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

Free Test Prep CFA® LEVEL 1 Dumps Questions (page: 90)

Carl Pagan lives in Meesopotamia, where insider trading is not considered a crime. His friend, Ann Dreen, lives in Gondwana, where an investment professional must report any knowledge of criminal activity to the appropriate authorities. The AIMR code of ethics bars insider trading but does not require one to report criminal activity to authorities. With regard to insider trading, Carl must follow ________ and with respect to reporting of criminal activity, Ann must follow ________.

  1. Meesapotamian law; AIMR code
  2. AIMR code; Gondwana law
  3. Meesapotamian law; Gondwana law
  4. AIMR code; AIMR code

Answer(s): B

Explanation:

A member must always abide by the AIMR code, unless the local laws in any given case are stricter, in which case, the stricter standard applies. Standard I.



Which of the following is/are true about insider trading laws?

  1. Corporations cannot discriminate amongst recipients without risking insider trading liability.
    II. Information provided to a group of analysts remains non-public till it is made available to investors in general.
    III. If a member receives inside information that he deems material, the member must disseminate the information to the public as soon as possible and not trade on it to avoid insider trading charges.
  2. I only.
  3. I & II.
  4. I, II & III.
  5. II & III.

Answer(s): B

Explanation:

If a member receives inside information that he deems material, the member must: a. refrain from making decisions based on the information. b. encourage the firm to make the information publicly available. However, because the information is confidential, the member cannot unilaterally choose to broadcast it to the public.
Indeed, he has an obligation not to personally disclose the information to an outsider.



Which of the following can be found in Standard V?

  1. Members shall not participate in any professional conduct involving dishonesty, fraud, deceit, etc.
  2. Members shall deliver a copy of the Code to their employer.
  3. Members shall not misrepresent investment performance.
  4. Members shall exercise diligence and thoroughness in making investment recommendations or in taking investment actions.
  5. Members shall not knowingly participate or assist in any violation of laws, rules, or regulations.

Answer(s): C

Explanation:

Standard V states that members shall not make any statements that misrepresent the investment performance that they or their firms have accomplished or can reasonably be expected to achieve.



The AIMR Performance Presentation Standards are

  1. voluntary standards for the industry.
  2. mandatory for CFA Charterholders and Candidates.
  3. voluntary standards for the industry, but mandatory standards for AIMR members.
  4. mandatory standards for the industry.

Answer(s): A

Explanation:

The AIMR-PPS are voluntary standards for the industry. Firms are not required to comply with the Standards when presenting performance, but the Standards are widely recognized as the most effective guidelines for fair and accurate reporting of investment performance.



The mosaic theory holds that an analyst:

  1. Can use material public information or nonmaterial nonpublic information in the analyst's analysis.
  2. Should distinguish between facts and opinions in research reports.
  3. Should use all available and relevant information in support of an investment recommendation.
  4. Violates the Code and Standards if the analyst fails to notify her or his employer of the Code and Standards fails to have knowledge of and comply with applicable laws.

Answer(s): A

Explanation:

This question pertains to Standard V (A), Prohibition against Use of Material Nonpublic Information. The mosaic theory states that an analyst may use material public information or nonmaterial nonpublic information in creating a larger picture than shown by any individual piece of information and the conclusions drawn become material only after the pieces are assembled. All the other answers describe violations of the Code and Standards, but are not the mosaic theory.



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