Ethics 1.12 Test

Mariam Musa, CFA, head of compliance at Dunfield Brokers, questions her colleague Omar Kassim, a CFA candidate and a research analyst, about his purchase of shares in a company for his own account immediately before he publishes a “buy” recommendation. He defends his actions by stating he has done nothing wrong because Dunfield does not have any personal trading policies in place. The CFA Institute Code of Ethics and Standards of Professional Conduct were most likely violated by:

• A. only Musa.
• B. only Kassim.
• C. both Musa and Kassim.

Stian Klun, CFA, is preparing a brochure to advertise his firm. The brochure includes the following disclosures: “I am a CFA so I am a member of the CFA Institute, which constitutes the most elite group of professionals within the investment management business. In order to become a CFA charterholder, I had to complete a comprehensive program of study in the investment management field.” Klun is least likely to have violated the CFA Institute Standards of Professional Conduct related to referencing the:

• A. CFA Institute.
• B. CFA Program.
• C. CFA Designation.

Diana Fairbanks, CFA, is married to an auditor who is employed at a large accounting firm. When her husband mentions that a computer firm he audits will receive a qualified opinion she thinks nothing of it. Later that week when she reviews a new client account she notices that there are substantial holdings of this computer firm. When she does a thorough internet search for news on the company, she does not find anything about its most recent audit or any other adverse information. Which of the following actions concerning the computer stock should Fairbanks most likely take to avoid violating the CFA Institute Standards of Professional Conduct?

• A. Take no investment action.
• B. Complete a thorough and diligent analysis of the company and then sell the stock.
• C. Sell the stock immediately as she has a reasonable basis for taking this investment action.

Oni Erobo, CFA, the General Partner in a real estate development project, is responsible for completing the project within an 18-month period and within budget. Erobo will receive an equity stake of 20% in the project if it comes within budget. Concerned that project costs could escalate, the Limited Partners require Erobo to cap expenses at 15% above budget. Costs were within expectation up until the last month of construction when imported lighting fixture costs (accounting for roughly 5% of total costs) escalated by more than 50%. As a result, the overall return declined below the partners expected 35% ROI. Erobo did not inform the Limited Partners about the increased costs. Did Erobo most likely violate the CFA Code of Ethics and Standards of Professional Conduct?

• A. No.
• B. Yes, because returns are lower than expected by the Partners.
• C. Yes, because he did not disclose the increased costs to his Partners.

Q. A CFA Institute member would violate the standard for material nonpublic information by:

• A. conducting price distortion practices.
• B. inappropriately causing others to act.
• C. inadequately maintaining investment records.

Q. Which of the following statements is a stated purpose of disclosure in Standard VI(C)–Referral Fees?

• A. Disclosure will allow the client to request discounted service fees.
• B. Disclosure will help the client evaluate any possible partiality shown in the recommendation of services.
• C. Disclosure means advising a prospective client about the referral arrangement once a formal client relationship has been established.

When making performance presentations to prospective clients, a GIPS®-compliant firm should least likely do which of the following?

• A. Selectively report its top account performance
• B. Include the account performance of former clients
• C. Report performance history for all market cycles under review

Trust is most likely the foundation of the financial industry because:

• A. financial products and services are often tangible and verifiable.
• B. investors rely on the specialized knowledge of investment professionals.
• C. global financial markets and their participants are highly regulated by effective laws.

Performance that is not compliant with the GIPS® standards is most likely allowed to be linked with performance that is compliant with the GIPS standards in which of the following scenarios?

• A. Wrap fee composite for a firm whose claim of compliance began on 1 January 2006.
• B. Real estate pooled fund for a firm whose claim of compliance began on 1 January 2010.
• C. Large-cap equity composite for a firm whose claim of compliance began on 1 January 2001.

Q. Benchmarks for minimally acceptable behaviors of community members are:

• A. a code of ethics.
• B. laws and regulations.
• C. standards of conduct.