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

• Question 3691:

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

  A. exchange rates

  B. trades

  C. settlements

  D. disclosures

  E. taxes

  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 3692:

  Which of the following is NOT true about Standard IV (A.2) - Research Reports?

  A. None of these answers.

  B. The analyst must separate fact from statistical conjecture to be in compliance with the standard.

  C. As long as the analyst has carried out adequate investigation, she can omit from the report certain aspects of the investigations that she deems unimportant.

  D. The report must contain a basic description of the characteristics of the investment under consideration.

  Correct Answer: A

  Standard IV (A.2) - Research Reports

• Question 3693:

  According to the AIMR-PPS, assets to which the Standards cannot be applied are not to be considered by firms when claiming compliance with the Standards. Which of the following is an example of an asset to which the Standards cannot be applied?

  A. Guaranteed investment contract assets

  B. Convertible securities

  C. International assets

  D. Assets managed to more than one base currency

  Correct Answer: A

  Traditional GIC portfolios provide stable results that are not based on a mark-to-market valuation. The valuation of the traditional GIC is based on book value, not current market value, which are the valuations required by the total return calculation and reporting requirements of the Standards. GIC assets would be reported separately.

• Question 3694:

  Which of the following is/are a correct statement of a member's duty under the Code and Standards?

  I. In the absence of specific applicable law or other regulatory requirements, the Code and Standards govern the member's actions.

  II. A member is required to comply only with applicable local laws, rules, regulations, or customs even though the AIMR Code and Standards may impose a higher degree of responsibility or a higher duty on the member.

  III.

  A member who trades securities in a foreign securities market where no applicable local laws or stock exchange rules regulate the use of material nonpublic information may take investment action based on material nonpublic information.

  A.

  I only.

  B.

  III only.

  C.

  I and II only.

  D.

  II and III only.

  Correct Answer: A

  This question pertains to Standard I, Fundamental Responsibilities - specifically, international application of the Code and Standards. If applicable law is more strict than the requirements of the Code and Standards, members must adhere to applicable law, otherwise, members must adhere to the Code and Standards thus, I is correct. Members must adhere to the higher standard set by the Code and Standards if local applicable law is less strict- thus, II is incorrect. When no applicable law exists, the Code applies - thus, III is incorrect.

• Question 3695:

  An investment management firm has been hired by ETV Corporation to work on an initial public offering for the company. The firm's brokerage unit now has a sell recommendation on ETV, but the head of the investment banking department has asked the head of the brokerage unit to change the recommendation from sell to buy. According to the Standards, the head of the brokerage unit would be permitted to:

  A. Increase the recommendation by no more than one increment (in this case, to a hold recommendation).

  B. Assign a new analyst to decide if the stock deserves a higher rating.

  C. Place the company on a restricted list and give only factual information about the firm.

  D. Reassign responsibility for rating the stock to the head of the investment banking unit.

  Correct Answer: C

  This question relates to Standard IV (A.3), Independence and Objectivity. When asked to change a recommendation on a company stock to gain business for the firm, the head of the brokerage unit must refuse in order to maintain his independence and objectivity in making the recommendation. To avoid the appearance of a conflict of interest, the firm should discontinue issuing recommendations about the company. Changing the recommendation in any manner is a violation of the member's duty to maintain independence and objectivity. Assigning a new analyst would not address the conflict of interest. Reassigning responsibility for the stock to the head of investment banking would actually exacerbate the conflict.

• Question 3696:

  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 Candidate." 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 completed Levels I and II. According to the Standards:

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

  B. Neither Albert nor Tye had violated the Standards.

  C. Tye has violated the Standards and Albert has not.

  D. Both Albert and Tye have violated the Standards.

  Correct Answer: A

  The question deals with Standard II (A), Use of Professional Designation. Candidates may not use the designation in any form prior to actually obtaining their charter. Therefore, Albert has violated Standard II (A). Candidates may communicate that they are participating in the CFA Program, however and may state the levels that they have completed. Therefore, Tye has not violated Standard II (A).

• Question 3697:

  John Cochrun is a reputed money manager who is also an AIMR member. John recently discovered that some employees at the firm where he is employed have been engaging in some questionable activity which could very well be construed as insider trading by the SEC. John, however, does not think the activity is egregious enough to be reported to the SEC. In any case, he does not want to be known as "the rat who blew the whistle." By not reporting the criminal activity, John has:

  A. has not violated the AIMR code.

  B. violated the AIMR code, Standard I (B) - Fundamental Responsibilities.

  C. violated the AIMR code, Standard III (C) - Disclosure of Conflicts to the Employer.

  D. violated the AIMR code, Standard III (B) - Duty to the Employer.

  Correct Answer: A

  The AIMR code does not require members to report legal violations to the appropriate authorities, as long as they don't associate themselves with such activities.

• Question 3698:

  Performance is the record of the ________.

  A. individual

  B. firm

  C. investment manager

  D. child

  E. person

  Correct Answer: B

  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 3699:

  ________ accounting is suggested for calculating performance.

  A. Trade-date

  B. Performance

  C. Accrual

  D. Longitudinal

  E. Composite

  Correct Answer: A

  Trade-date accounting is recommended when calculating performance, although settlement-date accounting is acceptable if disclosed. Because of the volatility and lengthy settlement periods of some markets, trade-date accounting is strongly recommended for calculating the performance of international portfolios.

• Question 3700:

  Which of the following AIMR Standards states that a financial analyst must consider the suitability of an investment for each client or portfolio before undertaking investment action?

  A. IV (B.2)

  B. III E

  C. none of these answers

  D. III D

  Correct Answer: A

  Standard IV (B.2) - Portfolio Investment Recommendations and Actions states: "Members shall consider the appropriateness and suitability of investment recommendations or actions for each portfolio or client. Members shall not make a recommendation unless they reasonably determine that the recommendation is suitable to the client's financial situation, investment experience and investment objectives."