CFA L1 Notes

R91 练习: Standards I-VII

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R91 练习: 七大准则详解

考纲范围

  • Standard I: Professionalism — Knowledge of the Law, Independence & Objectivity, Misrepresentation, Misconduct, Competence
  • Standard II: Integrity of Capital Markets — Material Nonpublic Information, Market Manipulation
  • Standard III: Duties to Clients — Loyalty/Prudence/Care, Fair Dealing, Suitability, Performance Presentation, Preservation of Confidentiality
  • Standard IV: Duties to Employers — Loyalty, Additional Compensation Arrangements, Responsibilities of Supervisors
  • Standard V: Investment Analysis, Recommendations, and Actions — Diligence and Reasonable Basis, Communication with Clients, Record Retention
  • Standard VI: Conflicts of Interest — Avoid or Disclose Conflicts, Priority of Transactions, Referral Fees
  • Standard VII: Responsibilities as a CFA Member or Candidate — Conduct as Participants, Reference to CFA Institute

关联概念

Mosaic Theory 马赛克理论 · Firewall 信息防火墙

Q1.

Kelly Zhang, CFA, is an equity research analyst of Golden Finance. Recently, Zhang has a different opinion on a recommendation report with the group consensus and she believes her group members’ view is not objective. According to the CFA Standards of Professional Conduct, Zhang should:

A. attach her own independent and objective opinion to the group’s report.

B. not take any action.

C. dissociate with the current group.

Q2.

Jay Yuan, CFA, a newly promoted team leader in a financial analysis team, was confident in his financial knowledge and analytical skills. However, he lacked experience in team management and effective communication with senior executives and clients. Believing that high-quality investment advice could be provided as long as team members followed his analytical logic, Yuan did not spend any time in improving his management and communication skills in the early stages of his promotion. According to the CFA Institute Standards of Conduct, which of the following statements is most likely to be correct?

A. Yuan violates the I(E) Competence.

B. Yuan does not violate any standards as long as he maintains his financial knowledge and analytical skills.

C. Yuan demonstrates Professionalism by focusing primarily on his analytical skills.

Q3.

Franklin Lee, CFA, a portfolio manager, works at Hahn Capital Management for more than 10 years and is planning to start his own business next month. Before his resignation is effective, he begins soliciting his current clients to whom he can continue to offer asset management services at his new firm. Lee also deals with the registration of his new firm in his spare time. Which of the following actions by Lee is a violation of the Code and Standards?

A. Soliciting his current clients.

B. Handling some registration affairs for his new firm before leaving.

C. Both A and B.

Q4.

James, CFA, a research analyst working in research department of an investment bank, just makes a decision to change his recommendation for the common stock of Blue Company, Inc., from a “sell” to a “buy.” He emails this change to all the firm’s clients on Friday. Just the day after the recommendation, Steven, one of his client calls with a sell order for 1,000 shares of Blue Company. Based on the CFA Codes and Standards, what should James do?

A. Give the customer the advice about the change in recommendation before accepting the order.

B. Directly accept the order.

C. Do not accept the order.

Q5.

Jack Hoover, CFA, is a junior research analyst working in a research company, currently he is responsible for following Z Company. Based on the information he has accumulated, he believes that the outlook for the company’s new products is poor, so he plans to give a “sell” rating to the stock. During the morning tea, Hoover meets Steven Adam, a famous analyst, he has an opposite opinion about Z company. Hoover simply adores Adam’s profession, after returning the office, Hoover releases a “buy” recommendation to his clients. Hoover:

A. fails to distinguish between facts and opinions in his recommendation, then violated the Standards.

B. does not have a reasonable and adequate basis for his recommendation, then violated the Standards.

C. does not violate the Standards.

Q6.

Felix Zhao, CFA, works as investment consultant in Golden Finance. Recently a new client, Eric, switched his account from another investment advisory firm to Zhao’s firm. After spending a few minutes getting acquainted, Zhao recommends Eric to buy a stock that he believes is highly undervalued. Zhao thoroughly explains the characteristics of the company to Eric. Does Zhao most likely violate the CFA Institute Code and Standards?

A. No, since Zhao has thoroughly explained the characteristics of the investment to the client.

B. Yes, since Zhao should explain his qualifications and areas of expertise before making a recommendation.

C. Yes, since Zhao should determine Eric’s needs, objectives and risk tolerance before making a recommendation.

Q7.

When a client asks him about how he makes investment analysis, Victor Garcia, CFA, replies that he usually draws his conclusion using mosaic theory. The information covered by his analysis is public and nonmaterial nonpublic information gathered from different sources, including his evaluation of statements made by company insiders in personal conversations, where company management discusses earning projections which are not yet released to the public. Besides, Garcia also includes in his analysis the general industry information which he gathers from industry experts. Garcia most likely violates the CFA Institute Standards of Professional Conduct because of his use of:

A. nonmaterial nonpublic information.

B. statements in personal conversations.

C. industry expert information.

Q8.

XYZ Asset Management runs a private equity fund. It charges fees for providing structuring advice to invested companies, with a policy to refund fees if the investment value drops. This arrangement isn’t disclosed in the fund’s documents. CEO David Beta justifies this as common practice beneficial to investors. Regarding to the CFA Code and Standards, which of the following statements is most accurate?

