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

• Question 3751:

  An AIMR member has violated one of the AIMR code of ethics standards. However, according to the laws of the country governing his behavior, he has done nothing wrong. Then,

  A. AIMR can take disciplinary action against her.

  B. AIMR cannot take disciplinary action against her.

  C. there is no violation of the code since local laws were adhered to.

  D. none of these answers.

  Correct Answer: A

  A member must always abide by the AIMR code, unless the local laws in any given case are stricter, in which case, the stricter standard applies. Standard I. Hence, every violation of the code of ethics is always subject to disciplinary action.

• Question 3752:

  Portfolios

  A. can be switched from one composite to another at any time at the discretion of the investment manager.

  B. can never be switched from one composite to another, so managers must ensure they consult their clients and make appropriate choices.

  C. must not be switched from one composite to another unless documented changes in client guidelines make switching appropriate.

  D. can only be switched from one composite to another at the end of a performance period and only if documented changes in client guidelines make switching appropriate.

  Correct Answer: C

  Portfolios must not be switched from one composite to another unless documented changes in client guidelines make switching appropriate. This is a requirement for creation and maintenance of composites.

• Question 3753:

  Each of the following is true regarding Standard II (A), except:

  A. You may not state that you have completed Level I, II, or III until you have received the CFA designation.

  B. This standard relates to oral statements.

  C. All of these answers.

  D. This standard relates to business cards and letterheads.

  E. You must be registered for the next CFA exam in order to call yourself a candidate.

  F. There is no designation for someone who has passed Level I, II, or III.

  Correct Answer: A

  Standard II (A) relates to the responsibility of AIMR members and candidates to use their professional designation properly and in a non-misleading manner. A person must be registered to take the next scheduled CFA exam to be a "candidate" in the CFA program. There is no designation for someone who has passed Level I, II, or III of the CFA exam. Candidates may state, however, that they have completed Level I, II, or III. The standard applies to all related explanations or descriptions of the CFA designation, including letterheads and business cards, resumes, directory listings, printed advertising, brochures and oral statements to clients and prospects.

• Question 3754:

  To fulfill the basic provisions of Standard IV (B.2), a member should ________.

  A. stay free of all conflicts of interest

  B. develop an investment policy statement for each client

  C. discuss the proxy voting policy with management

  D. disclose to clients, all additional compensation agreements

  E. disclose all soft dollar arrangements

  Correct Answer: B

  In formulating an investment policy for the client, the member should take into consideration client identification, investor objectives, and investor constraints.

• Question 3755:

  Which of the following can be found in Standard II?

  A. Members shall not knowingly participate or assist in any violation of laws, rules, or regulations.

  B. Members shall not participate in any professional conduct involving dishonesty, fraud, deceit, etc.

  C. Members shall deliver a copy of the Code to their employer.

  D. Members shall not misrepresent investment performance.

  E. Members shall exercise diligence and thoroughness in making investment recommendations or in taking investment actions.

  Correct Answer: B

  Standard II states that members shall: "Not participate in any professional conduct involving dishonesty, fraud, deceit, or misrepresentation or commit any act that reflects adversely on their honesty, trustworthiness or professional competence."

• Question 3756:

  Which of the following statements about the AIMR Performance Presentation Standards is true?

  A. All aspects of the AIMR Performance Presentation Standards are mandatory.

  B. None of these answers is true.

  C. All aspects of the AIMR Performance Presentation Standards are recommended. They are simply guidelines and don't necessarily need to be followed.

  D. Some aspects of the AIMR Performance Presentation Standards are mandatory, while others are recommended.

  Correct Answer: D

  Some aspects of the AIMR Performance Presentation Standards are mandatory (i.e., they must be followed to claim compliance); other aspects are strongly recommended (i.e., they should be followed). Note that AIMR strongly encourages firms to adopt the recommended Standards in addition to the required standards.

• Question 3757:

  Julius Christus is an AIMR member and a vice president in the Risk Control department of a major commercial bank. Julius recently discovered that Jill Chapman had been grossly negligent in her duties involving monitoring of trading limits and violations by the trading desk. This is the first time Jill has been found to be remiss in her duties. Which of the following actions is the minimum necessary for Julius to be in compliance with Standard III (E) - Responsibilities of Supervisors?

  A. Initiate an inquiry and take steps, such as placing limits on Jill's activities and increasing the monitoring of her activities to ensure that future violations do not occur.

  B. Determine the extent of the violations and warn Jill in no uncertain terms that a repeat incidence would lead to her losing the job.

  C. Terminate Jill's employment.

  D. Report the misconduct to his superiors and warn Jill in writing that future misconduct would lead to immediate termination of employment.

  Correct Answer: A

  "Procedures for Compliance," Standard III (E).

• Question 3758:

  A(n) ________ is a publicly available independent representation of the market and if used as a benchmark, should be investable.

  A. mutual fund

  B. convertible bond

  C. portfolio

  D. composite

  E. index

  Correct Answer: E

  The most commonly used benchmark for an investment strategy is a market index. Indexes can be mixed to represent an allocation among markets. (Note: Not all indexes are investable.)

• Question 3759:

  Which of the following is NOT a violation of Standard III (B) - Duty to Employer?

  A. Using the current employer's client list for personal independent practice.

  B. Rendering services to independent clients without informing them about your current employment status but after obtaining written permission from the current employer.

  C. Provide free tax assistance to "low-income" people on a volunteer basis, without expecting or accepting any compensation when some of these people can be potential clients of your current employer.

  D. None of these answers.

  Correct Answer: C

  Standard III (B) prohibits an employee from going into a competitive business while currently employed without obtaining written permission. However, this applies only if the independent practice is for remuneration. Strictly volunteer activities (such as helping low-income people with free financial advice) which cannot be construed as being done for potential compensation do not constitute a violation of the standard even if they result in some loss of business to the current employer. However, the code is not explicit on this point. Obviously, "free tax assistance" to high-income people will never be considered a volunteer activity.

• Question 3760:

  Latham has been following a publicly traded oil firm, Techron Oil. Recently, he read a review about the oil fields in Venezuela, to the effect that the actual oil content of the fields across the country might be as much as 35% higher than previously estimated. Techron owns sizable properties in Venezuela and Latham has concluded that the research report implies that Techron might have as much as a million gallons a day in excess capacity that has not been factored into the stock price. In his report, he properly attributed the original review as the source of his information and recommended that in his opinion, Techron's stock was an immediate BUY. Latham has

  I. violated Standard V (A) - Prohibition against Use of Material, Non-Public Information.

  II. violated Standard IV (A.2) - Research Reports by failing to distinguishing between fact and opinion.

  III. violated Standard IV (A.1) - Reasonable Basis and Representations.

  IV.

  violated Standard II (C) - Prohibition against Plagiarism.

  A.

  II, III and IV only

  B.

  III only

  C.

  none of them

  D.

  I and III only

  Correct Answer: B

  Since the review was publicly available, Latham has not violated Standard V (A) - Prohibition against use of Material, Non-Public Information. Also, because he properly attributed his original source, he has not plagiarized according to Standard II (C). However, by not carrying out an independent study to verify that his conclusions were indeed warranted, he violated Standard IV (A.1) - Reasonable Basis and Representations. Note that he has not confused fact with opinion and therefore not violated Standard IV

  (A.2) - Research Reports.