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

• Question 3661:

  Standard III (C) deals with ________.

  A. None of these answers

  B. Plagiarism

  C. Obligation to Inform Employer of Code and Standards

  D. Use of Professional Designation

  E. Disclosure of Conflicts to Employer

  F. Fundamental Responsibilities

  G. Duty to Employer

  H. Professional Misconduct

  Correct Answer: E

  Standard I deals with Fundamental Responsibilities. Standard II (A) deals with Use of Professional Designation. Standard II (B) deals with Professional Misconduct. Standard II (C) deals with Plagiarism. Standard III (A) deals with the Obligation to Inform Employer of Codes and Standards. Standard III (B) deals with the Duty to Employer. Standard III (C) deals with Disclosure of Conflicts to Employer.

• Question 3662:

  When complying with Standard IV (B.3) - Fair Dealing, there are certain points one should be sure to address when establishing compliance procedures. Which of the following points is NOT mentioned in the Standards of Practice Handbook?

  A. Disclose levels of service.

  B. Limit the number of people involved.

  C. Shorten the time frame between decision and dissemination.

  D. Establish procedures for determining material change.

  E. Simultaneous dissemination.

  F. Disclose all corporate relationships.

  G. Publish personnel guidelines for predissemination.

  H. Establish control over trading activity.

  Correct Answer: F

  Under Standard IV (B.3), members have an obligation to ensure that their firms establish compliance procedures requiring all employees who disseminate investment recommendations or actions to treat clients fairly. The number of people privy to an investment recommendation should be limited. Reasonable efforts should be made to limit the amount of time that lapses between the decision and the dissemination of the recommendation. Guidelines must be established to prohibit persons who have prior knowledge from discussing a pending recommendation. Trading activities should be monitored and controlled. Procedures should be established to determine whether a change in an investment recommendation is considered material. The organization should disclose to firms whether or not it offers two or more levels of service to clients for the same or different fees.

• Question 3663:

  The primary beneficiaries of the AIMR-PPS are:

  A. current and prospective clients.

  B. AIMR members.

  C. all investment professionals.

  D. investment firms who adopt the standards.

  Correct Answer: A

  Since the PPS strive to achieve greater uniformity and compatibility amongst the various performance presentations, clients who wish to compare investment results across various firms benefit the most. Note, however, the mere compliance of a firm with the PPS does not mean that clients should not perform due diligence before making investment decisions.

• Question 3664:

  NL is a country with no securities laws. LS is a country that has securities laws that are less strict than the AIMR code of ethics while MS has securities laws that are stricter than the code of ethics. A securities trader lives in MS but conducts his business in LS. His behavior is governed by MS laws. However, the MS law states that the applicable business laws are the local laws where the business is conducted. In that case, the trader must adhere to:

  A. LS business laws.

  B. AIMR code.

  C. MS business laws.

  D. a combination of MS and LS business law.

  Correct Answer: B

  An AIMR member must always adhere to the code of ethics, unless the laws governing his/her behavior are stricter, in which case, the stricter laws must be followed. In this case, since the LS law applies to the trader's business behavior, the trader must follow the stricter AIMR code of conduct.

• Question 3665:

  Standard III (B) is ________.

  A. None of these answers

  B. Disclosure of Additional Compensation Arrangements

  C. Responsibilities of Supervisors

  D. Disclosure of Conflicts to Employer

  E. Obligation to Inform Employer of Code and Standards

  F. Duty to Employer

  Correct Answer: F

  Standard III (A) deals with the Obligation to Inform Employer of Code and Standards. Standard III (B) deals with the Duty to Employer. Standard III (C) deals with Disclosure of Conflicts to Employer. Standard III (D) deals with Disclosure of Additional Compensation Arrangements. Standard III (E) deals with Responsibilities of Supervisors.

• Question 3666:

  Charlice is a portfolio manager who manages (with the help of four analysts) the pension plan assets of Gordon Industries. Charlice received this account four years ago from Gordon Industries Vice President, Michael Burnbaum, who is also in charge of investment oversight. To whom does Charlice owe fiduciary duties?

  I. Michael Burnbaum, in his capacity as Gordon Industries' Investment Officer.

  II. The employees of Gordon Industries.

  III.

  The pension beneficiaries at Gordon Industries.

  A.

  III only

  B.

  I and III only

  C.

  I only

  D.

  II and III only

  Correct Answer: A

  A portfolio manager owes fiduciary responsibility to the beneficiaries of the portfolio he is managing. In case of pension plans, the loyalty is not owed to the person who hired the manager or to the entity that set up the fund. Rather, the responsibility lies toward the ultimate plan beneficiaries; in the case of Gordon Industries, it is the pension plan beneficiaries (though not all employees are pension recipients so II is not a valid choice). Standard IV (B.1) - Fiduciary Duties - and the Topical Study, "Fiduciary Duty."

• Question 3667:

  Which of the following can be found in Standard III?

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

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

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

  D. Members shall not participate in plagiarism.

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

  Correct Answer: E

  Standard III states: "Members shall not undertake any independent practice that could result in compensation or other benefit in competition with their employer without written consent from both the employer and the person for whom they undertake independent practice."

• Question 3668:

  ERISA fiduciaries must adhere to the following prudent procedures:

  -establish a written investment policy for the plan - diversify plan assets

  -make investment decisions with the skill and care of a prudent expert

  -monitor investment performance

  -control investment expenses

  -

  avoid ________ transactions

  A.

  insider

  B.

  diversification

  C.

  prohibited

  D.

  none of these answers

  E.

  commitment

  Correct Answer: C

  These procedures are stipulated under the detailing of ERISA fiduciary duties, to ensure that fiduciary complies with the duty to act with prudence. Although the ERISA fiduciary duty allows for a fairly broad range of investments, it does prohibit certain transactions. An ERISA fiduciary can never: - deal with plan assets in his or her own interest or for his or her own account (self-dealing); - act in a transaction involving the plan on behalf of a party with interest adverse to the plan (conflict of interest); - receive any compensation for his or her own personal account from any party dealing with the plan in connection with a transaction involving plan assets (kickbacks).

• Question 3669:

  With regard to calculation of returns for international portfolios, a consistent source of ________ should be used.

  A. exchange rates

  B. settlements

  C. trades

  D. taxes

  E. disclosures

  Correct Answer: A

  Whenever the currency overlay manager is notified of changes in the underlying currency exposures as a result of a shift in the underlying assets, the currency overlay portfolios should be revalued to ensure consistency.

• Question 3670:

  Sanctions that AIMR may impose on its members include:

  I. Revocation of the member's registration as an investment advisor.

  II. Private censure.

  III. A monetary fine.

  IV.

  Suspension of membership.

  A.

  II and IV only.

  B.

  I and III only.

  C.

  II, III and IV only.

  D.

  I, II, III and IV.

  Correct Answer: A

  The question deals with the disciplinary sanctions available to AIMR's PCP. The PCP can suspend membership or impose a private censure on members for violating the Code and Standards. However, AIMR has no authority to revoke a member's registration as an investment advisor, or to impose a monetary fine.