one of her colleagues. As a result of reading the notes, and without further review, Jones immediately changes one of her stock recommendations from sell to buy. Which of the following CFA Institute Standards has Jones violated?
A) Standard I(B), Independence and Objectivity.
B) Standard V(A), Diligence and Reasonable Basis.
C) Standard III(A), Loyalty, Prudence, and Care.
B
136
(Intermediate) Lee Hurst, CFA, is an equity research analyst for a long-term investment fund. His annual bonus is linked to quarterly trading profits. Under a new policy, the quarterly assessment period is switched to a monthly assessment period. According to the Code and Standards, best practices dictate:
A) keeping the policy change private as a trade secret.
B) requiring Hurst to obtain permission from each client prior to implementation of the new policy.
C) updating disclosures when the policy change is implemented.
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C
Standard VI(A) "Disclosures of Conflicts" recognizes this policy as a potential conflict of interest as members and candidates could be incentivized to favor short-term trading gains over long-term value creation. Best practices dictate updating disclosures when the policy change is implemented. The long-term investors should know how members and candidates are compensated, especially when there is the potential for conflicts of interest.
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137
(Intermediate) Steve Jones is a portfolio manager for Gregg Advisors. Gregg has developed a proprietary model that has been thoroughly researched and is known throughout the industry as the Gregg model. The model is purely quantitative and screens stocks into buy, hold, and sell categories. The basic philosophy of the model is thoroughly explained to clients. The director of research frequently alters the model based on rigorous research-an aspect that is well explained to clients, although the specific alterations are not continually disclosed. Portfolio managers then make specific sector and security holding decisions, purchasing only securities that are indicated as "buys" by the model. Jones thoroughly understands the model and uses it with all of his clients. Jones is:
A) not violating the Standards either in purchasing stocks without a thorough research basis or in not disclosing all alterations of the model to clients.
B) violating the Standards in not disclosing all alterations of the model to clients, but not in purchasing stocks without a thorough research basis.
C) violating the Standards in purchasing stocks without a thorough research basis and in not disclosing all alterations of the model to clients.
A (Picked B, i guess it's ok to not disclose specifics alterations as long as the actual model is explained)
Jones and Gregg are using reasonable judgment in not continually disclosing all of the alterations of the model. It is acceptable to use a pure quantitative model as a sole basis for purchasing stocks, as long as it is thoroughly researched.
138
(Intermediate) 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) An independent auditor with access to material, non-public information on a company being analyzed.
B) A person working in the mail room.
C) A supervisory analyst who reviews all research reports prior to dissemination.
C
Persons with access to information during the normal preparation of research recommendations are subject to Standard VI(B). An independent auditor is not involved in the normal preparation of research recommendations.
139
(Intermediate) Jacob Allen, CFA, decides he could make more money if he started his own company. Which of the following steps would most likely violate Standard IV(A) Loyalty?
A) Soliciting, without written permission from his current employer, the business of former clients after he leaves his current employer.
B) Using his notes from prior research of a firm in a creating a new research report on the firm, after leaving his current employer.
C) Renting space for his new company and interviewing several candidates for the position of manager at the new company.
B
Allen's notes from his research are employer records and even though he prepared them, it is a violation to take them from his employer without permission. Soliciting former clients' business is not, in itself, a violation as long has Allen has not misappropriated client information from his former employer. Preparations to start a new business are not necessarily a violation of the Standard, although soliciting current clients or recruiting other firm personnel for the new venture, before formally leaving his employer, would be violations of the Standards.
140
(Intermediate) Sallie Reid, CFA, is asked by her boss, also a CFA charterholder, to use a research report of a competing firm, change a few details, sign it and send it to a large client. He says their firm's researchers will draw the same conclusions but haven't gotten to them yet. If she complies, she is doing all of the following EXCEPT:
A) obeying her boss, a CFA charterholder, but violating several of the CFA Institute Code and Standards.
B) complying with CFA Institute standards because she cannot disobey her boss.
C) violating CFA Institute standards dealing with plagiarism.
B
If Sallie complies, she is violating Standard I(C) Misrepresentation, because copying the report is plagiarism. Sallie should attempt to disassociate from any activity that she knows is in violation of the standards.
141
(Intermediate) Jason Jones, a stock broker who has completed Level I of the CFA program and is registered for the next Level II CFA exam, may:
A) not mention that he is involved in the CFA Program until he has passed all three levels.
B) state that he is a Level II candidate in the CFA Program.
C) use the Level I CFA designation since he has passed the Level I exam.
B
Jason may refer to his participation in the program but must state that he is a candidate and specify the level of the exam for which he is registered. There is no partial designation.
142
(Intermediate) A CFA Institute member is also a member and the portfolio manager of an environmentalist group. In its charter, the environmentalist group lists a group of companies its members should boycott. The CFA Institute member would violate Standard I(A) concerning obeying all rules and regulations if the member:
A) actively protests against a publicly traded firm boycotted by the group.
B) purchases stock of a boycotted firm for the group's portfolio.
C) performs either of the activities listed here.
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B
Standard I(A) says the member must be guided by all applicable rules and regulations of professional associations governing the member's professional activities. Purchasing the stock for the firm would be a violation because it involves the member's professional activities and the rules of a group to which the member belongs and works for. Actively protesting would not be covered by that standard.
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143
(Intermediate) According to the Code of Ethics, when practicing in a professional and ethical manner the goal is to:
A) resolve conflicts between clients and employers.
B) reflect credit on members and the profession.
C) increase membership in CFA Institute.
B
The Code states that a member shall "Practice and encourage others to practice in a professional and ethical manner that will reflect credit on members and their profession."
144
(Intermediate) Caroline Turner, an analyst for Lansing Asset Management, just completed an investment report in which she recommends changing a "buy" to a "sell" for Gallup Company. Her supervisor at Lansing approves of the change in recommendation. Turner wonders about whether she needs to disseminate this investment recommendation to Lansing's clients and if so, how to distribute this information. According to CFA Institute Standards of Professional Conduct, Turner is:
A) required to disseminate the change in a prior investment recommendation to all clients and customers on a uniform basis.
B) required to design an equitable system to disseminate the change in a prior investment recommendation.
C) not required to disseminate the change of recommendation from a buy to a sell because the change is not material.
B (picked A, fair does not mean equal!!)
Standard III(B) - Fair Dealing requires dealing fairly and objectively with all clients and prospects when disseminating material changes in prior investment recommendations. Note that the standard requires the dissemination be fair, but not necessarily equal due to the impossibility of contacting all clients simultaneously. A change of recommendation from "buy" to "sell" is generally material.
145
(Intermediate) Steven Wade, CFA, writes an investment newsletter focusing on high-tech companies, which he distributes by e-mail to paid subscribers. Wade does not gather any information about his clients' needs and circumstances. Wade has developed several complex valuation models that serve as the basis for his recommendations. Each month, his newsletter contains a list of "buy" and "sell" recommendations. He states that his recommendations are suitable for all types of portfolios and clients. Because of their proprietary nature, Wade does not disclose, except in general terms, the nature of his valuation models. He conducted numerous statistical tests of these models and they appear to have worked well in the past. In his newsletter, Wade claims that subscribers who follow his recommendations can expect to earn superior returns because of the past success of his models.
Wade violated all of the following CFA Institute Standards of Professional Conduct EXCEPT:
A) Standard I(C), Misrepresentation.
B) Standard III(B), Fair Dealing.
C) Standard V(B), Communication with Clients and Prospective Clients.
B
Wade did not violate Standard III(B), Fair Dealing, because this situation does not indicate that he failed to deal fairly and objectively with all clients when disseminating his newsletter containing investment recommendations.
Wade violated Standard V(B), Communication with Clients and Prospective Clients, because he failed to include all relevant factors behind his recommendations. Without providing the basis for his recommendations, clients cannot evaluate the limitations or the risks inherent in his recommendations.
Wade violated Standard I(C), Misrepresentation, because his claims about gaining superior expected returns are misleading to potential investors.
146
(Intermediate) An analyst has a large personal holding of a security, and he has just determined that market conditions warrant selling this security. The analyst contacts clients who have a position in the security and advises them to sell some or all of the security. After waiting 24 hours, he sells the security from his personal accounts. This is:
A) a violation of Standard VI(B), Priority of Transactions.
B) a violation of Standard III(B), Fair Dealing.
C) congruent with Standard VI(B), Priority of Transactions.
