INV3702 level-ii-mock-exam-q and a.
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2017 Level II Mock Exam AM
T he morning session of the 2017 Level II Chartered Financial Mock Analyst ®
Examination has 60 questions. To best simulate the exam day experience, candidates
are advised to allocate an average of 18 minutes per item set (vignette and 6 multiple
choice questions) for a total of 180 minutes (3 hours) for this session of the exam.
Questions Topic Minutes
1–6 Ethical and Professional Standards 18
7–12 Ethical and Professional Standards 18
13–18 Financial Reporting and Analysis 18
19–24 Financial Reporting and Analysis 18
25–30 Corporate Finance 18
31–36 Equity 18
37–42 Fixed Income 18
43–48 Derivatives 18
49–54 Derivatives 18
55–60 Portfolio Management 18
Total: 180
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2 2017 Level II Mock Exam AM
2017 LEVEL II MOCK EXAM AM
Blevin Case Scenario
Trevor Blevin, a CFA candidate and a former employee of Regal Bank (Regal),
joined Spalding Asset Management as the head of compliance. He is sh
today’s front- page business news headline: “Regal Depositors Left in the Cold
Bank Regulator Places Bank under Statutory Management.” The article mentio
reason for Regal’s closure was the CEO’s illegal behavior, including fraud, as w
money laundering associated with a major client. The discovery occurred one
after the death of Regal’s CEO, Mr. James Antonio. Up until three weeks ago, B
headed Regal’s internal audit department and knew nothing of any fraud or cli
money laundering, despite having recently supervised a major internal audit e
Wanting to get more information, Blevin calls his former colleague, Mira Cha
CFA. Chaudry, who works in Regal’s business development department, acts a
investor relations officer and headed the team for Regal’s recent corporate bo
The bond issue, approved by the central bank and the capital markets regulato
hugely successful and oversubscribed.
Chaudry tells Blevin she too was shocked by the central bank's actions. Not
seemed out of line or suspicious regarding Regal’s financial well- being when t
diligently prepared the bond offering documents. She reminds Blevin, that he,
with Regal’s compliance officer, signed off on all of the public marketing mater
for the bond issue, which included reviewing all of the extensive financial anal
undertaken. Chaudry adds, “In the latest regulatory inspection, all of the anti-
laundering and lending procedures were reviewed with no queries raised.”
Regal’s board of directors is concerned that the newspaper’s headline
ate panic among depositors and cause a run on Regal if it is allowed to reopen
an attempt at damage control, the board instructs Chaudry to draft a public pr
release regarding the central bank’s investigations of fraud by the deceased C
the money laundering charges made against one of the bank’s major clients. C
presents the following three draft statements to the board.
Statement 1“Regal Bank has been placed under statutory management by
the central bank as a result of illegal activity by Mr. Antonio, the
deceased CEO, and Wesley Mining Corp, a major client.”
Statement 2“The central bank has placed Regal Bank under statutory man-
agement pending further investigation into alleged illegal activ
by a former senior manager and a bank client.”
Statement 3“Regal Bank has been placed under statutory management by
central bank as a result of illegal activity.”
During the next few days, Chaudry receives several phone calls from
tled financial advisers who purchased the bonds for their clients. In a heated p
conversation, one adviser, Paul Meshak, CFA, threatens to report Chaudry to C
Institute for violating her fiduciary duty. He adds, “I’m going to make sure you
work in this industry again.” Chaudry responds, “Go ahead and report this to C
Institute, but I didn’t violate the Code of Ethics and Standards of Professional Con
I understand my obligations. For your information, I passed all three CFA
including the ethics portions, consecutively.”
Meanwhile, Blevin, still reeling from the Regal Bank saga, decides to take a
look at Spalding’s compliance policies and procedures to ensure they are fully
with the CFA Institute Standards of Professional Conduct. While reviewing the
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2017 Level II Mock Exam AM 3
anti-money- laundering policies, he notices lapses with respect to recently implemented
laws, and he is afraid the firm may already be in violation. He plans to update the
existing policies as soon as possible.
After concluding his review, Blevin recommends to Spalding’s board of directors
changes to the firm’s conflicts of interest policies. Blevin is concerned the staff may
not be putting clients’ interests ahead of their own when trading for their personal
accounts. He asks for the board’s endorsement of revisions in the following two policies:
Policy 1 Staff are not allowed to participate in any private placements.
Policy 2 Any client accounts that include staff as beneficiaries must trade after
all other client accounts.
Spalding’s business development manager asks Blevin to make a presentation to
a potential pension fund client, Makar Staff Retirement Fund. The manager informs
him that the firm previously managed the Makar account but lost it. A Makar trustee
informs him that Spalding was fired because the trustees could not understand their
monthly statements and could not tell how they performed relative to other pension
accounts under Spalding’s management. During the presentation, Blevin states, “We
are in the process of updating our compliance policies, including our minimum
requirements for performance presentation reporting.”
1 Based on the information given, are Blevin and/or Chaudry most likely in viola-
tion of the CFA Institute Standards of Professional Conduct regarding their role
in Regal’s corporate bond issuance and the subsequent statutory management
of Regal Bank?
A No.
B Yes, Blevin is likely in violation with regard to Standard IV(C):
Responsibilities of Supervisors.
C Yes, both Blevin and Chaudry are likely to be in violation with regard to
Standard V(A): Diligence and Reasonable Basis.
KEY = A
Guidance for Standards I–VII, CFA Institute
Modular Level II, Vol. 1, Reading 2, Standard IV(C) and V(A)
Study Session 1- 2-a
Demonstrate a thorough knowledge of the Code of Ethics and Standards of Professional
Conduct by applying the Code and Standards to specific situations.
A is correct because there is no evidence to suggest either Blevin and/or Chaudry
are in violation of the CFA Institute Standards of Professional Conduct. Both noted they
had not found any suspicious activities, false information, or indications of fraud in their
work as the internal auditor or the investor relations officer, despite rigorous undertak-
ings. There are also no indications to imply that either violated their responsibilities as
supervisors to make reasonable efforts to detect violations of laws, rules, or regulations.
2 To prevent violating any of the CFA Institute Standards of Professional
Conduct, which statement should Chaudry most likely recommend that the
board of directors use for Regal’s press release?
A Statement 1
B Statement 2
C Statement 3
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