Test Prep CFA® Level I Chartered Financial Analyst CFA® LEVEL 1 Exam Questions in PDF

Free Test Prep CFA® LEVEL 1 Dumps Questions (page: 10)

Arbaaz, an AIMR member, works for an investment advisory firm, Leon Investments. His friend, Shahzad, recently asked him for some investment recommendations. Arbaaz analyzed Shahzad's portfolio over a weekend and suggested some changes. While he did not accept any remuneration, Shahzad promised him some gifts if his portfolio "performed well." Arbaaz did not inform his employer since he thought he was helping

a friend and in any case, the Shahzad's account was extremely small and there were no financial payments.
Arbaaz has:

  1. violated Standard III (B), Duty to Employer.
  2. has not violated Standard III (B), Duty to Employer, because there was no financial remuneration.
  3. has not violated Standard III (B), Duty to Employer, because Shahzad's account was too small to be deemed lost business for Leon Investments.
  4. has not violated Standard III (B), Duty to Employer, because Arbaaz is free to do what he wants on his time as long as it doesn't affect Leon Investments.

Answer(s): A

Explanation:

While Arbaaz did not receive any monetary compensation, there is a possibility of gifts in the future. Standard III (B) applies even when there is no actual receipt of compensation; what is important is the possibility of future payments in cash or kind. By not obtaining a written permission from his employer before advising Shahzad, Arbaaz violated Standard III (B).



"Restricted Periods" are discussed in Standard IV (B.4), Priority of Transactions. Another name for restricted periods is ________ periods.

  1. blackout
  2. restrained
  3. none of these answers
  4. captive

Answer(s): A

Explanation:

Firm procedures should prevent managers or employees from initiating trades in a security for which their firms have a pending buy or sell order within a 24-hour period. Firms must determine specific requirements relating to such blackout, or restricted periods.



Liz Hurley is an investment advisor who has recently started advising a client, Zeta, regarding investment decisions. Zeta lives in Imphal, where investment laws are quite lax, almost non-existent. Hurley is domiciled in Britania, where investment laws clearly specify that the laws governing finance professionals in any given case are the laws that govern their clients. Britania laws, in general, are far stricter than the AIMR code of ethics. In her dealings with Zeta, Hurley must follow

  1. Imphal's laws.
  2. Britania's laws.
  3. AIMR's code of ethics.
  4. a combination of Britania's laws and AIMR code which results in a stricter set of laws.

Answer(s): C

Explanation:

In her dealings with Zeta, Hurley is governed by Imphal's laws, as specified by Britania's laws. Since Imphal laws are almost non-existent, the code of ethics sets a stricter standard and hence, as an AIMR member, Hurley must follow the AIMR code. Standard I.



In order to inform your employer that as a member of AIMR, you must abide by the code of ethics, you must:

  1. inform the legal department in writing.
  2. inform senior management in writing.
  3. inform your immediate supervisor in writing or by email.
  4. inform your supervisor in writing, by email or orally.

Answer(s): C

Explanation:

Standard III (A)



Spassky was assigned the task of managing the portfolio of Fisher three days ago when Anand, who was managing Fisher's portfolio, retired. Fisher's portfolio consists of some deep-in-the-money put options, which will be exercised today, resulting in a cash flow of about $40,000. Spassky has not yet had a chance to meet Fisher in person to determine his needs, investment objectives and risk appetite. He did get a briefing from Anand about the portfolio and has a general idea about Fisher's investment attitude. In fact, over the past two years, Fisher's portfolio has generated handsome returns due to high-risk investments which Fisher prefers. Spassky's problem is determining what he should do with the $40,000. According to the AIMR Code of Ethics, he should:

  1. keep the money in cash form and not risk it till he can meet Fisher to discuss the situation.
  2. "roll over" the put positions for another week or two till he can meet Fisher and discuss the reinvestment of the funds.
  3. invest the funds in a diversified portfolio with a risk profile similar to what Anand and Fisher have been maintaining over the past 3 months.
  4. invest the funds in highly liquid, cash equivalent assets till he can meet Fisher and determine his needs, investment objectives and risk appetite.

Answer(s): D

Explanation:

In most cases, a portfolio manager must manage a portfolio based on the investment needs and objectives of the portfolio owner consistent with the willingness to bear risk. One exception to this rule is when a new portfolio manager takes over and has the task of reinvesting funds arising from the existing portfolio investments. Since these funds should not be kept idle, a prompt investment of the money in liquid, risk-free securities is prescribed by the AIMR code of Ethics.



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