The mosaic theory holds that an analyst:

B. Can use material public information and nonmaterial nonpublic information in the analyst’s analysis.

A. Violates the Code and Standards if the analyst fails to have knowledge of and comply with applicable laws.

C. Should use all available and relevant information in support of an investment recommendation.

Long has been asked to be the keynote speaker at an upcoming investment conference. The event is being hosted by one of the third-party investment managers currently used by his pension fund. The manager offers to cover all conference and travel costs for Long and make the conference registrations free for three additional members of his investment management team. To ensure that the conference obtains the best speakers, the host firm has arranged for an exclusive golf outing for the day following the conference on a local championship-caliber course. Which of the following is least likely to violate Standard I(B)?

A. Long may accept only the offer to have his conference-related expenses paid by the host firm.

B. Long may accept the offer to have his conference-related expenses paid and may attend the exclusive golf outing at the expense of the hosting firm.

C. Long may accept the entire package of incentives offered to speak at this conference.

Ethical conduct is most likely behavior that:

B. is perceived to be beneficial as per society’s ethical expectations.

A. simply considers both the direct benefit and indirect consequences on others.

C. conforms to expectations as laid out by laws and regulations.

Justin Blake, CFA, a retired portfolio manager, owns 20,000 shares of a small public company that he would like to sell because he is worried about the company’s prospects. He posts messages on several internet bulletin boards. The messages read, “This stock is going up once the pending patents are released, so now is the time to buy. The stock is a buy at anything below $3. I have done some close research on these guys.” According to the Standards of Practice Handbook, Blake most likely violated the Standard or Standards associated with:

B. Integrity of Capital Markets, but not Conflicts of Interest.

A. Integrity of Capital Markets and Conflicts of Interest.

C. Neither Integrity of Capital Markets nor Conflicts of Interest.

Chan Liu, CFA, is the new research manager at the Pacific MicroCap Fund. Liu observed the following activities after she published a research report on a thinly traded micro cap stock that included a “buy” recommendation:<br />Pacific traders purchased the stock for Pacific’s proprietary account and then purchased the same stock for all client accounts; and<br />Pacific marketing department employees disseminated positive, but false, information about this stock in widely read Internet forums.<br />Liu notes the stock’s price increased more than 50% within a period of two days and was then sold for Pacific’s account. Which of the following steps is most appropriate for Liu to take to avoid violating the CFA Institute Code of Ethics and Standards of Professional Conduct?

A. Report the observed activities to her employer.

B. Remove her name from the micro cap stock research report.

C. Publicly refute the false information posted on Internet forums.

Lee Chu, a CFA candidate, develops a new quantitative security selection model exclusively through back-testing on the Chinese equity market. Chu is asked to review marketing materials including an overview of the conceptual framework for his model, providing back-tested performance results, and listing the top holdings. Chu directs the marketing group to remove the description of his model due to concerns competitors may attempt to replicate his investment philosophy. He also instructs the marketing group to remove the list of the top holdings because it shows that the top holding represents 30 percent of the back-tested model. Which of the following actions is least likely to result in a violation of the Code and Standards? Chu’s:

A. use of back-tested results in communication with prospective clients.

B. failure to adequately describe the investment process to prospective clients.

C. failure to disclose that the top holding represents such a large allocation in the model.

David Bravoria, CFA, is an independent financial advisor for a high-net-worth client with whom he had not had contact in more than two years. During a recent brief telephone conversation, the client states that he wants to increase his risk exposure. Bravoria subsequently recommends and invests in several high-risk venture capital funds on behalf of the client. Bravoria continues, as he has done in the past, to send to his client monthly, detailed, itemized investment statements. Did Bravoria most likely violate any CFA Standards?

C. Yes, with regard to purchasing venture capital funds.

B. Yes, with regard to investment statements.

Alexandra Zagoreos, CFA, is the head of a government pension plan. Whenever Zagoreos hires a money management firm to work with the pension plan, she finalizes the deal over dinner at a nice restaurant. At these meals, Zagoreos also arranges for the money manager to provide her payments equal to 10% of the management fee the manager receives from the pension plan with no formal documentation of this agreement. Zagoreos keeps half of the payments for her own use and distributes the remainder as cash incentives to a handful of her most trusted staff. Zagoreos least likely violated which of the following CFA Institute Code of Ethics and Standards of Professional Conduct?