A. Beta does not violate V (B) Communication with Clients and Prospective Clients, because common industry practices excuse non-disclosure in this case.

B. By withholding disclosure, Beta violates V (B) Communication with Clients and Prospective Clients.

C. Disclosure of the fee arrangement is not necessary because it’s beneficial to clients.

Q9.

Dominic Diaz, CFA, is the chief investment officer at Sunflower fund management firm which is a well-established superannuation fund. The fund is well diversified and always uses external sub-advisors for its alternative investments. Recently, John Smith, Diaz’s high school classmate, left his employer and set up his own investment management firm specialized in real estate investments. In order to build up the business, Smith approaches to Diaz and asks him to refer some new clients. As the performance of Sunflower’s real estate investments has long been unsatisfying, Diaz decides to move the fund’s real estate allocation to Smith’s firm and also discloses the change of sub-advisors in the fund’s next annual report. Diaz’s actions least likely violate:

A. V(A) Diligence and Reasonable Basis

B. V(B) Communication with Clients and Prospective Clients

C. VI(C) Referral Fee

Q10.

Julia Kate, CFA, is a junior research analyst working in Stone Securities, an investment banking firm. Stone Securities’ mergers and acquisitions department has a close relationship with Firehole Company, as Stone Securities has been responsible for all of Firehole’s acquisitions for the past 15 years. Kate has been assigned a task to write a research report on Firehole company. Based on the requirement of the Code and Standards of CFA Institute, what is the best course of action for her to follow?

A. Kate may not express any negative opinions on Firehole because of the close relationship between the two companies.

B. Kate should refuse to accept the task because the relationship between Stone Securities and Firehole Company.

C. Kate may write the report if the close relationship with the Firehole is disclosed in the report.

Q11.

Lee, CFA, is a financial planner for AKC. AKC compensates its planners based on the number of AKC products they sell. Lee advises a married couple to transfer their retirement funds totaling 30,000 for closing their retirement accounts but claims they will make up the loss with better investment returns from the AKC product.

Lee’s actions are

A. acceptable if the AKC product is suitable for the couple.

B. a violation of the CFA Institute Code and Standards because she is promising a specific rate of return.

C. acceptable because she fully discloses the negative consequences of closing their retirement accounts.

Q12.

Andersen, CFA, is the CEO of an asset management firm. Andersen and other senior investment managers at his firm make an in-person proposal to manage the investments of a large pension plan. In response to a request from the pension plan, Andersen provides a list of the key personnel who would manage the account. While waiting for the outcome of the evaluation, one of the key personnel that Andersen identified and who was part of the team that made the in-person presentation leaves the firm. Andersen should

A. do nothing because the pension plan is hiring the firm, not an individual.

B. immediately inform the pension plan that one of the key personnel has left the firm.

C. hire a competent replacement for the person who left and then inform the pension plan of the change.

Q13.

Brodeur, CFA, is CEO of LeTour, a global company that makes electric cars. Brodeur and LeTour disclose to the public and regulators that the company will use Brodeur’s personal social media account to disseminate information to LeTour investors and the investing public. After the media reports that the company is having difficulty producing and delivering its cars to buyers, Brodeur posts on his social media that the company is “considering taking LeTour private at $420 a share. Funding is secure.”

Previously, Brodeur had met with a large sovereign wealth fund (SWF) that expressed general interest in investing in the company and taking the company private. But Brodeur and the SWF had not reached any agreement or determined a share purchase price. Brodeur was also in discussions with investment banks but had not yet retained any advisers to assist with taking the company private.

After the post, LeTour’s stock price increased more than 6% on significantly increased volume and closed at $380 per share, 10% higher than on the previous day.

When asked about the specific stock price in the post, Brodeur admitted that he had not discussed pricing with any potential investor but chose the price as a joke.

Brodeur’s actions are

A. inappropriate because the post was a misrepresentation of the facts.

B. inappropriate because not all investors use social media, so Brodeur is selectively disclosing information and putting some investors at a disadvantage.

C. appropriate because his post said only that he was “considering” taking the company private and thus contained only speculative, nonmaterial information.

Q14.

Grey recommends the purchase of two mutual fund, one of which invests solely in long-term US Treasury bonds, and another using specific strategy. He makes the following statements to his clients:

I. “The payment of the bonds is guaranteed by the US government; therefore, the default risk of the bonds is virtually zero.”

II. “If you invest in the mutual fund which uses the specific strategy, you will earn a 10% rate of return each year for the next several years based on historical performance of the market.”

Did Grey’s statements violate the CFA Institute Code and Standards?

A. Neither statement violated the Code and Standards.

B. Only statement I violated the Code and Standards.

C. Only statement II violated the Code and Standards.

Q15.

Michelieu tells a prospective client, “I may not have a long-term track record yet, but I’m sure that you’ll be very pleased with my recommendations and service. In the three years that I’ve been in the business, my equity-oriented clients have averaged a total return of more than 26% a year.” The statement is true, but Michelieu only has a few clients, and one of his clients took a large position in a penny stock (against Michelieu’s advice) and realized a huge gain. This large return caused the average of all of Michelieu’s clients to exceed 26% a year. Without this one investment, the average gain would have been 8% a year. Has Michelieu violated the Standards?

