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

Free Test Prep CFA® LEVEL 1 Dumps Questions (page: 51)

Which of the following AIMR Standards states that the financial analyst shall indicate the basic characteristics of the investment involved when preparing a research report not directly related to a specific portfolio or client?

  1. III D
  2. III C
  3. None of these answers
  4. IV (A.2)

Answer(s): D

Explanation:

Standard IV (A.2) - Research Reports states: "Members shall indicate the basic characteristics of the investment involved when preparing for public distribution a research report that is not directly related to a specific portfolio or client."



Monserrat Troy is a portfolio analyst at Merryl Flynch Inc., a leading investment bank. Merryl's corporate policy prohibits its employees from trading in IPOs even if they are not being underwritten by Merryl. Recently, a fast- growing internet firm, Netblaze, announced that it was going public. Monserrat's friend, Victor, told her that he could get her bid in for a few shares of the IPO. The size of the deal was very small, amounting to less than a couple of thousand dollars. Monserrat went ahead and bought the shares but did not think it was necessary to inform her supervisor about it. She:

  1. violated Standard II (B) - Professional Misconduct - by violating company policy.
  2. did not violate the AIMR code of conduct even though she violated the company policy since the size of her transaction was extremely small.
  3. violated Standard III (B) - Duty to Employer - by violating company policy.
  4. violated Standard III (C) - Disclosure of Conflicts to Employer - by violating company policy.

Answer(s): D

Explanation:

Merryl's policy is designed to prevent any conflicts or even appearances of conflicts of interest when its employees trade in capital markets. If Monserrat wants to trade in a particular IPO, she needs to obtain special permission from Merryl's Compliance department (and such permission may or may not be granted by Compliance). Without such an exception, Monserrat's behavior is a violation of Standard III(C) - Disclosure of Conflicts to Employer. Note that Standards II (B) and III (B) do not apply to this situation.



The investment community's need for a common, accepted set of guidelines to promote fair representation and full disclosure in every firm's presentation performance results to clients and prospective clients has guided the

development of the

  1. AIMR Standards for Calculation of Returns
  2. AIMR Standards of Practice
  3. AIMR Performance Presentation Standards
  4. AIMR Performance and Calculation Investment Board

Answer(s): C

Explanation:

The Performance Presentation are the manifestation of a set of guiding ethical principles and should be interpreted as minimum standards for presenting investment performance.



When an investment manager's client instructs the manager to use the client's brokerage to purchase goods or services for the client, this is known as:

  1. horizontal brokerage and does not violate any fiduciary duty.
  2. horizontal brokerage and violates the manager's fiduciary duty.
  3. directed brokerage and does not violate any fiduciary duty.
  4. straight brokerage and does not violate any fiduciary duty.
  5. straight brokerage and violates the manager's fiduciary duty.
  6. directed brokerage and violates the manager's fiduciary duty.

Answer(s): C

Explanation:

When an investment manager's client instructs the manager to use the client's brokerage to purchase goods or services for the client, this is known as directed brokerage. Because brokerage is an asset of the client and the brokerage is used to benefit that client, not the manager, such practice does not violate fiduciary duty.



If the use of leverage is ________, the performance presented must include the effects of the leverage.

  1. mandatory
  2. nondiscretionary
  3. discretionary
  4. optional

Answer(s): C

Explanation:

If the use of leverage is nondiscretionary (i.e. mandated by the client), performance must be presented on an all-cash basis.



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