C
According to Standard VI(B), an analyst must give clients the first opportunity to buy or sell a security before the analyst acts on his own behalf. A 24-hour waiting period seems reasonable under the circumstances presented. The analyst seems to have a reasonable basis, and there is no reason to believe that he is violating Standard III(B) since he contacted all of the clients who have a position in the security.
147
(Intermediate) Which of the following examples of supervisory responsibility is consistent with the requirements of the Code and Standards?
A) A firm's compliance policies allow a portfolio manager to designate a trade to an account or portfolio after the outcome of the trade is known.
B) A professional conduct evaluation is part of an employee's performance review.
C) A supervisor's income is partially based on the firm's overall level of trading activity.
B
According to Standard IV(C) Responsibilities of Supervisors, supervisors must make reasonable efforts to detect and prevent violations of laws, rules, regulations, and the Code and Standards by anyone under their authority. Incorporating a professional conduct evaluation as part of an employee's performance review is a recommended compliance procedure.
148
(Intermediate) Nancy Hall, a candidate in the CFA program, is an analyst for a mutual fund. As part of her job she makes company visits to interview executives. On a recent trip she stayed with her sister instead of at a hotel. In her expenses Hall included a hotel charge of $100, which was less than the amount allowed by her employer. After receiving a check for her expenses, Hall disclosed to her supervisor that she had stayed with her sister instead of at a hotel. She also returned the $100 to her employer. According to CFA Institute Standards of Professional Conduct, which of the following statements best describes Hall's professional conduct?
A) Hall engaged in professional misconduct.
B) Hall did not engage in professional misconduct because she eventually disclosed this information and returned the $100 to her employer.
C) Hall did not engage in professional misconduct because she did not meet all of the requirements to use the CFA designation.
A
| Hall engaged in professional misconduct because her act involved dishonesty, fraud, and deceit.
149
(Intermediate) A money manager, who is a member of CFA Institute, states that, "Our aggressive growth fund produced a 12% annualized return last quarter. This illustrates the superior results our firm produces." The fund return stated by the manager is accurate. Is this a violation of Standard III(D) Performance Presentation?
A) Yes.
B) No, because the manager has stated a fact.
C) No, because a brief summary of results is acceptable as long as more complete information is made available.
A (Picked C. Did not read the statement in complete. It implies that the performance of one fund represents the performance of the company)
Standard III(D) requires that members communicate performance in a fair, accurate, and complete fashion, and covers both written and oral communication. Implying that the return produced by a single fund during one quarter is typical of a firm's performance is a violation of this Standard.
150
(Intermediate) Phil Trobb, CFA, is preparing a purchase recommendation on Aneas Lumber for his research firm. All of the following are potential conflicts of interest EXCEPT:
A) Trobb's research firm has a large stake of ownership in Aneas Lumber.
B) Aneas hires Trobb as a consultant to analyze Aneas' financial statements.
C) Trobb's cousin repairs machines for Aneas.
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C
Standard VI(A) defines what constitutes a conflict of interest with regard to clients, prospective clients, and employers. All of these represent potential conflicts of interest with the exception of the cousin working for Aneas Lumber in a job that is unrelated to the Aneas' financing.
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151
(Intermediate) John Johnson, portfolio manager at Sunshine Investments, has passed all three levels of the CFA® Program and has completed his work experience requirements. He expects to receive his charter in the near future. He includes the following statement in his firm's brochure: "Johnson has passed all three levels of the exam and has completed the required work experience for the CFA Charter. He is eligible for the CFA Charter and expects to receive the charter in the near future. Over the years, he has demonstrated a superior performance and his CFA Charter will be rightfully awarded." Johnson has:
A) violated CFA Institute Standards of Professional Conduct because he implied superior performance that would be linked to the CFA Charter.
B) not violated CFA Institute Standards of Professional Conduct because he met all disclosure requirements.
C) violated CFA Institute Standards of Professional Conduct because he advertised the CFA Charter before actually obtaining it.
A
According to Standard VII(B), Reference to CFA Institute, the CFA Designation, and the CFA Program, Johnson may indicate that he has completed the requirements and is eligible for the CFA charter along with an accurate explanation of the requirements. However, he may not imply that the designation would mean superior performance capabilities.
152
(Intermediate) Unethical behavior by individuals in the investment industry is most likely to:
A) decrease financing costs for businesses.
B) increase the overall profits of financial services firms.
C) decrease the rate of economic growth.
C (picked B, but the question is asking in the industry as a whole)
Unethical behavior in the investment industry can divert capital away from its highest valued uses, which decreases the growth rate of the economy. In the long run, unethical behavior decreases profits for financial services firms by discouraging potential clients from using their services. When savers and investors distrust the investment industry they provide less capital and demand a higher return for its use, which increases the cost of capital for businesses.
153
(Intermediate) 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) Nothing since he is not an employee of the charitable organization.
B) Resign from the position because the relationship is a conflict with the Standards.
C) Must treat the charitable organization as his employer.
C
An employee/employer relationship does not necessarily mean monetary compensation for services. If the analyst is performing services for the organization, then the analyst must treat the position as if he were an employee.
154
(Intermediate) 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 make his report in person, by telephone, or by computer on the Internet.
B) Halpert can make his report in person.
C) Halpert can transmit his report by computer on the Internet.
A
A report can be made via any means of communication, including in-person recommendation, telephone conversation, media broadcast, and transmission by computer such as on the Internet.
155
(Intermediate) A CFA Institute member puts the following statement on her resume: "I passed each level of the CFA exam on the first try." Is this a violation of Standard VII(B)?
A) Yes, because she incorrectly refers to the CFA exam.
B) No, because it is a statement of fact.
C) Yes, because saying she passed exams on the first try is not appropriate.
B
| The statement is not a violation because it is a fact. However, the member must not go on to claim superior performance.
156
(Basic) A copyrighted technique for measuring the downside risk of an investment has just been revealed to the public. If an analyst adopts the technique, he must cite the use of the technique in all research reports in which the technique is used EXCEPT:
A) Neither of these answers provide grounds for an exception.
B) if the analyst does not modify the technique at all.
C) if the analyst uses reasonable care and verifies that the technique provides superior results.
A
Neither of the answers in this question provide adequate grounds for not citing the source of the methodology. Although "verifying" the technique is a good idea and congruent with the Code and Standards, the analyst still needs to cite the use of the copyrighted technique even after modifying it slightly to avoid violation of Standard I(C), Misrepresentation.
157
(Intermediate) Nancy McCoy, CFA, is preparing a report on Gourmet Food Mart. As part of her research, she contacts the company's contractors, suppliers, and competitors. McCoy is told by the CEO of a major produce vendor that he is about to file a lawsuit against Gourmet Food Mart, seeking significant damages. McCoy incorporates this information into her research report, which projects a decline in profitability for Gourmet Food Mart due to the impending litigation. According to the CFA Institute Standards of Professional Conduct, McCoy:
A) has violated the Standards by utilizing material nonpublic information.
B) has not violated any Standard.
C) has violated the Standards by disseminating confidential information.
A
According to Standard II(A) Material Nonpublic Information, an analyst must not act or cause others to act on material nonpublic information. The information is material to the company's future profitability, and is nonpublic because the lawsuit has not yet been filed and is not yet a matter of public record.
158
(Intermediate) While servicing his clients' accounts, an analyst who is a CFA charterholder, determines that one client is probably involved in illegal activities. According to Standard III(E), Preservation of Confidentiality, the analyst may NOT do which of the following?
A) Contact the appropriate governmental authorities about the determination.
B) There are no exceptions in this list.
C) Contact CFA Institute about the determination.
```
B
Standard III(E) allows an analyst to reveal information about a client to CFA Institute since CFA Institute will keep the information confidential. If the analyst is reasonably certain a law has been violated, an analyst may have an obligation to report the activities to the appropriate authorities. Therefore, neither of the listed actions are exceptions from the analyst's options.
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159
(Intermediate) Nancy Korthauer, CFA, has launched a new hedge fund called the Korthauer Tautology Fund and is actively soliciting clients from competitor's firms. Client presentations are necessarily brief and often take place with the prospective client's current investment advisor in the room. The Code and Standards require that:
A) member or candidate provide (on request) additional detail information which supports the abbreviated presentation.
B) a prospective client's current investment advisor not participate in meetings.