A. No, because Michelieu is not promising that he can earn a 26% return in the future.

B. No, because the statement is a true and accurate description of Michelieu’s track record.

C. Yes, because the statement misrepresents Michelieu’s track record.

Q16.

Brandon Taylor, CFA, actively manages a portfolio of stocks with a quantitative model in order to obtain a higher return than the market. The portfolio’s returns earned using the model have been higher than the returns of the S&P Index by 3% to 5% over the last four years. In publicity materials, Taylor states, “We choose a portfolio that will achieve a return higher than the overall market by 3% to 5%, but with a similar risk through our complex quantitative analysis.” This statement is:

A. permitted because the portfolio’s prior performances have proved the portfolio can obtain a higher return.

B. permitted because the statement gives a general description of the basic characteristics of the fund’s risk and return goals.

C. prohibited because Taylor is misrepresenting the investment return that his firm can generate.

Q17.

Aaron Hathaway, CFA, is a famous analyst working for a large asset management firm. One of his friends, Jason Carl, CFA, is a self-employed financial analyst. A week ago, they met in a marketing event, and Jason discussed with Aaron about the details of a valuation model he was working on. Aaron was so interested in the validity of the model that he used directly in his research report. Aaron has:

A. violated the CFA Standards regarding I(C). Misrepresentation.

B. violated the CFA Standards regarding VI(A). Conflicts of Interests.

C. not violated the CFA Institute Standards of Professional Conduct.

Q18.

Milene Fontes, CFA, takes over coverage of a company because the original analyst left the firm before finishing the research report. She adds her own thorough analysis and publishes the report in her name only. Has Fontes violated the Standards?

A. No

B. Yes, by using the original analyst’s work in the report

C. Yes, by not attributing the report to the original analyst

Q19.

Hanse, CFA, is a portfolio manager employed by a global investment bank. She manages an environmental, social, and governance (ESG) investment fund. In her free time, Hanse participates in civil disobedience demonstrations organized by the Extinction Rebellion, a sociopolitical movement that uses nonviolent resistance to protest climate breakdown, biodiversity loss, and ecological collapse. At several demonstrations held in the financial district, Hanse is arrested on charges of unlawful assembly, obstructing public transit, and disorderly conduct. She is ultimately convicted of several minor criminal offenses. Hanse has signed a standard employment contract with the bank that allows it to terminate any employee who is convicted of a criminal offense.

Under the CFA Institute Code and Standards, Hanse’s actions

A. do not violate the Code and Standards.

B. violate the Code and Standards because she has violated her employment contract with the bank.

C. violate the Code and Standards because she is arrested for misconduct in the financial district.

Q20.

Mang, CFA, is an investment adviser for a regional bank that has a number of discretionary, fee-based accounts for high-net-worth individuals.

The bank’s policies permit trade error corrections up to 30 days following a failure to place a trade when an adviser forgets to send an order to the trading desk. To rectify the error, the adviser is permitted to buy or sell a security at the current market price, with the price differential charged to the adviser personally through an internal error account.

On many occasions, Mang uses the trade error correction policy to benefit clients who are unhappy with their account’s performance. Mang identifies a security whose price has increased in the past 30 days. He then tells the trade desk he mistakenly failed to buy that particular security some days before, when the price was substantially lower than the current market price.

Once the request is approved, the trade desk purchases the security and charges the price differential to Mang personally through the error account. Shortly after that trade, Mang sends an order to sell the security and net a profit for the client. Mang then tells the client that he has given them a “gift” or “no-risk” trade.

Mang’s actions

A. violate the CFA Institute Code and Standards

B. are appropriate because Mang is acting for the benefit of the client

C. are appropriate because the bank is not harmed by Mang’s actions

Q21.

Maria Martinez is a research analyst and a Level II CFA candidate. Recently, friends of Martinez organized a party for her thirtieth birthday. At the party, Martinez received an inexpensive gift from a friend who is the CEO of a publicly listed company Martinez recommends to clients. Martinez also received gifts from some of the firm’s best clients. Aware of her employer’s policy requiring her to report all gifts received within one week of receipt, Martinez declares the gifts she received from the firm’s clients two days after the party. Does Martinez most likely violate the CFA Institute Standards of Professional Conduct?

A. Yes.

B. No, because her CEO friend’s gift was inexpensive.

C. No, because the gifts do not impact her research independence and objectivity.

Q22.

Gabrielle Gabbe, CFA, has been accused of professional misconduct by one of his competitors. The allegations concern Gabbe’s personal bankruptcy filing ten years ago when he was a college student and had a large amount of student loan could not pay. The reason was that he had a major surgery and spent all his money. By not disclosing the bankruptcy filing to his clients, did Gabbe most likely violate any CFA Institute Standards of Professional Conduct?

A. No

B. Yes, related to I(D). Misconduct

C. Yes, related to I(C). Misrepresentation

Q23.

Abbha, CFA, is a securities contractor working to assist Superior Energy (SE) with listing its shares on the Regional Security Exchange (RSX). SE files a prospectus for an offer of up to five million shares at 10 million.

The RSX current applicable listing rule requires that entities seeking admission to the RSX must meet a “minimum spread requirement” of at least 300 shareholders with a minimum value holding to qualify for listing.

