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

Free Test Prep CFA-Level-I Real Questions (page: 14)

What is the effective date for compliance with the AIMR-PPS for U.S. and Canadian investments?

  1. January 1, 1995
  2. January 1, 1992
  3. January 1, 1993
  4. January 1, 1994

Answer(s): C

Explanation:

From January 1, 1993, going forward, all of the firm's actual discretionary fee-paying nontaxable portfolios solely invested in U.S. and/or Canadian investments ("North American Portfolios") must be presented in composites that adhere to the Standards.



Standard II (C) - Prohibition against Plagiarism - addresses all of the following forms of communication, except:

  1. internet communications
  2. oral presentations
  3. electronic data transfer
  4. written presentations
  5. audio/visual presentations
  6. none of these answers
  7. group meetings

Answer(s): F

Explanation:

Standard II (C) does not concern the form of communication of information to clients, prospects, employees, or the general public. Rather, it concerns the need to acknowledge the source of information used by the member to avoid the appearance of plagiarism.



Sterling Drachma is a senior investment consultant currently researching a few high-risk internet stock companies which recently started trading on NASDAQ. Sterling manages 5 large and private investment accounts for which he has discretionary investment authority. Sterling is about 3 years away from retirement and his retirement portfolio is managed by Franc Escudo. Sterling has concluded from his research that two of the internet stocks he has been following are great buys and instructs Franc to divert part of the retirement investments into these stocks. Franc executes the orders as soon as he receives them. Sterling then instructs his brokers to buy the stocks for the two discretionary accounts that he knows are inclined toward high-risk investments. He does not buy any for the remaining three accounts since those are income-oriented, low-risk accounts. In this sequence of events, which of the following is/are true?

  1. Franc has violated Standard IV (B.1) - Fiduciary Duties - by investing retirement account funds in the high-risk stocks.
    II. Sterling has violated Standard IV (B.3) - Fair Dealing - by not treating all his accounts equally.
    III. Sterling has violated Standard IV (B.4) - Priority of Transactions - by trading for his retirement account before trading for his client accounts.
  2. I, II and III
  3. I and III only
  4. II and III only
  5. III only

Answer(s): D

Explanation:

Franc is managing a personal portfolio and as such must execute the orders of his client. The fact that it is a retirement account makes no difference in this situation. Franc would be in violation if he was managing a pension portfolio or a personal trust portfolio and the investments were deemed in violation of plan directives.
Franc, however, should try to understand Sterling's motives in the redeployment of funds since this could prevent his client from what could be reckless investment. Sterling, for his part, as definitely violated Standard IV (B.4) - Priority of Transactions - by trading for his retirement account before trading for his client accounts.
Personal transactions should never take precedence over client and employer transactions. He has, however, not violated Standard IV (B.3) - Fair Dealing - by not treating all his accounts equally. Standard IV (B.3) requires a fair treatment of all clients, not an equal treatment precisely because different accounts have different investment needs and risk appetites. The internet stocks should only be bought for accounts for which they are a suitable investment.



Jorgenson is a senior bond analyst with Morgan Co., a large investment banking firm. Over the past quarter, Morgan's corporate bond department has been betting on the credit spreads in the market narrowing and in anticipation, has invested a large amount of capital in the bonds of two firms, High Tech and Amerizone.com. Unfortunately, the credit spreads have not displayed much activity and as the quarter end is approaching, the department wants to unload the bonds. For this, it puts pressure on Jorgenson to push the bonds on some of

his larger clients. Jorgenson believes that both the bonds are good investments since High tech and Amerizone have been doing very well and their prospects look rosy. So he goes ahead and convinces his clients to purchase as much as a third of Morgan's bond holdings in these companies. Morgan has

  1. not violated the AIMR code of ethics.
  2. violated Standard IV (A.1) - Reasonable Basis and Representations.
  3. violated Standard IV (B.7) - Disclosure of conflicts to Clients and Prospects.
  4. violated Standard IV (A.3) - Independence and Objectivity.

Answer(s): A

Explanation:

There is no evidence that Jorgenson has bowed to any external pressure in recommending the bonds to his clients. If his analysis indicates, in his judgment, that a security is a good investment and suits the needs of a client, then he should recommend it, regardless of whether there is any external pressure for or against that course of action.



Emmy Noether is a senior division manager at Harding & Harding, a money management firm. Emmy is quite fastidious about following the rules of the investment industry and has established specific procedures and guidelines designed to prevent any violations. Recently, it surfaced that one of the employees reporting to Emmy, William Bathwater, had been secretly using inside information on a computer maker to generate profits in his portfolio. William had been extremely clever at hiding these profits and only a serendipitous audit by the Compliance Department revealed the pattern. Emmy, in her capacity as William's supervisor, has:

  1. has not violated any standard in the AIMR code of ethics.
  2. none of these answers.
  3. violated Standard III (E) - Responsibilities of Supervisors - by failing to check William's behavior.
  4. violated Standard III (B) - Duty to the Employer - by failing to check William's behavior.

Answer(s): A

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. However, no amount of scrutiny can prevent the cleverest of frauds. What is expected of the members is that they be diligent enough in carrying out their duties. In the present case, given the facts, Emmy cannot be faulted for William's criminal activity since she hasn't been found to be negligent in any way. Hence, she has not violated Standard III (E) - Responsibilities of Supervisors nor any other standards.



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