C) all client presentations provide a thorough review of all elements of the investment management process. Abbreviated presentations are forbidden.
A
See Standard III(D). When presentations are brief, additional detail which supports the abbreviated presentation information must be provided on request. Best practice dictates that the member or candidate should make reference to the abbreviated nature of the presentation.
160
(Intermediate) Alan Cramer, CFA, practices in a country that does not regulate the investment of company retirement plans. He was retained by Bingham Companies to manage their corporate pension plan. Bingham's management has approached Cramer and requested that Cramer invest the entire plan in Bingham stock.
Cramer may:
A) invest all of the retirement plan assets in Bingham Company stock according to management's request only if Cramer can document that the investment is more prudent than any other investment opportunity he finds.
B) not invest any of Bingham Company's retirement plan in its own stock regardless of the stock's prospects and in spite of management's request.
C) invest a portion of the retirement plan in Bingham Company stock if the investment is prudent and if he keeps the overall portfolio properly diversified.
```
C
Standard III(A), Loyalty, Prudence, and Care, requires members to comply with their fiduciary duty. Retirement plan managers owe their duty to the plan participants, not to the management of the company sponsoring the plan. The fiduciary duty includes the obligation to diversify the plan's investments, regardless of the quality of the sponsoring company's stock. Investing in the company's stock is not prohibited.
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161
(Intermediate) An analyst needs to inform his supervisor in writing of which of the following?
A) A client and the analyst alternate paying for lunch at a local sandwich shop.
B) 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.
C) Both the lunch and the bonus mentioned in the other answers.
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B (picked C. Lunch is not linked to performance. Also lunch is not really a benefit since they pay alternate paying)
Standard IV(B) requires that members disclose to their employer in writing all benefits that they receive in addition to their regular compensation for services they perform on behalf of their employer. Since the bonus varies with the performance of the client's portfolio, there is a clear link to the services of the analyst. The analyst is not required to report the lunch since it is not linked to performance.
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162
(Intermediate) If an analyst suspects a client or a colleague of planning or engaging in ongoing illegal activities, which of the statements about the actions that the analyst should take is most correct? According to the CFA Institute Standards of Professional Conduct, the analyst should:
A) consult counsel to determine the legality of the activity and disassociate from any illegal or unethical activity if the member has reasonable grounds to believe that the activity is illegal or unethical.
B) consult counsel to determine the legality of the activity.
C) disassociate from any illegal or unethical activity if the member has reasonable grounds to believe that the activity is illegal or unethical.
A
According to the procedures for compliance involving Standard I(A), CFA Institute members should determine legality and disassociate from any illegal or unethical activity.
163
(Intermediate) An ethical decision-making framework:
A) considers alternative actions and unintended consequences.
B) primarily addresses compliance with regulatory issues.
C) focuses on the near term impact on all stakeholders.
A
An ethical decision-making framework is designed to ensure that alternative actions and potential unintended consequences of decisions are considered.
164
(Intermediate) Ned Brenan manages two dozen pension accounts, one of which earned over 25% during the past two years. Brenan tells prospective clients that based on past experience they can expect a 25% return on their funds. Which of the following statements is CORRECT?
A) Brenan has violated both Standard of Professional Conduct III(D), Performance Presentation, and Standard I(C), Misrepresentation.
B) Brenan has violated Standard of Professional Conduct III(D), Performance Presentation, but Brenan has not violated Standard I(C), Misrepresentation.
C) Brenan has not violated Standard of Professional Conduct III(D), Performance Presentation, but Brenan has violated Standard I(C), Misrepresentation.
A
Brenan violated Standard of Professional Conduct III(D) by using only one portfolio's results to create a false impression of all the portfolios, and Brenan violated Standard of Professional Conduct I(C) by creating the impression that a certain return was assured (he should have used the words "might" or "could" instead of "can").
165
(Advanced) An analyst finds a stock with historical returns that are not correlated with interest rate changes. The analyst writes a report for his clients that have large allocations in fixed-income instruments and emphasizes the observed lack of correlation. He feels the stock would be of little value to investors whose portfolios are composed primarily of equities. The clients with allocations of fixed income instruments are the only clients to see the report. According to Standard V(B), Communication with Clients and Prospective Clients, the analyst has:
A) not violated the Standard.
B) violated the Standard concerning fair dealings with all clients.
C) violated the article in the Standard concerning facts and opinions.
A (picked B. Ok to show report to only certain investors for whom the investment is appropriate)
Recommending a stock whose return is uncorrelated with interest rate changes is appropriate for the clients described in the problem. Emphasizing the lack of correlation is appropriate as long as the analyst makes no guarantees concerning the relationship in the future. Reporting historical correlation is a presentation of fact, and is not in violation. The analyst is free to show the report only to investors for whom the investment is appropriate.
166
(Advanced) Wes Smith, CFA, has been working toward the completion of a Master of Science in Finance. He has passed all the necessary courses and written the necessary thesis. He still must defend the thesis in one month. Smith's thesis advisor assures him that he will pass the thesis defense. Smith has new business cards printed with "M.S. in Finance" after his name. This is a violation of:
A) none of the Standards if Smith does not make the cards public until after he defends his thesis and receives his degree.
B) Standard I(C), Misrepresentation.
C) Standard VII(B), Reference to CFA Institute, the CFA Designation, and the CFA Program.
A (picked B. Did not imply distribution. Just printing is OK)
If the cards were distributed today he would be in violation of Standard I(C), Misrepresentation. However, if Smith does not make the cards public until after he receives the degree, there is no violation.
167
(Advanced) Wes Smith, CFA, has been working toward the completion of a Master of Science in Finance. He has passed all the necessary courses and written the necessary thesis. He still must defend the thesis in one month. Smith's thesis advisor assures him that he will pass the thesis defense. Smith has new business cards printed with "M.S. in Finance" after his name. This is a violation of:
A) none of the Standards if Smith does not make the cards public until after he defends his thesis and receives his degree.
B) Standard I(C), Misrepresentation.
C) Standard VII(B), Reference to CFA Institute, the CFA Designation, and the CFA Program.
A (picked B. Did not imply distribution. Just printing is OK)
If the cards were distributed today he would be in violation of Standard I(C), Misrepresentation. However, if Smith does not make the cards public until after he receives the degree, there is no violation.
168
(Basic) The term "material" in the phrase "material nonpublic information" refers to information that is likely to affect significantly the market price of the issuing company's securities or that:
A) is likely to be considered important by reasonable investors in determining whether to trade a particular security.
B) is derived by the financial analyst from direct communication with an issuing company's management.
C) is acquired by the financial analyst from a special or confidential relationship with the issuing company.
A
An item of information is material if its disclosure would be likely to have an impact on the price of a security, or if reasonable investors would want to know the information before investing.
169
(Basic) Standard III(E), Preservation of Confidentiality, applies to the information that an analyst learns from:
A) current clients and prospects only.
B) current clients, former clients, and prospects.
C) current clients and former clients only.
B
According to Standard III(E), Preservation of Confidentiality, an analyst must preserve the confidentiality of information communicated by clients, former clients, and prospects.
170
(Basic) Standard III(E), Preservation of Confidentiality, applies to the information that an analyst learns from:
A) current clients and prospects only.
B) current clients, former clients, and prospects.
C) current clients and former clients only.
B
According to Standard III(E), Preservation of Confidentiality, an analyst must preserve the confidentiality of information communicated by clients, former clients, and prospects.
171
(Basic) An analyst writes a report and includes the forecasts of an econometric model developed by the firm's research department. The analyst identifies the source of the forecast and includes all the relevant statistics concerning the model and his opinion of the model's accuracy. With respect to Standard V(A), Diligence and Reasonable Basis, the analyst has:
A) violated the Standard by not testing the model himself.
B) complied with the Standard.
C) violated the Standard by including quantitative details in a report.
B
Including quantitative details in a report is not a violation of the Standard. The analyst has more of an obligation to give an opinion on the accuracy of the model than withhold such an opinion. Although the analyst should use reasonable care to verify information included in a report, retesting models developed by the research department of a firm is not explicitly required.
172
(Basic) An analyst writes a report and includes the forecasts of an econometric model developed by the firm's research department. The analyst identifies the source of the forecast and includes all the relevant statistics concerning the model and his opinion of the model's accuracy. With respect to Standard V(A), Diligence and Reasonable Basis, the analyst has:
A) violated the Standard by not testing the model himself.