In their listing application, representatives of SE inform RSX that the minimum spread requirement of 300 shareholders has been met. These disclosures include as shareholders 31 people or companies arranged by Abbha, though none are actual buyers of SE securities. Abbha provides false names and addresses for the 31 shareholders.

The SE share offer raises more than $3.5 million, with more than 1.75 million shares issued. SE is admitted to the official list of the RSX, with its shares quoted on the exchange.

Over time, the price of SE shares steadily increases, the company attracts hundreds of investors and shareholders, and early investors achieve an excellent investment return.

Abbha’s actions

A. violate the CFA Institute Code and Standards.

B. are acceptable because SE proved to be a strong company with excellent performance.

C. are acceptable because no investors were harmed by the technical violation of RSX rules.

Q24.

Pietro, president of Local Bank, has hired the bank’s market maker, Vogt, to seek a merger partner. Local is currently listed on a stock exchange and has not reported that it is seeking strategic alternatives. Vogt has discussed the possibility of a merger with several firms, but they have all decided to wait until after the next period’s financial data are available. The potential buyers believe the results will be worse than the results of prior periods and will allow them to pay less for Local Bank. Pietro wants to increase the likelihood of structuring a merger deal quickly. Which of the following actions would most likely be a violation of the Code and Standards?

A. Pietro could instruct Local Bank to issue a press release announcing that it has retained Vogt to find a merger partner.

B. Pietro could place a buy order for 2,000 shares (or four times the average weekly volume) through Vogt for his personal account.

C. After confirming with Local’s chief financial officer, Pietro could instruct Local to issue a press release reaffirming the firm’s prior announced earnings guidance for the full fiscal year.

Q25.

Richard Cardinal, CFA, is the founder of Volcano Capital Research, an investment management firm whose sole activity is short selling. Cardinal seeks out companies whose stocks have had large price increases. Cardinal also pays several lobbying firms to update him immediately on any legislative or regulatory changes that may impact his target companies. Cardinal sells short those target companies he estimates are near the peak of their sales and earnings and that his sources identify as facing legal or regulatory challenges. Immediately after he sells a stock, Cardinal conducts a public relations campaign to disclose all of the negative information he has gathered on the company, even if the information is not yet public. Which of Cardinal’s following actions is most likely to be in violation of the CFA Institute Standards of Professional Conduct?

A. Selling stock short

B. Trading on information from lobbyists

C. Disclosing information about target companies

Q26.

Marte, CFA, is an asset manager in Puerto Rico, a US territory. Residents of Puerto Rico receive significant tax advantages when they invest in local securities. To capitalize on this advantage, Marte’s firm offers its clients shares in a closed-end investment fund, organized under Puerto Rico’s financial laws and regulations, that holds at least 67% local securities and is permitted to borrow against up to 50% of its assets. The fund is usually leveraged to the extent legally permitted. Many of Marte’s clients have a modest net worth and conservative or moderate investment objectives. Marte convinces them to invest 85% or more of their assets in shares of the closed-end fund. Marte’s actions

A. violate the CFA Institute Code and Standards.

B. are appropriate because they take advantage of the fund’s unique tax benefits for his clients.

C. are appropriate as long as Marte fully discloses the risks and benefits of the fund to his clients.

Q27.

Duri, CFA, is a registered account representative providing financial advice to retail clients. She is also a principal partner of Tabak Accountants. Duri assists a number of advisory clients who want to move their retirement assets from existing superannuation (pension) accounts to establish self-managed superannuation funds (SMSFs) that have the goal of investing in direct residential property. When clients express interest in these types of SMSFs, Duri accepts their reasons for wanting to invest in direct property and assumes that they have the time and expertise to manage their superannuation affairs. She reclassifies their investment objectives as “growth” to match the new investment strategy. Duri charges her clients for establishing the SMSFs and recommends that her firm, Tabak Accountants, prepare the clients’ annual accounts and tax returns. Duri’s actions

A. violate the CFA Institute Code and Standards.

B. are acceptable because she is following the directives of her clients.

C. are acceptable if the services provided by Tabak Accountants are reasonable and the costs of services are competitive.

Q28.

Brown works for an investment counseling firm. Green, a new client of the firm, is meeting with Brown for the first time. Green used another counseling firm for financial advice for years, but she has switched her account to Brown’s firm. After spending a few minutes getting acquainted, Brown explains to Green that she has discovered a highly undervalued stock that offers large potential gains. She recommends that Green purchase the stock. Brown has committed a violation of the Standards. What should she have done differently?

A. Brown should have determined Green’s needs, objectives, and tolerance for risk before making a recommendation of any type of security.

B. Brown should have thoroughly explained the characteristics of the company to Green, including the characteristics of the industry in which the company operates.

C. Brown should have explained her qualifications, including her education, training, and experience and the meaning of the CFA designation

Q29.

Molly Burnett, CFA, is a portfolio manager for a fund that only invests in environmentally friendly companies. A multinational utility company recently acquired one of the fund’s best performing investments, a wind power company. The wind power company’s shareholders received utility company shares as part of the merger agreement. The utility has one of the worst environmental records in the industry, but its shares have been one of the top performers over the past 12 months. Because the utility pays a high dividend every three months, Burnett holds the utility shares until the remaining two dividends are paid for the year then sells the shares. Burnett most likely violated the CFA Institute Standard of Professional Conduct concerning:

A. Standard I(B). Independence and Objectivity.

B. Standard III(C). Suitability.

C. Standard VI(A). Disclosure of Conflicts.

Q30.