C. Additional Compensation Arrangements.

Madeline Smith, CFA, was recently promoted to senior portfolio manager. In her new position, Smith is required to supervise three portfolio managers. Smith asks for a copy of her firm’s written supervisory policies and procedures, but is advised that no such policies are required by regulatory standards in the country where Smith works. According to the Standards of Practice Handbook, Smith’s most appropriate course of action would be to:

C. decline to accept supervisory responsibility until her firm adopts procedures to allow her to adequately exercise such responsibility.

A. require her firm to adopt the CFA Institute Code of Ethics and Standards of Professional Conduct.

B. require the employees she supervises to adopt the CFA Institute Code of Ethics and Standards of Professional Conduct.

Tibor Figeczky, CFA, is an equity trader at Global Investment Bank (GB). Figeczky traded the bank’s investment portfolio profitably for the past three years and earned significant bonuses for his efforts. Subsequently, internal auditors of GB formally accused Figeczky of exceeding his trading authority and engaging in unauthorized trades. According to the CFA Institute Code of Ethics and Standards of Professional Conduct, Figeczky should most likely:

A. disclose the complaint to CFA Institute.

B. refuse further bonuses until the issue is resolved.

C. request a temporary suspension of his CFA Institute membership.

Rose, a portfolio manager for a local investment advisory firm, is planning to sell a portion of his personal investment portfolio to cover the costs of his child’s academic tuition. Rose wants to sell a portion of his holdings in Household Products, but his firm recently upgraded the stock to “strong buy.” Which of the following describes Rose’s options under the Code and Standards?

B. Rose is free to sell his personal holdings once his firm is properly informed of his intentions.

A. Based on his firm’s “buy” recommendation, Rose cannot sell the shares because he would be improperly prospering from the inflated recommendation.

C. Rose can sell his personal holdings but only when a client of the firm places an order to buy shares of Household.

Ward is scheduled to visit the corporate headquarters of Evans Industries. Ward expects to use the information he obtains there to complete his research report on Evans stock. Ward learns that Evans plans to pay all of Ward’s expenses for the trip, including costs of meals, hotel room, and air transportation. Which of the following actions would be the best course for Ward to take under the Code and Standards?

B. Pay for all travel expenses, including costs of meals and incidental items.

A. Accept the expense-paid trip and write an objective report.

C. Accept the expense-paid trip but disclose the value of the services accepted in the report.

Nicholas Bennett, CFA, is a trader at a stock exchange. Another trader approached Bennett on the floor of the exchange and verbally harassed him about a poorly executed trade. In response, Bennett pushed the trader and knocked him to the ground. After investigating the incident, the exchange cleared Bennett from any wrongdoing. Which of the following best describes Bennett’s conduct in relation to the CFA Institute Code of Ethics or Standards of Professional Conduct? Bennett:

B. violated the Professional Misconduct Standard.

A. did not violate any Code or Standard.

C. violated both Misconduct and Integrity of Capital Markets Standards.

Stewart has been hired by Goodner Industries, Inc., to manage its pension fund. Stewart’s duty of loyalty, prudence, and care is owed to:

B. The participants and beneficiaries of Goodner’s pension plan.

C. The shareholders of Goodner.

Which of the following is a correct statement of a member’s or candidate’s duty under the Code and Standards?

A. In the absence of specific applicable law or other regulatory requirements, the Code and Standards govern the member’s or candidate’s actions.

B. A member or candidate is required to comply only with applicable local laws, rules, regulations, or customs, even though the Code and Standards may impose a higher degree of responsibility or a higher duty on the member or candidate.