B) complied with the Standard.
C) violated the Standard by including quantitative details in a report.
B
Including quantitative details in a report is not a violation of the Standard. The analyst has more of an obligation to give an opinion on the accuracy of the model than withhold such an opinion. Although the analyst should use reasonable care to verify information included in a report, retesting models developed by the research department of a firm is not explicitly required.
173
(Basic) Dixie Miller, a Level II CFA candidate, heads the research department of a large brokerage firm. The firm has many analysts, some of whom are subject to the CFA Institute Code of Ethics and Standards of Professional Conduct. If Miller delegates some of her supervisory duties, which statement best describes her responsibilities under the CFA Institute Code and Standards?
A) CFA Institute Standards prevent Miller from delegating supervisory duties to subordinates.
B) Miller retains supervisory responsibilities for those duties delegated to her subordinates.
C) Miller's supervisory responsibilities do not apply to those subordinates who are not subject to the CFA Institute Code and Standards.
B
Even though members may delegate supervisory duties, such delegation does not relieve members of the supervisory responsibility.
174
(Advanced) May Frost, CFA, is concerned about the comments and activities of several of her coworkers and feels both ethical and legal violations are routinely overlooked. According to the Code and Standards, a recommended first step would least likely be to:
A) provide her supervisor with a copy of the Code and Standards.
B) contact industry regulators.
C) review the company's policies and procedures for reporting ethical violations.
B (Picked C, it says least likely)
See Standard IV(A) "Loyalty." Frost should begin by reviewing the company's policies and procedures for reporting ethical violations and provide her supervisor with a copy of the Code and Standards to highlight the high level of ethical conduct she is required to follow.
175
(Advanced) Which of the following statements is least accurate regarding being a part of Standard III(B), Fair Dealing?
A) Maintain a list of clients and their holdings.
B) At the same time notify clients for whom an investment is suitable of a new investment recommendation.
C) Shorten the time between decision and dissemination.
B (picked C)
All of these are part of Standard III(B) except notifying clients at the same time. Standard III(B) states that clients for whom the investment is suitable should be notified at approximately the same time.
!! only approximate is fine. 是个经常考的点
176
(Basic) At the time of its initial public offering (IPO), a mutual fund is invested primarily in junk bonds. As part of its strategy, it is also invested in some zero-coupon U.S. Treasury bonds. The amount of the investment in the Treasury bonds is such that their maturity value equals 90% of the current value of the fund. Which of the following may a CFA Institute member say to her clients concerning the fund at issuance?
A) The fund is virtually default risk free.
B) A CFA Institute member may not make either of these statements.
C) Since the fund is backed by the U.S. government, you know you will get your money back.
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B
Standard I(C), Misrepresentation, prohibits making statements that mention a guarantee of returns or misrepresent the true nature of the investment.
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177
(Advanced) The CFA Institute Code of Ethics specifies that CFA Institute Members and Candidates must do all of the following EXCEPT:
A) refrain from any conduct that compromises the reputation or integrity of the CFA designation.
B) use reasonable care and exercise independent professional judgment when engaging in professional activities.
C) act with integrity, competence, diligence, respect, and in an ethical manner.
A
Not compromising the reputation or integrity of the CFA designation is a part of the Standards of Professional Conduct, but is not specifically mentioned the Code of Ethics.
*should distinguish between code of ethics and prof conduct
178
(Advanced) Ted Riczek, CFA, is an independent investment advisor. Riczek often makes investment recommendations to clients based on research from several third-party sources. The Code and Standards most likely require Riczek to:
A)
disclose to his clients the sources of any third-party research that supports his recommendations.
B)
make a reasonable effort to verify that the third-party research is sound.
C)
perform his own research rather than relying on third-party research.
```
B (Picked A betwen A and B, no need to specify source of third-party research)
Standard V(A) Diligence and Reasonable Basis states that members and candidates who rely on third-party research must make reasonable efforts to ensure that the research has a sound basis. According to Standard I(C) Misrepresentation, if members and candidates use third-party research they should disclose this fact to clients, but the Standards do not require disclosure of the specific sources.
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179
(Intermediate) Connie Baker, CFA, is an analyst with the brokerage and investment banking firm Hill and Stevens (H&S). Baker's supervisor, John Lewis, has asked her to write a research report on Jagged Rock Brewing. The H&S mergers and acquisitions department has represented Jagged Rock in all of its acquisitions for the past 12 years. Both Hill and Stevens sit on Jagged Rock's board. According to the Standards of Professional Conduct, can Baker write the report?
A) Yes, if she discloses the directorships and the mergers-and-acquisitions relationship.
B) Yes, if she maintains her independence and objectivity in its preparation.
C) No.
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A (picked C)
Standard VI(A) Disclosure of Conflicts requires that members disclose to clients and prospects any potential conflicts of interest that could reasonably expect to impair their objectivity. It does not prohibit analysts with potential conflicts from writing the reports.
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180
(Intermediate) Which of the following statements regarding employee/employer relationships is NOT correct?
A) There must be monetary compensation for an employer/employee relationship to exist.
B) A written contract may or may not exist between employer and employee.
C) An employee is someone in the service of another.
A
| Monetary compensation is not a requirement of the employee/employer relationship.
181
(Intermediate) Lance Tuipulotu, CFA, is a portfolio manager for an investment advisory firm. He plans to sell 10,000 shares of Park N'Wreck, Inc. to finance his daughter's new restaurant venture, but his firm recently upgraded the stock to "strong buy." In order to remain in compliance with Standard VI(B) "Priority of Transactions," Tuipulotu must:
A) notify his firm of his intention to sell the shares before selling the shares.
B) delay selling the shares until a firm client makes an offsetting purchase to avoid having a market impact.
C) not sell the shares of Park N'Wreck.
A
Standard VI(B) "Priority of Transactions" does not prohibit Tuipulotu from trading opposite the firm's recommendation, but he should notify his firm first. Note that if Tuipulotu were a research analyst covering Park N'Wreck, he may be prevented from selling the security if his firm claims compliance with the CFA Institute's Research Objectivity Standards.
??
182
(Intermediate) Ethyl Redd recently joined Bloomington Investments as a research analyst. After spending an afternoon looking through the research team's archives, Redd is not sure Bloomington maintains the records that support the team's analysis and recommendations for the minimum 7-year period called for by Standard V(C), Record Retention. What is Redd's most appropriate course of action?
A) Keep her own copies of the relevant records and maintain them at home for a minimum 7-year holding period.
B) Review the firm's record retention procedures with her supervisor or compliance officer to ensure that they comply with the Standard, or suggest ways to bring them into compliance.
C) Decline to participate in any new research until she can verify that the firm is in compliance with the Standard.
```
B
Standard V(C), Record Retention requires that members maintain all records supporting analysis, recommendations, actions, and all other investment related communications with clients and prospects. The recommended procedures for compliance with Standard V(C) state that the record-keeping requirement is generally the firm's responsibility. These records are the property of the firm, so Redd keeping her own copies at home could potentially violate Standard IV(A), Loyalty. Redd's best course of action is to review the firm's procedures with her supervisor and recommend any improvements that are necessary to bring them into compliance with Standard V(C).
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183
(Advanced) Bjorn Sandvik, CFA, completes a research report with a buy recommendation for Acorn Properties. In the early afternoon, Sandvik e-mails this recommendation to his clients who had responded to his request that they provide Sandvik with their e-mail addresses. Later that afternoon, the printed recommendation is forwarded to the postal service for normal delivery to all customers, who receive the mailing 1 to 3 days later. Sandvik has:
A) violated the Code and Standards by sending the e-mail recommendation to only some of his clients.
B) violated the Code and Standards by sending the e-mail recommendation in advance of the printed report.
C) not violated the Code and Standards because he acted fairly in disseminating research information to his clients.
```
C
Standard III(B) Fair Dealing requires that members deal fairly with all clients in disseminating investment recommendations. It does not require uniform or equal treatment. Sandvik's approach in sending e-mail correspondence to those of his clients who had given him their e-mail addresses, having made the request to all of his clients, and sending regular mail correspondence the same day, is fair to all of his clients.
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184
(Basic) Stephanie Orange, Level II CFA candidate, posts blogs for her exam study group three days after the exam to vent her frustrations over the exam. However, to avoid disclosing what was actually on the exam, she only discusses topic areas she thought would be on the exam that were not. She writes "...the topics selected were unnecessarily obscure. Important items like FCF, DDM, and Residual Income were ignored completely..." Orange is most likely:
A) not in violation because the information about the actual exam contents was posted only after the conclusion of the exam.
