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

Free Test Prep CFA® LEVEL 1 Dumps Questions (page: 41)

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

  1. violated Standard V (A) - Prohibition against Use of Material, Non-Public Information.
    II. violated Standard IV (2) - Research Reports by failing to distinguishing between fact and opinion.
    III. violated Standard IV (1) - Reasonable Basis and Representations.
    IV. violated Standard II (C) - Prohibition against Plagiarism.
  2. II, III and IV only
  3. III only
  4. none of them
  5. I and III only

Answer(s): B

Explanation:

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.



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

  1. Using the current employer's client list for personal independent practice.
  2. Rendering services to independent clients without informing them about your current employment status but after obtaining written permission from the current employer.
  3. 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.
  4. None of these answers.

Answer(s): C

Explanation:

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.



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

  1. mutual fund
  2. convertible bond
  3. portfolio
  4. composite
  5. index

Answer(s): E

Explanation:

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.)



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

  1. All aspects of the AIMR Performance Presentation Standards are mandatory.
  2. None of these answers is true.
  3. All aspects of the AIMR Performance Presentation Standards are recommended. They are simply guidelines and don't necessarily need to be followed.
  4. Some aspects of the AIMR Performance Presentation Standards are mandatory, while others are recommended.

Answer(s): D

Explanation:

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.



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?

  1. 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.
  2. Determine the extent of the violations and warn Jill in no uncertain terms that a repeat incidence would lead to her losing the job.
  3. Terminate Jill's employment.
  4. Report the misconduct to his superiors and warn Jill in writing that future misconduct would lead to immediate termination of employment.

Answer(s): A

Explanation:

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



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