C. A member or candidate who trades securities in a 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.

Scott works for a regional brokerage firm. He estimates that Walkton Industries will increase its dividend by US$1.50 a share during the next year. He realizes that this increase is contingent on pending legislation that would, if enacted, give Walkton a substantial tax break. The US representative for Walkton’s home district has told Scott that, although she is lobbying hard for the bill and prospects for its passage are favorable, concern of the US Congress over the federal deficit could cause the tax bill to be voted down. Walkton Industries has not made any statements about a change in dividend policy. Scott writes in his research report, “We expect Walkton’s stock price to rise by at least US$8.00 a share by the end of the year because the dividend will increase by US$1.50 a share. Investors buying the stock at the current time should expect to realize a total return of at least 15% on the stock.” According to the Standards:

B. Scott violated the Standards because he failed to separate opinion from fact.

A. Scott violated the Standards because he used material inside information.

C. Scott violated the Standards by basing his research on uncertain predictions of future government action.

Stafford is a portfolio manager for a specialized real estate mutual fund. Her firm clearly describes in the fund’s prospectus its soft dollar policies. Stafford decides that entering the CFA Program will enhance her investment decision-making skill and decides to use the fund’s soft dollar account to pay the registration and exam fees for the CFA Program. Which of the following statements is most likely correct?

C. Stafford violated the Code and Standards because the CFA Program does not meet the definition of research allowed to be purchased with brokerage commissions.

A. Stafford did not violate the Code and Standards because the prospectus informed investors of the fund’s soft dollar policies.

B. Stafford violated the Code and Standards because improving her investment skills is not a reasonable use of the soft dollar account.

An investment management firm that does not adopt the GIPS standards could mischaracterize its overall performance by presenting a performance history:

B. composed of a single top-performing portfolio.

A. that includes terminated portfolios.

C. for an investment mandate over all periods since the firm’s inception.

CFA Institute support of a local country sponsor to drive the adoption of the GIPS standards seeks to:

A. provide a link between the governing body and the local markets.

B. promote the standards as mandatory.

C. translate the standards into the local language for use as the official governing version.

An investment fund manager has a finance degree and over 20 years of experience working for a top-ranking asset management firm. Based only on this information, could the investment fund manager most likely claim to be part of a profession?

A. Yes, a person working in this industry requires specialized knowledge and skills.

C. Yes, as part of the industry, he is providing a service to others.

In order to achieve compliance with GIPS Standards, it is recommended that firms:

A. adopt the broadest, most meaningful definition of the firm.

B. provide existing clients a compliant presentation applicable to their portfolio, at a minimum of a bi-annual basis.

C. define the firm by including all geographical offices operating under the same firm name.

Beth Kozniak, a CFA candidate, is an independent licensed real estate broker and a well-known property investor. She is currently brokering the sale of a commercial property on behalf of a client in financial distress. If the client’s building is not sold within 30 days, he will lose the building to the bank. A year earlier, another client of Kozniak’s had expressed interest in purchasing this same property. However, she is unable to contact this client, and she has not discovered any other potential buyers. Given her distressed client’s limited time frame, Kozniak purchases the property herself and foregoes any sales commission. Six months later, she sells the property for a nice profit to the client who had earlier expressed interest in the property. Does Kozniak most likely violate the CFA Institute Standards of Professional Conduct?

B. Yes, she did not disclose her potential conflicts of interest to either client.

C. Yes, she profited on the real estate to the detriment of her financially stressed client.

Ensuring that a country’s interests are taken into account when effectively implementing the GIPS standards on a country-wide basis most likely relies on which of the following entities?

A. A local sponsoring organization

C. Local independent valuation firms

Francesca Ndenda, CFA, and Grace Rutabingwa work in the same department for New Age Managers with Rutabingwa reporting to Ndenda. Ndenda learns that Rutabingwa received a Notice of Enquiry from the Professional Conduct Program at CFA Institute regarding a potential cheating violation when he sat for the CFA exam in June. As Rutabingwa’s supervisor, Ndenda is afraid the behavior of Rutabingwa will be seen as a violation of the CFA Code and Standards. Does Ndenda most likely have cause for concern?

B. No, because her responsibilities do not apply.

C. No, not until Rutabingwa is found guilty of cheating.

Anderb, a portfolio manager for XYZ Investment Management Company—a registered investment organization that advises investment firms and private accounts—was promoted to that position three years ago. Bates, her supervisor, is responsible for reviewing Anderb’s portfolio account transactions and her required monthly reports of personal stock transactions. Anderb has been using Jonelli, a broker, almost exclusively for brokerage transactions for the portfolio account. For securities in which Jonelli’s firm makes a market, Jonelli has been giving Anderb lower prices for personal purchases and higher prices for personal sales than Jonelli gives to Anderb’s portfolio accounts and other investors. Anderb has been filing monthly reports with Bates only for those months in which she has no personal transactions, which is about every fourth month. Which of the following is most likely to be a violation of the Code and Standards?