B) in violation of Standard VII(A) "the Code and Standards" for providing confidential information about the exam.
C) not in violation because the information was only about what was not on the exam.
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B (Picked A..apparently can't talk about the exam even afterwards...)
Standard VII(A) Conduct as Participants in CFA Institute Programs prohibits members and candidates from providing confidential information about the exam - even after the conclusion of the exam. Examples include broad topical areas tested or not tested.
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185
(Intermediate) In preparing research reports, which of the following is least likely required or recommended by the Code and Standards?
A) Attribute paraphrases and summaries of material prepared by others.
B) Send all reports to the firm's legal counsel to ensure compliance with securities laws.
C) Maintain copies of materials that were relied on in preparing the research report.
B
| Members do not need to send all reports to the firm's legal counsel to ensure compliance with securities laws.
186
(Advanced) Patricia Young is an individual investment advisor who uses a computer model to place each of her clients into an appropriate portfolio. The model analyzes a range of simulated portfolios and computes for each the probabilities of achieving various levels of return. Young then selects the portfolio that provides the highest probability of achieving the clients' minimum required return. By using this process, Young is:
A) violating Standard III(C) - Suitability.
B) violating Standard I(C) - Misrepresentation.
C) not violating the Standards.
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A!!
Standard III(C) Suitability requires that Young select investments that are consistent with clients' risk and return objectives. However risk tolerance is not adequately addressed by Young's process.
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187
(Intermediate) Mark Roberts has resigned from a local investment advisory firm and begun working at Benjamin Investments. Without getting approval from his supervisor at Benjamin, Roberts uses a phone book to find the contact information of his old clients and asks for their continued business. Has Roberts violated any CFA Institute Standards of Professional Conduct?
A) Yes, because he is not allowed to solicit his former clients.
B) No.
C) Yes, because he must obtain written consent from his current supervisor.
B
Roberts has not violated the Standards. According to Standard IV(A) Loyalty, Roberts may solicit his old clients providing he does not use any records from his prior employer without permission. Roberts may use publicly available information, such as a phone book, to contact his former clients.
188
(Advanced) A stockbroker who is a member of CFA Institute has a part-time housekeeper who also works for the CEO of Festival, Inc. One day the housekeeper mentions to the broker that she saw the CEO of Festival having a conversation at his home with John Tater, who is a nationally known corporate lawyer and consultant. The stockbroker is restricted from trading on this information:
A) for both of the reasons listed here.
B) only if the broker knows that the meeting is non-public information.
C) if the housekeeper says the meeting concerned a tender offer and the broker knows that it is non-public information.
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C
Standard II(A), Material Nonpublic Information, states "a member cannot trade or cause others to trade in a security while the member possesses material nonpublic information" A tender offer would certainly be material nonpublic information. Knowing that the meeting took place, and nothing else, does not restrict the broker. A reasonable investor would need to know more to determine if the information was material.
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189
(Basic) When using the CFA designation, which of the following is appropriate?
A) "I am a CFA charterholder."
B) "I am a CFA."
C) Jones CFA's, Inc.
A
The only appropriate use of the designation is "I am a CFA charterholder." You cannot use the designation as a noun (as in "I am a CFA") and you cannot use the designation in the company name.
Adj. - A - Allowed
Noun - N - Not
190
(Advanced) Recommended procedures to comply with the Standard concerning priority of transactions are least likely to include:
A) limited front-running by employees.
B) disclosure to clients of the firm's policies in regard to personal investing.
C) blackout periods.
```
A!!
Standard VI(B) Priority of Transactions. Front-running is the purchase or sale of securities in advance of client trades to take advantage of knowledge of client activity and should be completely prohibited, not simply limited. Blackout periods and pre-clearance of employee trades are ways of accomplishing this.
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191
(Intermediate) In securing the shares for all accounts under her management, Linda Kammel of Northwest Futures purchased three blocks of shares at three different prices. She then allocated these shares by placing shares from the first block in accounts with surnames beginning with A-G. The second was allocated over accounts H-P, and the third over Q-Z. This action is:
A) not permissible under the Code and Standards.
B) permissible only if the clients are informed of the allocation procedure.
C) consistent with her responsibilities under the Code and Standards.
```
A (Picked C)
Standard III(B) requires a member to deal fairly with all clients when taking investment actions. Since she knew at the outset that she was going to place shares in all accounts, regardless of the first letter of the surname, all accounts must participate on a pro-rata basis in each block in order to conform to the Standard. Her actions constitute a violation of the Standard concerning fair dealing.
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192
(Intermediate) Dan Jeffries is a portfolio manager who is being sued by one of his clients for inappropriate investment advice. The Professional Conduct Program of CFA Institute is investigating Jeffries for the same offense. Jeffries settles the lawsuit with the client while the Professional Conduct Program investigation is ongoing. When the Professional Conduct Program staff questions Jeffries about the problematic investment advice, Jeffries claims he cannot talk about it because doing so would violate the confidentiality of his client. Jeffries has:
A) violated the Standards by executing the settlement agreement, but not by refusing to talk about the case with the Professional Conduct Program.
B) violated the Standards by refusing to talk about the case with the Professional Conduct Program, but not by executing the settlement agreement.
C) not violated the Standards by executing the settlement agreement or by refusing to talk about the case with the Professional Conduct Program.
B
Because the Professional Conduct Program will maintain client confidentiality, Standard III(E) Preservation of Confidentiality does not permit members to refuse to cooperate with a PCP investigation because of confidentiality concerns. The Standards do not require members to delay dealing with related legal matters while a PCP investigation is in progress.
193
(Advanced) An analyst has found an investment with what appears to be a great return-to-risk ratio. The analyst double-checks the data for accuracy, keeps careful records, and is careful to not make any misrepresentations as he simultaneously sends an e-mail to all his clients with a "buy" recommendation. According to Standard V(A), Diligence and Reasonable Basis, the analyst has:
A) violated the Standard if he does not verify whether the investment is appropriate for all the clients.
B) violated the Standard by communicating the recommendation via e-mail.
C) fulfilled all obligations.
C (Picked A. Manager and analyst duties are different?!)
If the analyst had been an investment manager, it would have been inappropriate for him to make a blanket recommendation for all of his clients without considering the unique needs of each. However, the analyst is merely stating that given the qualities of the investment, it is an attractive buy. He has kept adequate records, and made fair disclosure of his rating decision.
194
(Intermediate) 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) in violation of his fiduciary duties regarding the municipal bond research but not so regarding the research on the small cap issues.
B) not in violation of the Code and Standards.
C) in violation of his fiduciary duties regarding both the small cap research and the municipal bond research.
A
The issue at hand is the member's fiduciary responsibilities in handling "soft dollars" which are technically the property of the client. Standard III(A), Loyalty, Prudence, and Care, delineates the member's fiduciary responsibilities with regard to soft dollars. Since municipal bond research is clearly not relevant to the Small Cap Fund holders, he is clearly using the soft dollars to obtain research for his personal benefit and is in violation of the Standard.
195
(Basic) Jane Talbot, CFA, is a portfolio manager at Cavalier Investments. Talbot manages the account of Wendall Wilcox. The performance of Wilcox's portfolio has been below that of the benchmark portfolio, the S&P 500, for the past several years. In an effort to enhance his portfolio's performance, Wilcox offers to pay Talbot $2,000 each year that his portfolio's return exceeds that of the S&P 500. Wilcox suggests this arrangement last for the next three years. The amount that Wilcox agrees to pay Talbot is in addition to the compensation that Talbot will receive from his employer and the standard fee that Wilcox will pay Cavalier for managing his portfolio over the three-year period. Talbot agrees to the arrangement proposed by Wilcox and informs Cavalier in writing of the terms of the agreement under which she will receive additional compensation. According to CFA Institute Standards of Professional Conduct Talbot must disclose:
A) the nature and amount of compensation plus the duration of the agreement.
B)both the nature and amount of compensation only.
C) the nature of the compensation only.
A
Procedures for compliance for Standard IV(B) indicate that the written report should state the terms of any oral or written agreement under which Talbot will receive additional compensation including the nature of the compensation, the amount of compensation and the duration of the agreement.
