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CFA Part 1 Test PrepIf a member self-discloses a matter that questions his professional conduct in his annual
statement to the CFA Institute, an initial investigation is conducted by - answer the
Professional Conduct Program staff
Code of Ethics - answer
A professional organization most appropriately enforces upon its members: - answer
ethical standards only.
Moe Girard, CFA, works in a large group that decides on recommendations by
consensus. Girard does not always agree with the group consensus, but he is confident
in the group's analytical ability. To comply with the Code and Standards when the group
issues a recommendation with which he disagrees, Girard: - answer does not need to
take any action.
Adam Schute, CFA, is on a conference call with the CFO of an investment banking
client with his phone speaker on and his door open. As a result, salesmen and traders
overhear the CFO describing problems with production target dates that have not been
publicly disclosed. The salesmen relay this information to clients and the traders reduce
their positions in the stock. With respect to the Standard on material nonpublic
information, Schute has: - answerviolated the Standard because he should have taken
steps to prevent the dissemination of the information.
When a member or candidate knows that a client and coworker are violating regulatory
rules and local law, the member or candidate is: - answernot required to report any of
the violations to authorities. (encouraged but not required to do anything)
Carlos Mendez, CFA, is beginning an investment advisory relationship with a new client
and plans to formulate an investment policy statement (IPS) for the client. According to
the Standard concerning suitability, Mendez is least likely to consider the client's: -
answerconflicts of interest.
With regard to performance measurement, the Global Investment Performance
Standards for firms: - answerpermit both time-weighted and money-weighted rates of
return.
Who maintains and interprets the Code and Standards - answerthe Standard of Practice
Council
When he assumed the job of compliance officer two years ago, Ed Michaels, CFA,
issued written compliance procedures and made all covered employees aware of the
,procedures. A report by an external auditor found that on several occasions over the
past two years, two different employees traded in recommended securities ahead of
trades made in managed client accounts. Michaels fires both employees and
recirculates the written compliance procedures that explain clearly which activities are
prohibited. Michaels has violated the Standard concerning: - answerResponsibilities of
Supervisors by failing to implement reasonable procedures to detect violations.
Riley and Smith, a broker-dealer, is bringing to market a secondary offering for All Pro
Company. One of the reasons All Pro selected the firm to lead the offering is because
Riley and Smith has been a market maker for All Pro's stock for the past five years. The
firm is in possession of material nonpublic information relevant to All Pro's offering. To
be in compliance with the Code and Standards, Riley and Smith: - answershould
continue to serve as market maker but take only the contra side of unsolicited customer
trades.
Matt O'Neill, CFA, is an advisor for Century Investments, a retail financial services firm.
Century has a firmwide policy that its advisors recommend the firm's own investment
products to clients unless Century does not offer a product suitable for the client's
needs. Can O'Neill follow his firm's policy without violating the Code and Standards? -
answerYes, if O'Neill discloses this policy to his clients.
A member or candidate who changes his recommendation on a stock can comply with
the Standards by communicating this change to clients according to: - answerknown
interest of the client in the stock.
Which of the following statements is most accurate? An analyst who changes
employers and wants to maintain coverage of a stock: - answermust re-create the
supporting records at the new firm with information from public sources or from the
covered firm.
Byron Bell, CFA, tells his assistant that Mary Mitchel, a client of his, confided to him that
she is suffering from the early stages of Alzheimer's disease and that she is planning to
leave almost all of her sizable estate to Prather House, a support facility for Alzheimer's
patients. Bell directs his assistant to keep this information confidential. With respect to
the Standard on preservation of confidentiality, Bell has: - answernot violated the
Standard.
Bell is permitted to share confidential client information with another firm employee who
is also working for the client's benefit, so sharing this information with his assistant is not
a violation of Standard III(E) Preservation of Confidentiality.
Tony Roberts, CFA, is part of a team that manages equities accounts. He believes that
a teammate, who is not a CFA Institute member or candidate, takes actions that, while
not illegal under local law, violate CFA Institute Standards of Professional Conduct.
According to the CFA Institute Standards of Professional Conduct, Roberts: - answeris
required to dissociate from the team's activities if they continue.
, Judy Blush is a CFA candidate and is recommending the purchase of a mutual fund that
invests solely in long-term U.S. Treasury bonds (T-bonds) to one of her clients. She
states: "Because the U.S. government guarantees payment of both principal and
interest on its bonds, risk of loss from investing in this fund is virtually zero." Blush's
actions violated: - answerthe Standard on misrepresentation. (default risk free but price
risk still exists)
With regard to independent practice by Members and Candidates who are employed,
the Code and Standards specify that: - answermembers and candidates contemplating
independent competitive business must notify their current employer of the types of
services to be rendered, duration, and compensation.
Who maintains oversight and responsibility for the Professional Conduct Program -
answerDisciplinary Review Committee
Recommended procedures for compliance with the Standard concerning misconduct
suggest that firms in the investment industry should: - answercheck references of
potential employees to verify that they are of good character and eligible for
employment in the investment industry.
Jenny Pickler, a Level II CFA Candidate, writes an economic forecast containing several
interest rate projections. Her firm's investment committee reviews Pickler's report and
changes several of the interest rates Pickler had forecast. To comply with CFA Institute
Standards, Pickler: - answerdoes not need to take any further action.
Ray Brown, CFA, gives prospects his firm's marketing materials, not prepared by him,
that indicate he has a graduate degree from State University, when in fact he did
graduate work there but did not receive a degree. Brown informed the marketing
department of this error when he first saw it. Brown has: - answerviolated the Standards
by misrepresenting his qualifications.
Which of the following statements is most accurate regarding the GIPS requirement for
definition of the firm? - answerThe firm must be the distinct business entity held out to
clients.
Robert Miguel, CFA, is a portfolio manager. On Saturday, one of his clients invited
Miguel and his wife to be his guests at his luxury suite for a major league baseball
playoff game, which they did. Miguel told his supervisor on Monday that they had
attended the game with the client and that the suite was luxurious. Miguel has: -
answernot violated the Standards.
In this case, Miguel has not violated the standards. For a gift from a client in
appreciation of past service or performance, informing his supervisor verbally is
sufficient. Standard I(B) Independence and Objectivity requires disclosure prior to
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