A. Anderb failed to disclose to her employer her personal transactions.

B. Anderb owned the same securities as those of her clients.

C. Bates allowed Anderb to use Jonelli as her broker for personal trades.

Abe Seneca, CFA, supervises a team of analysts who create index funds for institutional investors. When Seneca makes sales demonstrations without his colleagues to potential clients simulating the fund’s performance, the scenarios he prepares show outcomes based on assumptions reflecting upside bias and positive risk assessments. Gail Tremblay, CFA, an analyst in Seneca’s group, observes that the actual performance of these index funds is less than indicated in the scenario outcomes shown in the sales meetings. Seneca least likely violated which of the following CFA Institute Standards of Professional Conduct?

C. Responsibilities of Supervisors

Ethics 1.4 Test

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Professional Development

University - Professional Development

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40 questions

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MULTIPLE CHOICE QUESTION

2 mins • 1 pt

To comply with the GIPS standards, firms most likely must:

A. apply standards on a firm-wide basis.

B. be verified before they can claim compliance.

C. be defined as separate legal entities.

MULTIPLE CHOICE QUESTION

2 mins • 1 pt

Preeta Singh, a CFA candidate, is an asset manager employed by a fund management company managing very large segregated pension funds. In her spare time outside of working hours, Singh likes to provide management consulting services to small companies to help grow their businesses, focusing on strategic planning. Singh is paid for the consulting services and has also provided her employer information about these outside activities. Does Singh most likely violate the CFA Code of Ethics with regard to Duties to Employers?

A. No.

B. Yes, with regard to Loyalty.

C. Yes, with regard to Additional Compensation Arrangements.

MULTIPLE CHOICE QUESTION

2 mins • 1 pt

Molly Burnett, CFA, is a portfolio manager for a fund that only invests in environmentally friendly companies. A multinational utility company recently acquired one of the fund’s best performing investments, a wind power company. The wind power company’s shareholders received utility company shares as part of the merger agreement. The utility has one of the worst environmental records in the industry, but its shares have been one of the top performers over the past 12 months. Because the utility pays a high dividend every three months, Burnett holds the utility shares until the remaining two dividends are paid for the year then sells the shares. Burnett most likely violated the CFA Institute Standard of Professional Conduct concerning:

A. suitability.

B. disclosure of conflicts.

C. independence and objectivity.

MULTIPLE CHOICE QUESTION

2 mins • 1 pt

Christy Pasley, CFA, is the Chief Investment Officer for Risen Investment Funds (RIF) a mutual fund organization. At a meeting between Homeland Builders (HB), a publicly traded company, Pasley learns HB sales are much slower than expected. In fact, HB sales declined more than 20% in the last quarter, but this information has not yet been widely disseminated. Immediately after meeting with HB, Pasley purchases put options on HB stock. Subsequently, HB issues a press release with their most recent sales figures. Has Pasley most likely violated the CFA Institute Standards of Professional Conduct?

A. Yes.

B. No, because the securities purchased were options.

C. No, because the information was obtained directly from the company.

MULTIPLE CHOICE QUESTION

2 mins • 1 pt

To claim compliance with the GIPS standards, a firm is required to:

A. adhere to certain calculation methodologies.

B. conduct an independent third-party verification of its claim of compliance.

C. perform periodic internal compliance checks of its investment performance process.

MULTIPLE CHOICE QUESTION

2 mins • 1 pt

The Investment Analysis, Recommendations, and Actions standard states that members and candidates must:

A. find an investment suitable for their client before making a recommendation.

B. make reasonable efforts to ensure that performance presentation is fair, accurate, and complete.

C. distinguish between fact and opinion in the presentation of investment analysis and recommendations.

MULTIPLE CHOICE QUESTION

2 mins • 1 pt

The Duties to Employers standard states that members and candidates must not:

A. accept any gifts that might compromise their independence and objectivity.

B. deprive their employer of their skills and abilities as related to their employment.

C. accept compensation competing with their employer’s interest and with the written consent of all parties involved.

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