196
(Intermediate) A stockbroker who is a CFA Institute member is called on the telephone by the CEO of a large company. The CEO asks to buy shares of the CEO's company for the accounts of the CEO's children. In the course of the conversation, the CEO says this will really pay off when the upcoming takeover goes through. The stockbroker checks her sources and finds no information about the takeover. In this case the broker should:
A) do neither of the actions listed here.
B) execute the order for all clients as required by Standard III(B), Fair Dealing.
C) only execute the order in compliance with Standard III(A), Loyalty, Prudence, and Care. Since the client is buying the stock for the children, there is not a problem.
A
Doing any of these actions would be a violation of Standard II(A), Material Nonpublic Information. Members and Candidates must not act or induce others to act on material nonpublic information.
197
(Intermediate) A member or candidate who suspects that a colleague is violating the law should most appropriately:
A) report all illegal activities to the appropriate regulatory agency.
B) consult with the company counsel to determine if in fact a law is being violated.
C) report the illegal activity to CFA Institute Professional Standards Review Board for action.
B
According to Standard I(A), Knowledge of the Law, members and candidates shall not knowingly participate or assist in any violation of laws, rules, regulations, or the Code and Standards.
When members suspect a client or a colleague of planning or engaging in ongoing illegal activities, members should take the following actions:
- Consult counsel to determine if the conduct is, in fact, illegal.
- Disassociate from any illegal or unethical activity. When members have reasonable grounds to believe that a client's or employee's activities are illegal or unethical, the members should disassociate from these activities and urge their firm to attempt to persuade the perpetrator to cease such activity.
Note: The Code and Standards do not require that members report legal violations to the appropriate governmental or regulatory organizations, but such disclosure may be prudent in certain circumstances.
198
(Intermediate) Brenda Simone is a money manager and the Blue Streets Pension Fund is one of her clients. The director of the pension fund calls Simone and asks her to use a particular broker so that the fund can obtain some research services with the soft dollars from that broker. Simone believes that the desired broker will provide the same price and execution as the normal broker that Simone uses. Simone does as the client wishes. Simone has:
A) violated the Standards.
B) not violated the Standards as long as the research provided by the broker will benefit the plan beneficiaries.
C) not violated the Standards as long as the research provided by the broker will benefit Blue Streets.
B
Simone must ensure that the research benefits the parties to whom she owes fiduciary duty, which are the plan participants.
199
(Basic) Unethical behavior by a financial professional harms:
A) only clients and other employees.
B) clients, other employees, and society.
C) only clients.
B
By reducing trust in the financial services profession, unethical behavior can harm clients, other financial services employees, and society, by increasing the perceived risk of investing, increasing the cost of capital, and affecting the allocation of capital for the entire economy.
200
(Intermediate) Wes Smith, CFA, works for Advisors, Inc. In order to remain in compliance with Standard V(A), Diligence and Reasonable Basis, Smith may recommend a security in which of the following situations?
A) For either of the reasons listed here.
B) Smith reads a favorable review of the security in a widely read periodical.
C) Advisors' research department recommends a stock.
C
Smith will be in violation if he acts solely on the basis of what he read in the periodical. Use of information within the firm can be relied upon unless the Smith has reason to believe the source lacks a sound basis.
201
(Basic) Edwin McNeill, CFA, is a senior trader for Grey Securities. In his monthly review of his team's activity, McNeill notices a series of suspicious trades by one of the traders. McNeill consults his manager, who agrees that these trades are a potential violation. McNeill informs the trader that her duties will be restricted while these trades are being investigated and refers the matter to Grey's compliance officer for further action. McNeill has:
A) violated Standard IV(C) Responsibilities of Supervisors by failing to prevent a potential violation.
B) violated Standard IV(C) Responsibilities of Supervisors by restricting the trader's duties before the investigation is completed.
C) not violated the Standards.
C
By reviewing the employee's conduct, restricting the employee's activities while investigating a potential violation, and referring the matter to his manager and compliance officer, McNeill acted properly according to Standard IV(C) Responsibilities of Supervisors. Wrongdoing by a subordinate does not mean the manager has violated Standard IV(C) as long as the manager has made reasonable efforts to detect and prevent violations.
202
(Intermediate) A money management firm has created a new junk-bond fund. When the firm advertised the new fund at its issuance, they used care to accurately compute the returns from the past 10 years for all assets in the fund. The firm used the current portfolio weights to determine an average annual historical return equal to 18% and claim an 18% annual historical return in their advertising literature. With respect to Standard III(D), Performance Presentation, this is:
A) a violation because the advertisement implies the firm generated this return.
B) a violation because the Standard prohibits computing historical returns on risky assets like junk bonds.
C) in compliance.
A
Reporting the historical returns of all assets now in the fund introduces a survivorship bias. Also, the advertisement is misleading because the fund just came into existence and has no historical record. Thus, the firm has misled the public as to their performance history.
203
(Intermediate) When Wes Smith first joined Advisors, Inc., he was excited that all the analysts at the firm had the CFA designation. In letters to prospective clients, he states that this ensures that Advisors can provide better service than their competitors. With respect to Standard VII(B), Reference to CFA Institute, the CFA Designation, and the CFA Program, this is:
A) a violation because he mentions the CFA designation in the letter.
B) a violation for both mentioning the CFA designation and saying the firm can guarantee better service.
C) a violation because he cannot guarantee better service.
C
According to Standard VII(B), the analyst cannot guarantee better service. Smith can mention the fact that all analysts have the designation, but he is limited in what he can say with respect to this fact. He could say, for example, that this means the analysts all had to take and pass three rigorous exams.
204
(Intermediate) Which of the following is a violation of Standard II(B), Market Manipulation?
A) Overstating an earnings projection in order to increase the price of a stock.
B) Engaging in a block trade to limit the effect on the price of a thinly traded security.
C) Implementing a trading strategy to exploit differences in market power and information.
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A
Standard II(B), Market Manipulation, is not intended to prohibit transactions that are done in order to minimize income taxes or trading strategies that are not intended to distort prices or artificially inflate trading volume. Overstating earnings projections in order to increase the price of a stock is a direct violation.
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205
(Intermediate) Jerry Brock, CFA, is a partner in a small investment advisory firm that caters to high net worth individuals. He has experienced a number of personal and financial setbacks over the past two years and has filed for bankruptcy protection. Has Brock violated CFA Institute Standards of Professional Conduct?
A) No, but he must disclose the bankruptcy filing to his clients.
B) No, unless his personal financial difficulties result from actions that reflect adversely on his honesty and integrity.
C) Yes, because a member must conduct both their personal and professional business in a manner that protects their reputation and integrity.
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B
Standard I(D) Misconduct prohibits members from participating in any professional conduct that reflects adversely on their professional reputation or integrity. Declaring personal bankruptcy does not, by itself, reflect adversely on the individual's integrity or trustworthiness. If the circumstances of the bankruptcy included any fraudulent or deceitful conduct on the part of the member, then that would be considered a violation.
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206
(Advanced) 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) must cease distributing the cards with the CFA designation and the existing promotional materials.
B) can continue to use the existing promotional materials, and can use the cards until his supply runs out-his new cards cannot have the designation.
C) must cease distributing the cards with the CFA designation, but can continue to use the existing promotional materials.
C
| Use of the CFA designation must be stopped immediately, however, the receipt of the Charter is a matter of fact.
207
(Intermediate) Wallace Manaugh, CFA, is analyzing the stock of a manufacturer of fishing boats. By analyzing public information, speaking with the firm's suppliers and customers, and counting the new boats in the company's boat yard, Manaugh concludes that the company's new fishing boat is not meeting sales expectations. Anticipating that this will cause the stock price to decline, Manaugh takes a short position in the stock. Manaugh has:
A) not violated CFA Institute Standards.
B) violated the Standards by acting on nonpublic information.
C) an obligation under the Standards to make reasonable efforts to achieve public dissemination of the nonpublic information.
A
Under the mosaic theory, financial analysts are free to combine public information with nonmaterial nonpublic information and act based on their conclusions.
B - Standard II(A) prohibits members and candidates from acting or causing others to act on 「material」 nonpublic information.
C - The obligation to make the reasonable efforts to achieve public dissemination of nonpublic information applies to situations in which the company discloses information to the analyst that has not yet been made public.
