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

Free Test Prep CFA® LEVEL 1 Dumps Questions (page: 29)

Standard V (A) is known as ________.

  1. Prohibition against Use of Material Nonpublic Information
  2. Duty to Employer
  3. Preservation of Confidentiality
  4. Interactions with Clients and Prospects
  5. None of these answers
  6. Investment Process
  7. Fair Dealing
  8. Professional Misconduct

Answer(s): A

Explanation:

Standard IV (A) deals with the Investment Process. Standard III (B) deals with Duty to Employer. Standard IV (B.3) deals with Fair Dealing. Standard IV (B) deals with Interactions with Clients and Prospects. Standard V (A) deals with Prohibition against Use of Material Nonpublic Information. Standard IV (B.5) deals with Preservation of Confidentiality. Standard II (B) deals with Professional Misconduct.



Which of the following is/are true about the Performance Presentation Standards?

  1. The PPS are voluntary standards and are not required by AIMR to be adopted by a member or a firm.
    II. Members need not be in compliance with the PPS to be in compliance with Standard V (B) - Performance Presentation.
    III. A member can claim compliance with the PPS only if he has complied with all the mandatory requirements of the PPS.
  2. II and III only
  3. I and III only
  4. I, II and III
  5. III only

Answer(s): C

Explanation:

All of the answers are true of the PPS standards.



Urvashi Kulkarni is an investment manager with Amritrust Bank, a mid-size investment bank. Urvashi is managing the pension plan assets of Megalith ICs, a maker of cloned integrated chips for PCs. Megalith is planning a take-over of Microchip Corp., a fast-growing rival which recently patented a technology which promises to change the face of chip cloning business. The pension plan assets of Megalith consist of 17% of Microchip's stock. Megalith's management has decided to buy up to 33% of the stock in a tender offer and transfer the 17% stock holdings of the pension plan to the company investment account. So it instructs Urvashi to sell the Microchip stock to Megalith's general account at the current market price and invest the cash in other stock as she feels appropriate. Urvashi knows that this action and the subsequent takeover of Microchip will substantially elevate Megalith's stock price, creating shareholder value. Urvashi should

  1. refuse to follow the directive since she can be held liable under ERISA if she follows directives issued by the plan sponsor.
  2. refuse to follow the directive since the action is harmful to the pension plan beneficiaries and Urvashi owes fiduciary loyalty to them, not the plan sponsor.
  3. follow the management's directive and sell the stock to the general account.
  4. none of these answers.

Answer(s): B

Explanation:

Urvashi owes fiduciary loyalty to the plan beneficiaries, not the management of Megalith. She must not sell Microchip's stock prior to the tender offer since in doing so, she will be selling the plan assets at a much lower price than would be available once the tender is floated. While such an action benefits Megalith shareholders, it harms the plan beneficiaries. Urvashi owes absolutely no allegiance to Megalith shareholders. Standard IV (B.1) - Fiduciary Duties - and the Topical Study, "Fiduciary Duties."



Standard III includes which of the following ?

  1. Reasonable Basis and Representations
  2. All of these answers
  3. Performance Presentation
  4. Use of Professional Designation
  5. None of these answers
  6. Responsibilities of Supervisors

Answer(s): F

Explanation:

Standard III deals with Obligation to Inform Employer of Code and Standards, Duty to Employer, Disclosure of Conflicts to Employer, Disclosure of Additional Compensation Arrangements and Responsibilities of Supervisors.



Andrea, a portfolio manager for XYZ Investment Management Company, a registered investment organization that advises investment companies and private accounts, was promoted to that position three years ago. Bates, her supervisor, is responsible for reviewing Andrea's portfolio account transactions and her required monthly reports of personal stock transactions. Andrea has been using Jonelli, a broker, almost exclusively for portfolio account brokerage transactions. For securities in which Jonelli's firm makes a market, Jonelli has been giving Andrea lower prices for personal purchases and higher prices for personal sales than Jonelli gives to Andrea's portfolio accounts and other investors. Andrea has been filing monthly reports with Bates only for those months in which she has no personal transactions, which is about every fourth month. Which of the following applies/ apply?

  1. Andrea violated the Code and Standards in that she failed to disclose to her employer her personal transactions.
    II. Andrea violated the Code and Standards by breaching her fiduciary duty to her clients.
    III. Bates violated the Code and Standards by failing to enforce reasonable procedures for supervising and monitoring Andrea in Andrea's trading for her own account.
  2. II only.
  3. II and III only.
  4. III only.
  5. I only.
  6. I and III only.
  7. I and II only.
  8. I, II and III.

Answer(s): G

Explanation:

This question involves three Standards. Andrea, the portfolio manager, has been obtaining lower prices for her personal securities transactions than she gets for her clients, which is a violation of Standard IV (B.1), Fiduciary Duties. In addition, she violated Standard II (B), Professional Misconduct, by failing to adhere to company policy and hiding her personal transactions from her firm. Andrea's supervisor, Bates, violated Standard III (E), Responsibilities of Supervisors, by failing to enforce the procedures for reporting personal trading. Therefore, Statements I, II and III are all correct.



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