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

• Question 3791:

  Procedures for compliance with Standard I include ________.

  A. activities relating to interns and people under contract

  B. keep informed

  C. when you suspect illegal activity, determine legality

  D. when you suspect illegal activity, dissociate from that activity

  E. all of these answers

  F. maintain current files

  G. review procedures

  Correct Answer: E

  Members should maintain current reference copies of applicable statutes, rules and regulations in a readily accessible manner. Members should establish a procedure by which employees are kept informed about changes in applicable laws. Members should review procedures on a regular basis to ensure that they reflect current law and provide adequate guidance. When a member suspects illegal activity is being conducted, the member should consult counsel to determine the conduct's legality and dissociate from the conduct if there are reasonable grounds to believe that it is illegal. This applies to the activities of interns or contractors as well.

• Question 3792:

  According to the AIMR PPS, composites must include new portfolios at the start of the next performance measurement period, ________, after the portfolio comes under management or according to reasonable and consistently applied firm guidelines.

  A. at least annually

  B. at least semi-annually

  C. at least quarterly

  D. at least monthly

  Correct Answer: C

  Composites must include new portfolios at the start of the next performance measurement period (at least quarterly) after the portfolio comes under management or according to reasonable and consistently applied firm guidelines. This is a requirement for creation and maintenance of composites.

• Question 3793:

  Relationships with and Responsibilities to the Investing Public are dealt with under:

  A. Standard V

  B. None of these answers

  C. Standard III

  D. Standard II

  E. Standard IV

  F. Standard I

  Correct Answer: A

  Relationships with and Responsibilities to the Investing Public are dealt with under Standard V.

• Question 3794:

  The ________ states that broker/dealers should be subject to strict standards because they are advertising themselves as market professionals.

  A. cover canon

  B. canopy principle

  C. posting criterion

  D. shingle theory

  E. marketing regulation

  Correct Answer: D

  The shingle theory states that broker/dealers should be subject to strict standards because they are "hanging out their shingles," or, advertising themselves as market professionals. The theory states that inherent in the relationship between brokers/dealers and their clients is the representation that the customer will be dealt with fairly. Brokers/dealers are in a position to exploit their customers' trust and ignorance and therefore they are held to a higher duty of care.

• Question 3795:

  Arbliss, an AIMR member, has been working for a financial software company, Supersoft Corp. for the past 3 years. He now wants to leave the firm and start his own software proprietorship. Which of the following will not constitute a violation of the AIMR code?

  I. Making arrangements to set up the proprietorship prior to leaving current employment, without Supersoft knowing about it.

  II. Soliciting Supersoft's clients prior to the termination of employment.

  III.

  Using a confidential software error-checking program he had developed for Supersoft for his own purposes.

  A.

  I only

  B.

  III only

  C.

  II and III only

  D.

  I and III only

  Correct Answer: A

  Standard III (B) - Duty to Employer - does not preclude a member from entering into independent practice while still employed. It does require the employee to obtain written permission from the employer as well as the outside entity before doing this. It does not prohibit 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. Activities that can be a breach of loyalty include misappropriation of trade secrets, misuse of confidential information, solicitation of the firm's clients before the termination of unemployment and in general, any activity that would destabilize the firm's operations.

• Question 3796:

  The ultimate responsibility to ensure compliance with code rests with: A. every member of the firm.

  B. the CEO of the firm.

  C. all of these answers.

  D. the highest ranking AIMR member of the firm.

  Correct Answer: D

  While every member must always comply with the Code, Standard III (A) stipulates that ensuring compliance with the Code in an organization ultimately is the responsibility of the senior most AIMR member of the firm reporting to a non- member. He must make sure that the firm environment is sympathetic to compliance with the Code.

• Question 3797:

  Which of the following disclosures must a firm make in order to be in compliance with AIMR-PPS?

  I. The effective date of firm compliance.

  II. A measure of the dispersion of individual component portfolio returns around the aggregate composite return.

  III.

  The existence of a minimum asset size below which portfolios are excluded from the composite.

  A.

  I, II and III

  B.

  I and III only

  C.

  I only

  D.

  I and II only

  Correct Answer: A

  All of these are mandatory disclosures under AIMR-PPS.

• Question 3798:

  Which of the following is/are required by AIMR-PPS with regards to calculation of returns?

  I. The return for after-tax composites that hold both taxable and tax-exempt securities should be stated on an equivalent, "pre-tax" basis.

  II. Real Estate must be appraised annually unless client agreements state otherwise.

  III.

  For commingled fund-of-funds structure, segregated Irrs net of trading expenses must be presented.

  A.

  I, II and III

  B.

  III only

  C.

  I and III only

  D.

  none of them

  Correct Answer: D

  The return for after-tax composites that hold both taxable and tax-exempt securities should be stated on an "after-tax" basis and should not be "grossed" up. Real Estate investments must be appraised every three years and the valuations reviewed quarterly unless client agreements state otherwise. For separately managed accounts commingled fund-of-funds structure, cumulative Irrs net of trading expenses must be presented.

• Question 3799:

  Standard V (A), Prohibition against Use of Material Nonpublic Information applies to

  A. all members of the investment community.

  B. recipients of information who are not directly or indirectly associated with the firm the material nonpublic information is about.

  C. recipients of information who are directly or indirectly associated with the firm the material nonpublic information is about.

  D. none of these answers.

  Correct Answer: B

  Standard V (A), Prohibition against Use of Material Nonpublic Information applies to recipients of information who are not directly or indirectly associated with the firm the material nonpublic information is about. Such persons include research analysts, portfolio managers, venture capitalists, pension sponsors, investor relations executives, rating agencies, trust officers and others who make or recommend investment decisions.

• Question 3800:

  Joan, an investment counselor, states in her firm's written promotional material that she is a CFA candidate. She has indeed enrolled in the program, but failed Level I five years ago, has not taken any exams since and is not enrolled in the next exam. Which of the following statements is correct?

  A. Joan is in compliance with the correct use of the CFA designation because she states she is a candidate.

  B. Joan is not in compliance with the correct use of the CFA designation. To be in compliance she must state she is a Level I candidate.

  C. None of these answers.

  D. Joan is not in compliance with the correct use of the CFA designation. Because she is not registered for the next exam, she is not a candidate.

  Correct Answer: D

  Under Standard II (A) - Use of Professional Designation, a person must be registered to take the next scheduled CFA exam to be a "candidate" in the CFA Program. Therefore, because Joan is not scheduled to take the next exam, she is not a candidate. There is no designation for someone who has passed Level I, II, or III. However, candidates may state that they have completed Level I, II, or III, as the case may be.