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

Free Test Prep CFA® LEVEL 1 Real Questions (page: 54)

An investment management firm has been hired by ETV Corporation to work on an initial public offering for the company. The firm's brokerage unit now has a sell recommendation on ETV, but the head of the investment banking department has asked the head of the brokerage unit to change the recommendation from sell to buy. According to the Standards, the head of the brokerage unit would be permitted to:

  1. Increase the recommendation by no more than one increment (in this case, to a hold recommendation).
  2. Assign a new analyst to decide if the stock deserves a higher rating.
  3. Place the company on a restricted list and give only factual information about the firm.
  4. Reassign responsibility for rating the stock to the head of the investment banking unit.

Answer(s): C

Explanation:

This question relates to Standard IV (A.3), Independence and Objectivity. When asked to change a recommendation on a company stock to gain business for the firm, the head of the brokerage unit must refuse in order to maintain his independence and objectivity in making the recommendation. To avoid the appearance of a conflict of interest, the firm should discontinue issuing recommendations about the company. Changing the recommendation in any manner is a violation of the member's duty to maintain independence and objectivity.
Assigning a new analyst would not address the conflict of interest. Reassigning responsibility for the stock to the head of investment banking would actually exacerbate the conflict.



Which of the following is/are a correct statement of a member's duty under the Code and Standards?

  1. In the absence of specific applicable law or other regulatory requirements, the Code and Standards govern the member's actions.
    II. A member is required to comply only with applicable local laws, rules, regulations, or customs even though the AIMR Code and Standards may impose a higher degree of responsibility or a higher duty on the member.
    III. A member who trades securities in a foreign securities market where no applicable local laws or stock exchange rules regulate the use of material nonpublic information may take investment action based on material nonpublic information.
  2. I only.
  3. III only.
  4. I and II only.
  5. II and III only.

Answer(s): A

Explanation:

This question pertains to Standard I, Fundamental Responsibilities - specifically, international application of the Code and Standards. If applicable law is more strict than the requirements of the Code and Standards, members must adhere to applicable law, otherwise, members must adhere to the Code and Standards - thus, I is correct. Members must adhere to the higher standard set by the Code and Standards if local applicable law is less strict- thus, II is incorrect. When no applicable law exists, the Code applies - thus, III is incorrect.



With regard to calculation of returns for international portfolios, a consistent source of ________ should be used.

  1. exchange rates
  2. trades
  3. settlements
  4. disclosures
  5. taxes

Answer(s): A

Explanation:

Whenever the currency overlay manager is notified of changes in the underlying currency exposures as a result of a shift in the underlying assets, the currency overlay portfolios should be revalued to ensure consistency.



Which of the following is NOT true about Standard IV (A.2) - Research Reports?

  1. None of these answers.
  2. The analyst must separate fact from statistical conjecture to be in compliance with the standard.
  3. As long as the analyst has carried out adequate investigation, she can omit from the report certain aspects of the investigations that she deems unimportant.
  4. The report must contain a basic description of the characteristics of the investment under consideration.

Answer(s): A

Explanation:

Standard IV (A.2) - Research Reports



According to the AIMR-PPS, assets to which the Standards cannot be applied are not to be considered by firms when claiming compliance with the Standards. Which of the following is an example of an asset to which the Standards cannot be applied?

  1. Guaranteed investment contract assets
  2. Convertible securities
  3. International assets
  4. Assets managed to more than one base currency

Answer(s): A

Explanation:

Traditional GIC portfolios provide stable results that are not based on a mark-to-market valuation. The valuation of the traditional GIC is based on book value, not current market value, which are the valuations required by the total return calculation and reporting requirements of the Standards. GIC assets would be reported separately.



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