CFA Institute CFA Institute Certifications CFA-LEVEL-1 Questions & Answers

• Question 3561:

  Which of the following can be found in Standard V?

  A. Members shall make reasonable and diligent efforts to avoid any material misrepresentation in any research report or investment recommendation.

  B. Members shall maintain knowledge of AIMR's Code of Ethics.

  C. If members receive material nonpublic information in confidence, they shall not breach that confidence by trading or causing others to trade in securities to which such information relates.

  D. Members must use the CFA designation in a dignified manner.

  E. Members shall comply with any prohibitions on activities imposed by their employer if a conflict of interest exists.

  Correct Answer: C

  Standard V details: "Prohibition against use of material nonpublic information. If members receive material nonpublic information in confidence, they shall not breach that confidence by trading or causing others to trade in securities to which such information relates."

• Question 3562:

  Arvantis works for Quick-time Brokerage. He has not been happy with his employment for some time and recently decided to start his own hedge fund. He started making administrative preparations for setting up the fund while still working for Quick-time Brokerage. He also made contact with a few of his oldest clients and gave them details about his hedge fund. The clients promised to switch accounts once the fund was initiated. Arvantis has:

  I. violated Standard III (B) - Duty to Employer by making preparations to enter a competitive business while still being employed with Quick-time Brokerage.

  II. violated Standard III (B) - Duty to Employer by soliciting Quick-time Brokerage's clients while still being employed with Quick-time Brokerage.

  III.

  not violated Standard III (B) - Duty to Employer.

  A.

  I only

  B.

  II only

  C.

  I and II

  D.

  III only

  Correct Answer: B

  Standard III (B) - Duty to Employer - does not preclude a departing employee from making arrangements to enter independent practice prior to leaving current employment, as long as such preparations do not constitute a breach of loyalty toward the employer. However, undertaking any activity that harms the current employer is a violation of III (B).

• Question 3563:

  To fulfill the duty to inform their employer that they must follow AIMR's Code and Standard, members must:

  A. inform their immediate supervisor in writing.

  B. inform their immediate supervisor either orally or in writing.

  C. inform the firm's chief executive officer in writing.

  D. inform the firm's chief executive officer either orally or in writing.

  Correct Answer: A

  This question relates to a member's duty to inform his/her employer of the Code and Standards. The proper method to do so is in writing and through the member's direct supervisor.

• Question 3564:

  With regard to international portfolios, if net performance is indicated, managers are required to disclose the assumed ________ for the benchmark.

  A. tax rate

  B. currency effects

  C. hedge

  D. disclosure

  E. differentials

  Correct Answer: A

  To be in compliance with the AIMR-PPS, the performance presentation for international portfolios must disclose whether composites and benchmarks are presented gross or net of withholding taxes on dividends, interest and capital gains; if net, the assumed tax rate for both the composite and the benchmark.

• Question 3565:

  Investments-R-Us is a growing investment advisory firm, which recently hired 5 CFA charter-holders for senior management positions. In an advertisement, the firm promised clients excellent client service and timely investment advice. To bolster this motto, all 5 CFA charter-holders were praised in the advertisement for their commitment, professionalism and high intelligence displayed in passing the CFA program in 3 straight attempts. IRU has

  A. violated the AIMR Presentation Standards by selectively presenting its expertise in the field.

  B. violated Standard II (A) - Use of Professional Designation - by implying superior results based on the fact that the CFA charter-holders passed every exam in first attempt.

  C. none of these answers.

  D. not violated any of standards in the AIMR code.

  Correct Answer: B

  Implications that CFA Charter-holders who pass their exams in the first attempt can generate superior results or display a higher level of intelligence are considered inappropriate by Standard II (A) of the AIMR Code of Ethics.

• Question 3566:

  Liliana works for Bear Funds, a brokerage firm. Bear has a policy of not allowing its employees to trade in securities in which it has large holdings. A list of such securities is circulated on a daily basis to the employees. Liliana knows of this restriction. However, a few days ago, she happened to purchase a few shares of a firm that are on Bear's restricted list. The total value of the purchase was less than $500. Liliana should

  A. none of these answers.

  B. report the transaction to the compliance department and see how best to unwind the transaction.

  C. inform her immediate supervisor about it and accept any sanctions.

  D. not do anything, because the activity is of negligible size.

  Correct Answer: B

  Standard III (C) - Disclosure of Conflicts to Employer.

• Question 3567:

  Performance (relating to Performance Presentation Standards) is the record of the ________.

  A. person

  B. investment manager

  C. individual

  D. child

  E. firm

  Correct Answer: E

  To be in compliance with the PPS, a firm's presentation of performance must comply on a firmwide basis and must consist of 10 years of performance (or records since the date of inception if the firm is younger than 10 years).

• Question 3568:

  Which of the following can be found in Standard IV?

  A. Members shall maintain knowledge of and comply with all applicable laws.

  B. Members shall make reasonable efforts to achieve public dissemination of material nonpublic information disclosed in breach of a duty.

  C. Members shall maintain appropriate records to support the reasonableness of recommendations.

  D. Members shall not undertake any independent practice in competition with employer without written consent.

  E. Members shall not participate in plagiarism.

  Correct Answer: C

  Standard IV states: "Members shall maintain appropriate records to support the reasonableness of recommendations or actions."

• Question 3569:

  Carve-outs may not be combined with ________ portfolios.

  A. new

  B. exchanged

  C. stand-alone

  D. composite

  E. benchmark

  Correct Answer: C

  Stand-alone composites from subsectors or carve-outs of larger international portfolios can be created only if the subsectors are actually being managed as separate entities with their own cash allocations and currency management - for example, a series of currency funds.

• Question 3570:

  When a composite of international portfolios is created, firms should separate portfolios that are allowed to

  use currency ________ from portfolios that may not use ________, unless the use of currency ________

  is considered immaterial.

  (Same answer for all three spaces)

  A. selection

  B. hedging

  C. exchanges

  D. swaps

  E. strategy

  Correct Answer: B

  If a firm makes significant use of currency hedging when allowed, it should separate portfolios that do not allow such hedging into a different composite and use a different benchmark for the highly hedged and unhedged composites. Similarly, portfolios with materially different risk exposures do not belong in the same composite.