208
(Intermediate) Todd Gable, CFA, was attending a noon luncheon when he overheard two software executives talking about a common vendor, Datagen, about how wonderful they thought the company was, and about a rumor that a major brokerage firm was preparing to issue a strong buy recommendation on the stock. Gable returned to the office, checked a couple of online sources, and then placed an order to purchase Datagen in all of his discretionary portfolios. The orders were filled within an hour. Three days later, a brokerage house issued a strong buy recommendation and Datagen's share price went up 20%. Gable then proceeded to gather data on the stock and prepared a report that he dated the day before the stock purchase.
Gable has:
A) violated the Standards by improper use of inside information.
B) violated the Standards by not having a reasonable basis for making the purchase of Datagen.
C) violated the Standards by using the recommendation of another brokerage firm in his report.
B (Picked A. The overheard conversation is not inside info since it's rumor)
Standard V(A) requires members to have a reasonable and adequate basis for taking investment actions. Overhearing a conversation does not provide adequate basis. It is not improper to use overheard conversations that do not include inside information, nor is it improper to reference another firm's report to substantiate adequate basis, if the other report is justified.
209
(Advanced) Jane Dawson, CFA, an analyst at a New York brokerage firm, suspects that Bob Boatman, CFA, another analyst at the same firm, has violated a state securities law. According to the CFA Institute Standards of Professional Conduct, Dawson is:
A) NOT required to report the violation to the appropriate governmental or regulatory organizations.
B) required to report the suspected violation to the appropriate state regulatory agency.
C) required to report the suspected violation to CFA Institute.
A! regularly tested questions! Only require disassociation and involve legal counsel
The Code and Standards do not require that members report legal violations to the appropriate governmental or regulatory organizations, but such disclosure may be prudent in certain circumstances. Dawson should consult legal counsel and disassociate from the activity.
210
(Basic) According to CFA Institute Standards of Professional Conduct, which of the following statements about material nonpublic information is NOT correct? Information is:
A) nonpublic until it has been disseminated to a select group of investors.
B) material if reasonable investors would want to know the information before making an investment decision.
C) nonpublic until it has been disseminated to the marketplace in general.
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A
Standard II(A), Material Nonpublic Information, states that information is "nonpublic" until it has been disseminated to the marketplace in general as opposed to a select group of investors.
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211
(Intermediate) An analyst who is a member of CFA Institute has composed an introductory information packet for her new clients, which includes information on fees she receives for referring clients to other professionals and those she pays for having clients referred to her. With respect to Standard VI(C), Referral Fees, this action:
A) may not satisfy the Standard if such information is only provided after the receivers of the information have become clients.
B) is not addressed in the Standard.
C) exceeds the requirement of the Standard because she does not need to reveal the fees she pays to those that refer clients to her.
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A
Standard VI(C) says that a member must reveal information both on fees she receives for referring clients to other professionals and those she pays for having clients referred to her before a prospect becomes a client. This allows the prospect to evaluate any partiality of a recommendation and the full cost of the services.
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212
(Intermediate) All of the following activities might constitute a violation of Standard IV(A), Loyalty to Employer, EXCEPT:
A) misuse of confidential information.
B) solicitation of the employer's clients following termination of employment.
C) solicitation of the employer's clients prior to termination of employment.
B
Solicitation of the employer's clients prior to termination of employment would constitute a violation of Loyalty to Employer, but solicitation of clients following termination would not.
213
(Intermediate) With respect to CFA Institute enforcement of the Code and Standards, possible disciplinary sanctions least likely include:
A) payment of a fine.
B) public censure.
C) suspension from participation in the CFA Program.
A
CFA Institute does not impose fines. CFA Institute may impose sanctions including
- public censure,
- suspension of a candidate from participation in the CFA program, or
- suspension or revocation of a member's right to use the CFA designation.
214
(Intermediate) A client calls his money manager and asks the manager to liquidate a large portion of his assets under management for an emergency. The manager warns the client of the risk of selling many assets quickly but says that he will try to get the client the best possible price. This is a violation of:
A) Standard III(C), Suitability.
B) none of the Standards listed here.
C) Standard V(A), Diligence and Reasonable Basis.
B
The money manager has done his duty. He has warned the client of the risk and made no explicit promises concerning what he can and cannot do.
215
(Intermediate) CFA Institute Standards of Professional Conduct are most accurately described as being based on:
A) a code of ethics.
B) the best interests of members and candidates.
C) accepted legal standards.
A!!
| The Standards of Professional Conduct are based on principles stated in the CFA Institute Code of Ethics.
216
(Intermediate) A CFA charterholder who comes to work intoxicated is:
A) in violation of Standard I(D) concerning professional misconduct.
B) not in violation of the standards.
C) in violation of Standard IV(A) concerning duties to employer.
A
Being intoxicated at work is poor personal behavior. It is a violation of Standard I(D), which covers professional competence and integrity.
217
(Intermediate) Bertha Mader, CFA, received proxy material related to a hostile takeover attempt of Danube Industries by Balnet Company. She holds shares of Danube in most of her client accounts. Mader has a high opinion of Danube's management because they have run the company successfully and have always responded directly and honestly to her inquiries. She is not acquainted with Balnet's management team but knows they have a reputation for improving the bottom line at the companies they acquire, partly because they tend to replace upper management at their targets and assume their functions. Balnet's offer is 60% higher than the price of Danube shares before the announcement. Danube's management has contacted Mader and requested that she vote the shares she controls against the takeover because the management is concerned for their jobs and for the welfare of the company. To comply with the Code and Standards, Mader should:
A) vote for the takeover if it is in the best interest of Danube's shareholders, regardless of the consequences to current management.
B) delegate her proxy vote to another member of her firm due to the conflict of interest created when she was contacted by management.
C) vote for the takeover if she can get assurance that Danube's management team will remain in place.
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A
Standard III(A), Loyalty, Prudence, and Care, requires that members act for the benefit of their clients. Mader's duty is to her clients, who are shareholders of Danube. She has no duty to Danube's management, nor to the company itself, and must vote the shares accordingly.
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218
(Basic) While working on her report, Jean Paul, CFA, learns from her friend in the investment banking department that the company she is analyzing can expect a tender offer very soon. Concerning this conclusion, Paul can:
A) not trade on it because it is material nonpublic information.
B) trade on it, because it is public information.
C) trade on it, because she figured it out by herself.
A
According to Standard II(A), Material Nonpublic Information, an analyst is prohibited from trading on information that is both material and nonpublic.
219
(Basic) While working on her report, Jean Paul, CFA, learns from her friend in the investment banking department that the company she is analyzing can expect a tender offer very soon. Concerning this conclusion, Paul can:
A) not trade on it because it is material nonpublic information.
B) trade on it, because it is public information.
C) trade on it, because she figured it out by herself.
A
According to Standard II(A), Material Nonpublic Information, an analyst is prohibited from trading on information that is both material and nonpublic.
220
(Advanced) 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(A) "Knowledge of the Law."
C) decline to attend the event as it could result in a violation of Standard I(B) "Independence and Objectivity."
C (picked A....idk what i was thinking)
Perez should decline the invitation as it creates the impression of lack of independence. If he does not accept the free continuing education courses, he would have to pay for them some other way so the free courses are a form of compensation. Nothing in the vignette suggests the free classes are illegal.
221
(Advanced) 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(A) "Knowledge of the Law."
C) decline to attend the event as it could result in a violation of Standard I(B) "Independence and Objectivity."
C (picked A....idk what i was thinking)
Perez should decline the invitation as it creates the impression of lack of independence. If he does not accept the free continuing education courses, he would have to pay for them some other way so the free courses are a form of compensation. Nothing in the vignette suggests the free classes are illegal.
222
(Basic) Which one of the following constitutes the illegal use of material nonpublic information?
A) Trading on information your sister, the firm's attorney, told you over dinner.
B) Trading based on your analytical review of the firm's future prospects.
C) Trading immediately after attending the firm's annual shareholders' meeting.
A
Members may not trade on material nonpublic information; therefore, the information conveyed by the firm's attorney may not be used by a member for trading purposes.
223
(Advanced) Susan Nielsen, CFA, works for a rating agency which competes directly with S&P and Moody's. Her friend, Lance Parker, works for the same company but in a different department which is involved in advisory services for structured products. Nielsen frequently receives pressure from Parker to "put a positive face" on client ratings to help him sell advisory services. She is reluctant to discuss client ratings with Parker and tries to avoid the topic. She consults her company's compliance department and learns that there are no policies or procedures to discourage Nielsen and Parker from sharing information and is encouraged to consider his advice on company ratings. Nielsen should feel least obligated to:
A) avoid talking with Parker about client ratings.