Reiko Kimisaki, CFA, is an investment advisor for a national social security fund in a frontier market with a very limited and illiquid capital market. The labor force is young with an investment time horizon of 25 to 30 years. She has been asked to suggest ways to increase the investment return of the overall portfolio. After careful assessment of the fund’s previous investment history and available asset classes, she considers investment in private equity. What is Kimisaki’s lowest priority to avoid any Code of Ethics and Standards of Professional Conduct violations prior to making this investment recommendation?

A. Assess the risk tolerance of the fund.

B. Analyze the expected returns of private equity in the market.

C. Determine if the Investment Policy Statement allows for alternative investments.

Q31.

Jergenn, CFA, is the portfolio manager for the Volare Investment Management (VIM) fund, a registered collective investment scheme (CIS) organized under the laws of South Africa. VIM’s 2022 regulatory disclosure and marketing material for the fund, produced by Jergenn, presents annual investment performance data for the 2014-2020 period that is accurate and calculated correctly. The performance history is that of a composite of separate accounts that followed the strategy used by the VIM fund before the assets were moved over to the CIS environment in 2021.

In presenting the fund’s performance history, Jergenn’s actions

A. violate the CFA Institute Code and Standards.

B. are appropriate because the investment performance is accurate.

C. are appropriate as long as the performance calculations are net of fees.

Q32.

ABC Investment Management acquires a new, very large account with two concentrated positions. The firm’s current policy is to add new accounts for the purpose of performance calculation after the first full month of management. Cupp is responsible for calculating the firm’s performance returns. Before the end of the initial month, Cupp notices that one of the significant holdings of the new accounts is acquired by another company, causing the value of the investment to double. Because of this holding, Cupp decides to account for the new portfolio as of the date of transfer, thereby allowing ABC Investment to reap the positive impact of that month’s portfolio return.

A. Cupp did not violate the Code and Standards because the GIPS standards allow composites to be updated on the date of large external cash flows.

B. Cupp did not violate the Code and Standards because companies are allowed to determine when to incorporate new accounts into their composite calculation.

C. Cupp violated the Code and Standards because the inclusion of the new account produces an inaccurate calculation of the monthly results according to the firm’s stated policies.

Q33.

Sisse Brimberg, CFA, is responsible for performance presentations at her investment firm. The presentation that Sisse uses states that when making performance presentations her firm:

  1. deducts all fees and taxes;
  2. uses actual and simulated performance results; and
  3. bases the performance on a representative individual account.

Based on the above information, which of the following is the most appropriate recommendation to help Brimberg meet the CFA Institute Standards of Professional Conduct in her performance presentations? She should present performance based on:

A. a gross of fee basis.

B. actual not simulated results.

C. a weighted composite for all similar discretionary portfolios

Q34.

Hui Chen, CFA, develops marketing materials for an investment fund he founded three years ago. The materials show the 3-year, 2-year, and 1-year returns for the fund. He includes a footnote that states in small print “Past performance does not guarantee future returns.” He does not claim compliance with GIPS in the disclosures or footnotes. He also includes a separate sheet showing the most recent semi-annual and quarterly returns, which notes that they have been neither audited nor verified. Has Chen most likely violated any CFA Institute Standards of Professional Conduct?

A. No.

B. Yes, because he included un-audited and unverified results.

C. Yes, because he did not adhere to the Global Investment Performance standards.

Q35.

Giddings, CFA, is responsible for compliance at GWH, a large broker/dealer and investment adviser. In connection with GWH’s wealth management business, the company maintains personally identifiable information (names, addresses, phone numbers, account numbers, balances, and holdings) of its clients. Giddings adopts a number of policies and restrictions, including a Code of Conduct, that address employees’ access to and handling of this confidential information. Marsh, CFA, who works for GWH as a client services associate, decides to download client data to his personal server located at his residence to facilitate his telecommuting. Marsh’s server is hacked, and portions of the personal client information Marsh downloaded are posted for sale on the internet. Did either Marsh or Giddings violate the CFA Institute Code and Standards?

A. Marsh violated the Code and Standards.

B. Giddings violated the Code and Standards.

C. Both Marsh and Giddings violated the Code and Standards.

Q36.

Bronson provides investment advice to the board of trustees of a private university endowment fund. The trustees have provided Bronson with the fund’s financial information, including planned expenditures. Bronson receives a phone call on Friday afternoon from Murdock, a prominent alumnus, requesting that Bronson fax him comprehensive financial information about the fund. According to Murdock, he has a potential contributor but needs the information that day to close the deal and cannot contact any of the trustees. Based on the CFA Institute Standards, Bronson should:

A. Send Murdock the information because disclosure would benefit the client.

B. Not send Murdock the information to preserve confidentiality.

C. Send Murdock the information, provided Bronson promptly notifies the trustees.

Q37.

Townsend was recently appointed to the board of directors of a youth golf program that is the local chapter of a national not-for-profit organization. The program is beginning a new fund-raising campaign to expand the number of annual scholarships it provides. Townsend believes many of her clients make annual donations to charity. The next week in her regular newsletter to all clients, she includes a small section discussing the fund-raising campaign and her position on the organization’s board.

