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

Free Test Prep CFA® LEVEL 1 Dumps Questions (page: 61)

Which of the following is NOT true about the responsibilities of a member with supervisory duties, as specified by Standard III (E) - Responsibilities of Supervisors?

  1. Compliance activities must be designed to anticipate the activities most likely to result in misconduct.
  2. Compliance procedures must meet industry and regulatory standards.
  3. The supervisor is always accountable for the violations committed by those who report to him.
  4. If a member cannot discharge supervisory responsibilities due to an absence of compliance system, he or she should decline to accept the duties in writing till such a system is put into effect.

Answer(s): C

Explanation:

Under Standard III (E) - Responsibilities of Supervisors, members must take reasonable care to ensure that their subordinates do not violate any laws or the code of conduct. This includes designing effective procedures to deter fraudulent activity. If such procedures are reasonable, meet industry and regulatory standards, are compatible with the AIMR code and are suitable for the firm in question, then the member cannot be held responsible for criminal activity clever enough to bypass the compliance system. Occurrence of such activity does indicate a need for a revamping of the system, though.



Edwin Hubble, who works for a respectable investment advisory firm, recently found out that his supervisor has been engaging in "front-running," i.e., executing transactions for personal accounts before client accounts. As an AIMR member, he is required to do all of the following EXCEPT?

  1. Report the illegal activity to the appropriate regulatory authorities.
  2. Dissociate himself from the activity.
  3. Consult with the legal department on the matter.
  4. Inform senior management about the activity with a view of stopping it.

Answer(s): A

Explanation:

Standard I does not require a member to report the illegal activity to the appropriate regulatory authorities, though it may be prudent to do so in many cases if it is evident that the activity is illegal.



Complete the following: According to The Code of Ethics, members of AIMR shall: "Act with integrity, competence, ________ and in an ethical manner when dealing with the public, clients, prospects, employers, employees and fellow members."

  1. honorability
  2. dignity
  3. morality
  4. none of these answers
  5. virtue

Answer(s): B

Explanation:

According to The Code of Ethics, members of AIMR shall: "Act with integrity, competence, dignity and in an ethical manner when dealing with the public, clients, prospects, employers, employees and fellow members."



If AIMR Members, CFA Charterholders and Candidates do not follow the AIMR Performance Presentation Standards and they make material misrepresentations, they will be in violation of what Standard of Professional Conduct?

  1. Standard V (A)
  2. None of these answers. The PPS are voluntary, thus failure to follow them will result in no violation of the Standards of Professional Conduct.
  3. Standard I
  4. Standard V (B)

Answer(s): D

Explanation:

Although the AIMR-PPS are not explicitly incorporated in the AIMR Standards of Professional Conduct, they should be relied on to help ensure no misrepresentation of performance occurs. Misrepresentation results in violation of Standard V (B) - Performance Presentation.



With regard to international portfolios, if net performance is indicated, managers are required to disclose the assumed ________ for the benchmark.

  1. hedge
  2. disclosure
  3. tax rate
  4. differentials
  5. currency effects

Answer(s): C

Explanation:

To be in compliance with the AIMR-PPS, the performance presentation for international portfolios must disclose whether composites and benchmarks are presented gross or net of withholding taxes on dividends, interest and capital gains; if net, the assumed tax rate for both the composite and the benchmark.



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