CFA Level I Chartered Financial Analyst CFA I Exam Questions in PDF

Free CFA CFA I Dumps Questions (page: 36)

The primary determinant of a fiduciary's powers and duties are to be found in the ________.

  1. board of director's meeting minutes
  2. governing documents (trust documents & investment management agreements)
  3. FDIC General Rules
  4. ERISA Statement of Procedures
  5. none of these answers
  6. ERISA Funding Guidelines

Answer(s): B

Explanation:

Fiduciaries must manage any pool of assets in their control in accordance with the terms of the governing documents (such as trust documents and investment management agreements), which are the primary determinant of a fiduciary's powers and duties. Whenever their actions are contrary to provisions of those instruments or applicable law, fiduciaries are exposed to liability through litigation brought by parties at interest.



Which of the following can be found in Standard V?

  1. Members shall not undertake any independent practice in competition with employer without written consent.
  2. Members shall not participate in plagiarism.
  3. Members shall make reasonable efforts to achieve public dissemination of material nonpublic information disclosed in breach of a duty.
  4. Members shall maintain appropriate records to support the reasonableness of recommendations.
  5. Members shall maintain knowledge of and comply with all applicable laws.

Answer(s): C

Explanation:

Standard V states: "Members shall make reasonable efforts to achieve public dissemination of material nonpublic information disclosed in breach of a duty."



Which of the following is not a violation of Standard II (C)?

  1. Using a chart that was prepared by another analyst in a presentation, without acknowledgment.
  2. All of these answers are violations.
  3. Giving an oral report and citing specific quotations, attributable to "leading analysts," without specific reference.
  4. Use of statistical information provided by Standard & Poor's, without acknowledgment.
  5. Use of a small part of an analyst's work who is employed in a completely different (non-competitive) industry, without acknowledgment.

Answer(s): D

Explanation:

Using excerpts from articles or reports prepared by others, either verbatim, or with only a slight change, without acknowledgment; citing specific quotations, attributable to "leading analysts," without specific reference; using charts or graphs without stating their sources; and copying proprietary computerized spreadsheets or algorithms without seeking the authorization of their creators - all of these practices are violations of Standard II (C). Only globally recognized sources of factual material such as that provided by Standard & Poor's, or Moody's Investors Service, can be used without acknowledgment, since such information is already in the public realm.



Christine Crumbwell and Dorothy Drummond are two portfolio managers with Neptune Funds. Cristine is managing the personal trust fund of Paul Roker, who created the fund as an income support for his wife and a legacy for his two sons after his wife's death. Dorothy is in charge of a fund created by Katey Koric. Katey had started this fund as a long-term investment but recently decided to shift the asset mix toward municipal and high-income bonds. Her friend pointed out a great investment opportunity in the newly issued, high-yield-high- income Orange County bonds and Katey instructed Dorothy to sell off a large chunk of the stock holdings in the fund and reinvest in the Orange County bonds. Dorothy spoke to Christine about this and they both agreed that the bonds were an excellent buy. Dorothy carried out Katey's instructions and Christine decided that Paul's portfolio would be better off if she sold some of the small cap stocks and bought the bonds and followed Dorothy's suit.

  1. Dorothy has violated Standard IV (B.1) - Fiduciary Duties by not discussing the issues further with Katey.
    II. Christine has violated Standard IV (B.1) - Fiduciary Duties by tilting the portfolio mix toward high-income instruments.
    III. Katey has violated Standard V (A) - Prohibition Against Use Of Non-Public Information.
  2. I, II and III
  3. I and II only
  4. I only
  5. II only

Answer(s): D

Explanation:

Christine, as a manager of a personal trust, has to balance the interests of the income beneficiaries and the remaindermen who need capital appreciation. By tilting the asset mix toward high-income bonds, Christine has violated her fiduciary duties toward Paul Roker's sons by effectively transferring some of their wealth to their mother. On the other hand, Dorothy has violated no such duty since she in charge of an advisory account. The account belongs to Katey alone and she is free to instruct Dorothy to change investments as she pleases.
Finally, the Orange County bonds have already been issued and there is no misuse of any inside information so Katey cannot be accused of insider trading. Standard IV (B.1) - Fiduciary Duties



Which of the following relating to procedures for complying with Standard III (E) is false? The compliance procedures should:

  1. outline permissible conduct.
  2. delineate procedures for reporting violations and sanctions.
  3. be easy to understand.
  4. outline the scope of the procedures.
  5. designate a compliance officer.
  6. none of these answers.

Answer(s): F

Explanation:

All the statements are true. Adequate compliance procedures should be drafted so that they are easy to understand. They should designate a compliance officer and clearly define the officer's authority and responsibility; outline the scope of the procedures; outline permissible conduct and delineate procedures for reporting violations and sanctions.



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