A. Townsend did not violate the Code and Standards.

B. Townsend violated the Code and Standards by soliciting donations from her clients through the newsletter.

C. Townsend violated the Code and Standards by not getting approval of the organization before soliciting her clients.

Q38.

Lewis McChord, CFA, a research analyst at an investment bank, covers the auto industry. McChord recently read a report on an auto manufacturing company written by Pierce Brown. Brown’s report provided extensive coverage of the company’s newly launched products indicating that sales volume, not yet publicly available, would raise future profits. Intrigued by the report, McChord called a senior executive at the company whom she has known personally for years. The officer gave her specific details on new vehicle sales, indicating that profits would double in the current quarter. McChord added this data to Brown’s report and then circulated it within her firm as her own report. McChord least likely violated which of the following CFA Institute Standards of Professional Conduct?

A. Standard I (C). Misrepresentation

B. Standard II (A). Material Nonpublic Information

C. Standard III (E). Preservation of Confidentiality

Q39.

RC Group (RCG) is a registered futures commission merchant with several branch offices, including one in Memphis, Tennessee (USA). Duhih, CFA, is hired to be the branch manager of the Memphis office, supervising several employees, including Lewes, CFA. Duhih allows Lewes to work from home, so Lewes does not have a physical workspace in the Memphis office or even access to the building, and Duhih only occasionally checks in with Lewes regarding work. Unknown to either Duhih or RCG, Lewes also works for another futures commission merchant, called AFCM. Lewes arranges swap agreements for AFCM, including orders with several cattle feed yard clients. Working with another employee at RCG, Lewes opens new futures accounts for the feed yard clients RCG represents.

Although the other RCG employee receives all the commissions for the accounts, she secretly splits them with Lewes. Duhih is unaware of Lewes’ participation in this commission sharing arrangement.

Duhih’s actions as a supervisor are

A. a violation of the CFA Institute Code and Standards.

B. acceptable if the RCG headquarters conducts regular audits of the Memphis branch.

C. acceptable if RCG did not develop adequate policies and procedures for the detection and deterrence of possible employee misconduct.

Q40.

Sasha Denikin, CFA, began his investment career as a research analyst for Galak Investment Partners, a company founded and controlled by his father, Franz Denikin, CFA. After several years, Franz transfers ownership of Galak to Sasha, who becomes a director of the company. Franz tells the firm’s clients that he retains management of all client accounts. When the longtime CCO announces her retirement, Sasha is promoted to chief compliance officer (CCO). While Sasha has no previous compliance experience, the plan is for the prior CCO to retain compliance responsibilities as a consultant while mentoring and training Sasha. Despite his title, Sasha has no actual authority to supervise his father’s conduct and Franz continues to exert absolute control over Galak. Sasha also does not have permission to contact clients or review Galak communications with clients because his father insists that all client contact go through him.

During his tenure as CCO, Sasha raises multiple compliance issues to his father regarding his father’s actions, but Sasha is powerless to enforce company policies and procedures concerning his father’s conduct. After continuing to serve as Galak CCO for a time, Sasha finally resigns in frustration.

Sasha Denikin’s actions are

A. a violation of the CFA Institute Code and Standards.

B. acceptable because Franz holds the actual power and client responsibilities at the firm and thus cannot be under the supervision of a subordinate.

C. acceptable because Sasha resigns as CCO when he is frustrated by his inability to exercise his compliance responsibilities.

Q41.

Eileen Fisher, CFA, has been a supervisory analyst at SL Advisors for the past ten years. Recently, one of her analysts was found to be in violation of the CFA Institute Standards of Professional Conduct. Fisher has placed limits on the analyst’s activities and is now monitoring all of his investment activities. Although SL did not have any compliance procedures up to this point, to avoid future violations, Fischer has put in place procedures exceeding industry standards. Did Fisher most likely violate any CFA Institute Standards of Professional Conduct?

A. Yes.

B. No, because she has taken steps to ensure the violations will not be repeated by the analyst.

C. No, because she is taking steps to implement compliance procedures that are more than adequate.

Q42.

Joan Tasha, CFA, a supervisor at Olympia Advisors (OA), wrote and implemented compliance policies at her firm. A long-time OA employee, Derek Longtree, recently changed the asset allocation of a client, which is inconsistent with her financial needs and objectives and with OA’s policies. Until now, Longtree has never violated OA’s policies. Tasha discusses the issue with Longtree but takes no further action. Do Tasha’s actions concerning Longtree most likely violate any CFA Institute Standards of Professional Conduct?

A. No.

B. Yes, because she failed to detect Longtree’s actions.

C. Yes, because she did not take steps to ensure that the violation will not be repeated.

Q43.

Madeline Smith, CFA, was recently promoted to senior portfolio manager. In her new position, Smith is required to supervise three portfolio managers. Smith asks for a copy of her firm’s written supervisory policies and procedures, but is advised that no such policies are required by regulatory standards in the country where Smith works. According to the Standards of Practice Handbook, Smith’s most appropriate course of action would be to:

A. require her firm to adopt the CFA Institute Code of Ethics and Standards of Professional Conduct.

B. require the employees she supervises to adopt the CFA Institute Code of Ethics and Standards of Professional Conduct.

C. decline to accept supervisory responsibility until her firm adopts procedures to allow her to adequately exercise such responsibility.