B) advise regulators of the potential conflict of interest and seek legal counsel.
C) advise her firm to develop firewalls.
B
Nielsen should advise her firm to develop firewalls and protections to allow the different departments to function independently. If Nielsen and Parker are going to remain friends, they should stop talking about client ratings.
224
(Intermediate) Mark Williamson is "bearish" on ABC Manufacturing Company. Williamson is so convinced that ABC is overpriced, two weeks ago, he shorted 100,000 shares. Today, Williamson is "surfing" several popular investment bulletin boards on the internet and posting false derogatory comments about company management. According to Standard II(B), Market Manipulation, Williamson has engaged in:
A)
information-based manipulation, but not transaction-based manipulation.
B)
transaction-based manipulation, but not information-based manipulation.
C)
both transaction-based manipulation and information-based manipulation.
A
Williamson is in violation of Standard II(B), Market Manipulation, by engaging in information-based manipulation. Information-based manipulation includes, but is not limited to, spreading false rumors about a firm in order to induce others to trade.
Transactions based manipulations include: transactions that deceive the market by distorting the price-setting mechanism of financial instruments or by securing a controlling position to manipulate the price of a related derivative and/or the asset itself.
225
(Basic) 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) must disclose the benefits received for referring clients to the law firm.
B) need not disclose the benefits received for referring clients because the clients were developed in the course of his accounting practice.
C) need not disclose the benefits received for referring clients because no compensation is received.
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A
Standard VI(C), Referral Fees, requires members to disclose to clients and prospects any consideration or benefit received by the member or delivered to others for the recommendation of any services to a client or prospect. James has received a benefit (free tickets), which must be disclosed to the clients referred by James. Disclosure will allow the clients to determine any partiality of the recommendation.
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226
(Intermediate) Sandra Bulow, CFA, is responsible for updating her employing firm's website to include changes in analysis techniques and trading procedures. She is often very delinquent in making these changes, despite working extensive hours. She is aware clients are using the website to make investment decisions, and has received complaints from the sales department as the information on the website if often different from what is presented in sales meetings. Bulow is most likely:
A) in violation of Standard III(B) "Fair Dealing."
B) in violation of Standard I(C) "Misrepresentation."
C) not in violation of any Standard.
B
Bulow is most likely in violation of Standard I(C) "Misrepresentation." The web site information is erroneous, and needs to be updated to match the firm's current practices.
227
(Basic) May Frost, CFA, is an equity research analyst for a "precious metals mining" exchange traded fund which has recently started significantly outperforming its benchmark after several years of stagnation. Upon investigating the source of the outperformance, Frost learns that the fund has experienced severe style drift, and now has a significant proportion of its resources invested in technology and Internet stocks. Frost reviews the fund's prospectus and learns the current sector weighting violates multiple prospectus covenants. Frost contacts her supervisor and the fund's compliance department and is told the portfolio weighting is not her responsibility and that she should not pursue the matter further. Frost reviews the firm's whistleblower policy, contacts personal legal counsel, and then contacts regulatory authorities regarding the style drift and prospectus violations. Frost is most likely:
A) not in violation of the Code and Standards.
B) in violation of Standard III(E) "Preservation of Confidentiality."
C) in violation of Standard IV(A) "Loyalty."
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A
Standard IV(A) "Loyalty" does not necessarily prohibit Frost from whistleblowing actions. Frost has properly contacted her supervisor and the compliance department, and has reviewed her firm's whistleblower policy.
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228
(Intermediate) The use of client brokerage by an investment manager to obtain certain products and services to aid the manager in the investment decision-making process is called:
A) trading practices.
B) quid pro quo practices.
C) soft dollar practices.
C
| Directing client brokerage for research and/or services is called soft dollar practices.
229
(Intermediate) 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) an increased allocation of Treasury bills (T-bills) for all portfolios of assets that have increased dramatically in the previous year.
C) neither of these choices.
C
An analyst should not make a recommendation based only upon a statistical anomaly. Furthermore, none of the other choices would be appropriate. Clients with low risk tolerance should not short sell assets. The analyst cannot make a recommendation to all clients because each client has different characteristics and portfolios. The one answer that may have some merit is to increase the allocation of T-bills in portfolios that have had recent, dramatic increases. This would be for the purposes of maintaining a balanced portfolio. But the decision to rebalance must be made on a case-by-case basis and not for all portfolios.
230
(Intermediate) A member or candidate who rejects a disciplinary sanction proposed by the Professional Conduct Program:
A) may request an appeal to a hearing panel.
B) will typically not be subject to further disciplinary procedure unless a new investigation is initiated.
C) will be suspended from membership or participation in the CFA Program.
A
| A member or candidate may accept a proposed disciplinary sanction or request an appeal to a hearing panel.
231
(Advanced) The Securities and Exchange Board of India (SEBI) has just enacted a new stock-trading rule. SEBI will give brokers a 10-day grace period, during which violators of the rule will be immediately notified and given a chance to remedy their situation to comply with the new rule. If a CFA Institute member located in India or doing business in India unknowingly violates the rule and then remedies the situation within the 10-day grace period, has the member violated Standard I(A)?
A) No, because the member unknowingly broke the rule.
B) No, because the member remedied the situation.
C) Yes, because the member did not maintain knowledge and know of the rule.
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C
Standard I(A) explicitly says that a member shall maintain knowledge and comply with laws, rules, and regulations. By not knowing of the rule, the member broke the standard.
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232
(Intermediate) 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 desire to maintain high standards.
C) My earning the CFA designation indicates my superior ability.
C
A CFA charterholder may not make claims about how earning the designation proves superior capabilities. Saying "my earning the CFA designation indicates my desire to maintain high standards" is allowed because it is a factual statement
233
(Advanced) The Securities and Exchange Board of India (SEBI) has just enacted a new stock-trading rule. SEBI will give brokers a 10-day grace period, during which violators of the rule will be immediately notified and given a chance to remedy their situation to comply with the new rule. If a CFA Institute member located in India or doing business in India unknowingly violates the rule and then remedies the situation within the 10-day grace period, has the member violated Standard I(A)?
A) No, because the member unknowingly broke the rule.
B) No, because the member remedied the situation.
C) Yes, because the member did not maintain knowledge and know of the rule.
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C
Standard I(A) explicitly says that a member shall maintain knowledge and comply with laws, rules, and regulations. By not knowing of the rule, the member broke the standard.
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234
(Intermediate) Wanda Kirby, CFA, recently joined Allegheny Investments as a senior analyst. Because of her extensive experience in the investments business and knowledge of the Code and Standards, Allegheny's management asked her to assume supervisory responsibility. Kirby reviewed Allegheny's existing compliance system and determined that it was inadequate to allow her to clearly discharge her supervisory responsibility. According to CFA Institute Standards, Kirby should:
A) agree to accept supervisory responsibility and to develop reasonable procedures to allow her to adequately exercise such responsibility.
B) agree to accept supervisory responsibility provided that Allegheny adopts reasonable procedures to allow her to adequately exercise such responsibility.
C) decline in writing to accept supervisory responsibility until Allegheny adopts reasonable procedures to allow her to adequately exercise such responsibility.
C (Picked B, didn't read the options in entirety)
If Kirby clearly cannot discharge supervisory responsibilities because of an inadequate compliance system, she should decline in writing to accept supervisory responsibility until Allegheny adopts reasonable procedures to allow her to adequately exercise such responsibility.
235
(Advanced) Bill Valley has been working for Advisors, Inc., for several years, and he just joined CFA Institute. Valley's sister just received a large bonus in the form of stock options in Zephyr, Inc. Valley's sister knows nothing about financial assets and offers Valley a week at her holiday home each year in exchange for Valley monitoring Zephyr and the value of her stock options. In order to comply with the Code and Standards, Valley needs to inform Advisors of:
A) the compensation in the form of the use of the holiday home only.
B) nothing since no money is involved and it is a favor for a family member.
C) both the use of the holiday home and his sister's options.
C
According to Standard IV(A), Loyalty to Employer, Valley must inform Advisors of his outside consultation even if it is not for monetary compensation. According to Standard VI(A), Disclosure of Conflicts, Valley must also disclose possible conflicts of interest, and his sister's position qualifies.