Q44.

Maalouf, CFA, works for a large wealth management firm. The firm’s fees are calculated as a percentage of the asset value managed for each client account. The firm has a standard method for valuing assets and calculating fees, which is disclosed to clients when they open their account. Over time, the firm transitions to (1) using the market value of client assets at the end of the billing cycle instead of the average daily balance of the account; (2) including assets that were previously excluded, such as cash or cash equivalents, in the fee calculation; and (3) charging clients for a full billing period rather than prorating fees for clients that start or terminate accounts mid-billing period. Under the CFA Institute Code and Standards, Maalouf

A. must notify clients of the changes in the valuation and fee calculation method.

B. cannot use end-of-cycle valuations, include cash equivalents, or charge fees for a full billing cycle for partial cycle accounts.

C. can change the valuation and fee calculation methodology as long as actual fees charged to clients are lower.

Q45.

Dukis, CFA, is a managing director at a global credit ratings service. She is responsible for the group that assigns new issue and surveillance credit ratings to commercial mortgage-backed securities (CMBSs). To determine the ratings, Dukis and her group calculate the debt service coverage ratio (DSCR) of each security, a key quantitative metric used to rate CMBSs. Shortly after the global financial crisis, the ratings agency changes its methodology for calculating the DSCR for certain securities so that it more accurately reflects risk. Dukis’s group publishes subsequent credit ratings without disclosing the change. When the new methodology is used, the securities receive higher credit ratings than they would have received if the original methodology had been used. Dukis’s actions are

A. appropriate because the new methodology more accurately reflects risk.

B. a violation of the CFA Institute Code and Standards because she did not disclose the change in methodology to the investing public.

C. appropriate because no disclosure is necessary, given that calculating DSCR is only one element in determining the overall rating of the security.

Q46.

Scott works for a regional brokerage firm. He estimates that Walkton Industries will increase its dividend by US8.00 a share by the end of the year because the dividend will increase by US$1.50 a share. Investors buying the stock at the current time should expect to realize a total return of at least 15% on the stock.” According to the Standards:

A. Scott violated the Standards because he used material inside information.

B. Scott violated the Standards because he failed to separate opinion from fact.

C. Scott violated the Standards by basing his research on uncertain predictions of future government action.

Q47.

Priscilla Moab, CFA, is the director of marketing at Red Lantern Investments. Red’s investment approach uses technical and fundamental analysis as well as portfolio construction to minimize risk. Moab plans to market an online investment newsletter to retail clients. Moab decides to let prospective clients have access to Red’s buy and sell recommendation list by posting this information on a social media site. The posting also provides information on Red’s basic investment process and logic. To avoid violating the CFA Institute Code of Ethics and Standards of Professional Conduct, Moab should most likely:

A. describe the investment approach in detail.

B. update investment process changes annually.

C. indicate that additional information and analysis are available.

Q48.

Which of the following is least likely part of the CFA Institute Standards of Professional Conduct, Standard V(B) — Communication with Clients and Prospective Clients? Members and candidates must:

A. make reasonable efforts to ensure that when communicating investment performance information it is fair, accurate, and complete.

B. disclose to clients and prospective clients significant limitations and risks associated with the investment process.

C. distinguish between fact and opinion in the presentation of investment analysis and recommendations.

Q49.

Yang, CFA, is a research analyst at Dacco, a registered broker/dealer and investment adviser. While employed with Dacco, Yang establishes Prestige Trade Investments Limited (Prestige) and acts as investment adviser for the firm’s clients. Yang is responsible for formulating Prestige’s investment strategy and directs all trades on behalf of Prestige. Over several days, Yang purchases 50,000 shares of Zhongpin stock and 1,978 Zhongpin call options for his personal account at Dacco. Shortly after, Yang uses $29.8 million of Prestige’s funds to purchase more than 3 million shares of Zhongpin stock. Yang’s actions are

A. a violation of the CFA Institute Code and Standards.

B. acceptable because Yang’s personal investments are not in conflict with the investment advice being given to his clients at Prestige.

C. acceptable as long as Prestige clients are not negatively affected by Yang’s prior purchase of Zhongpin securities through his account at Dacco.

Q50.

Kapadia, CFA, is a trader for an asset management company that manages several large global mutual funds. Kapadia executes the equity buy-and-sell orders for the portfolio managers of one of the company’s mutual funds. He has the discretion to execute the orders at any time during the day, depending on market conditions. Before executing the orders, Kapadia contacts several close friends and relatives to give them information on which securities the mutual fund will be trading. In turn, these friends and relatives make trades that mirror the imminent trades to be executed by Kapadia on behalf of the mutual fund. Kapadia’s actions are

A. a violation of the CFA Institute Code and Standards.

B. inappropriate only if the client is harmed financially by the conduct.

C. appropriate because he does not share confidential information about individual clients.

Q51.

Perrkins, CFA, is the chief investment officer of GT Financial (GTF). Perrkins’s wife is GTF’s compliance officer. GTF has several dozen retail clients and total assets under management of $70 million. All client assets are managed on a discretionary basis. Perrkins frequently makes trades for his clients using an omnibus trading account through a broker/dealer, which allows Perrkins to buy and sell securities in a block trade on behalf of multiple clients simultaneously. Perrkins regularly allocates the securities purchases to individual client accounts after the market closes. Over one six-month period, Perrkins allocates 75% of the profitable trades to nine accounts that Perrkins and his wife own or control. At the same time, he allocates 82% of the unprofitable trades to the account of the three largest GTF clients. Perrkins’s actions are

A. a violation of the CFA Institute Code and Standards.

B. acceptable as long as he discloses the trade allocation practices to his clients.

C. acceptable as long as he reverses his trade allocation practices to favor the larger clients so that they are not harmed over the long term.

Q52.

Rose, a portfolio manager for a local investment advisory firm, is planning to sell a portion of his personal investment portfolio to cover the costs of his child’s academic tuition. Rose wants to sell a portion of his holdings in Household Products, but his firm recently upgraded the stock to “strong buy.” Which of the following describes Rose’s options under the Code and Standards?

A. Based on his firm’s “buy” recommendation, Rose cannot sell the shares because he would be improperly prospering from the inflated recommendation.

B. Rose is free to sell his personal holdings once his firm is properly informed of his intentions.

C. Rose can sell his personal holdings but only when a client of the firm places an order to buy shares of Household.

Q53.

Colleen O’Neil, CFA, manages a private investment fund with a balanced global investment mandate. Her clients insist that her personal investment portfolio replicate the investments within their portfolio to ensure them that she is willing to put her money at risk. By undertaking which of the following simultaneous investment actions for her own portfolio would O’Neil most likely be in violation of Standard VI(B) — Priority of Transactions?

A. Sale of a listed US blue chip value stock.

B. Participation in a popular frontier market IPO.

C. Purchase of a UK government bond in the primary market.

Q54.

Teresa Avila, CFA, is a micro cap investment analyst at a hedge fund. The fund requires Avila to hold any securities she recommends for the fund in her own account as well. Because Avila has such a small account, whenever she trades for her own portfolio she combines the transactions with those of the hedge fund so she is sure to have her account aligned with the fund. Has Avila most likely violated any CFA Institute Standards of Professional Conduct?

A. No.

B. Yes, related to Misconduct.

C. Yes, related to Priority of Transactions.

Q55.

Ahmed recently earned his CFA designation and joined a medium-sized hedge fund as a senior analyst. His supervisor, Bennett, the firm’s founder, earned her CFA designation 10 years ago and proudly uses the CFA designation on her business card and on all marketing materials for the fund. Bennett shares with Ahmed that she has not paid her CFA Institute membership dues for the past four years and no longer participates in the organization’s continuing education program. When Ahmed asks Bennett about her use of the designation, she states that by passing the CFA exam she earned the CFA charter, and that the credential is like a university degree that cannot be taken away. Later, during a marketing meeting by the two to a potential investor, the investor notes that he narrowed his manager search to only firms that employ CFA charterholders in senior positions. When he asks Bennett if everyone in the firm on the investment side is a CFA charterholder, she responds, “Yes, that is correct.” Ahmed does not respond. Did either Ahmed or Bennett violate the CFA Institute Code and Standards?

A. Ahmed violated the Code and Standards, but Bennett did not.

B. Bennett violated the Code and Standards, but Ahmed did not.

C. Ahmed and Bennett violated the Code and Standards.

Q56.

Albert and Tye, who recently started their own investment advisory business, have registered to take the Level III CFA examination. Albert’s business card reads, “Judy Albert, CFA Level II.” Tye has not put anything about the CFA designation on his business card, but promotional material that he designed for the business describes the CFA requirements and indicates that Tye participates in the CFA Program and has completed Levels I and II. According to the Standards:

A. Albert has violated the Standards, but Tye has not.

B. Tye has violated the Standards, but Albert has not.

C. Both Albert and Tye have violated the Standards.

Q57.

Rule has worked as a portfolio manager for a large investment management firm for the past 10 years. Rule earned his CFA charter last year and has decided to open his own investment management firm. After leaving his current employer, Rule creates some marketing material for his new firm. He states in the material, “In earning the CFA charter, a highly regarded credential in the investment management industry, I further enhanced the portfolio management skills learned during my professional career. While completing the examination process in three consecutive years, I consistently received the highest possible scores on the topics of Ethics, Alternative Investments, and Portfolio Management.” Has Rule violated Standard VII(B)—Reference to CFA Institute, the CFA Designation, and the CFA Program in his marketing material?

A. Rule violated Standard VII(B) in stating that he completed the exams in three consecutive years.

B. Rule violated Standard VII(B) in stating that he received the highest scores in the topics of Ethics, Alternative Investments, and Portfolio Management.

C. Rule did not violate Standard VII(B).

Q58.

Quinn sat for the Level III CFA exam this past weekend. He updates his resume with the following statement: “In finishing the CFA Program, I improved my skills related to researching investments and managing portfolios. I will be eligible for the CFA charter upon completion of the required work experience.”

A. Quinn violated the Code and Standards by claiming he improved his skills through the CFA Program.

B. Quinn violated the Code and Standards by incorrectly stating that he is eligible for the CFA charter.

C. Quinn did not violate the Code and Standards with his resume update.

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