Victoria Christchurch, CFA, is a management consultant currently working with a financial services firm interested in curtailing its high staff turnover, particularly amongst CFA charterholders. In recent months, the company lost 5 of its 10 most senior managers, all of whom have cited systemic unethical business practices as the reason for their leaving. To curtail staff turnover by encouraging ethical behavior, it would be least appropriate for Christchurch to recommend the company to do which of the following?

B. Encourage staff retention with increased benefits.

A. Implement a whistleblowing policy.

C. Create, implement, and monitor a corporate code of ethics.

Q. Which of the following statements clearly conflicts with the recommended procedures for compliance presented in the CFA Institute Standards of Practice Handbook?

C. For confidentiality reasons, personal transactions and holdings should not be reported to employers unless mandated by regulatory organizations.

A. Firms should disclose to clients the personal investing policies and procedures established for their employees.

B. Prior approval must be obtained for the personal investment transactions of all employees.

Lisa Hajak, CFA, specialized in research on real estate companies at Cornerstone Country Bank for the past twenty years. Hajak recently started her own investment research firm, Hajak Investment Advisory. One of her former clients at Cornerstone asks Hajak to update a research report she wrote on a real estate company when she was at Cornerstone. Hajak updates the report, which she had copied to her personal computer without the bank’s knowledge, and replaces references to the bank with her new firm, Hajak Investment Advisory. Hajak also incorporates the conclusions of a real estate study conducted by the Realtors Association that appeared in the Wall Street Journal. She references the Journal as her source in her report. She provides the revised report free of charge along with a cover letter for the bank’s client to become a client of her firm. Concerning the reissued research report, Hajak least likely violated the CFA Institute Standards of Professional Conduct because she:

A. solicited the bank’s client.

B. did not obtain consent to use the bank report.

C. did not cite the actual source of the real estate study.

The most important factor in promoting ethical decision making among an investment firm’s employees is:

A. a strong culture of integrity by the firm’s senior management.

B. adoption of a code of ethics that clearly defines the firm’s ethical principles.

C. the investment professional’s natural desire to do the right thing.

Dilshan Kumar, CFA, is a world-renowned mining analyst based in London. Recently he received an invitation from Cerberus Mining, a London Stock Exchange listed company with headquarters in Johannesburg, South Africa. Cerberus asked Kumar to join a group of prominent analysts from around the world on a tour of their mines in South Africa, some of which are in remote locations, not easily accessible. The invitation also includes an arranged wildlife safari to Krueger National Park for the analysts. Kumar accepts the invitation planning to visit other mining companies he covers in Namibia and Botswana after the safari. To prevent violating any CFA Institute Standards of Professional Conduct, it is most appropriate for Kumar to only accept which type of paid travel arrangements from Cerberus?

C. Flights on a private airplane to the remote mining sites in South Africa.

A. Ground transportation to Krueger National Park.

B. Economy class round trip ticket from London to Johannesburg.

Jennifer Ducumon, CFA, is a portfolio manager for high-net-worth individuals at Northeast Investment Bank. Northeast holds a large number of shares in Babyskin Care Inc., a manufacturer of baby care products. Northeast obtained the Babyskin shares when they underwrote the company’s recent IPO. Ducumon has been asked by the investment banking department to recommend Babyskin to her clients, who currently do not hold any shares in their portfolios. Although Ducumon has a favorable opinion of Babyskin, she does not consider the shares a buy at the IPO price nor at current price levels. According to the CFA Institute Code of Ethics and Standards of Professional Conduct the most appropriate action for Ducumon is to:

B. recommend the shares after additional analysis.

C. follow the request as soon as the share price declines.

From the point of view of an investor, unethical behavior by investment professionals can most likely lead to which of the following?

A. Increased willingness to accept risk

B. Rise in the demand for investments

Charles Mbuwanga, a Level 3 CFA Candidate, is the Business Development Manager for Sokoza Investment Group, an investment management firm with high-net-worth retail clients throughout Africa. Sokoza introduced listed Kenyan Real Estate Investment Trusts (REITs) to its line of investment products based on new regulations introduced in Kenya so as to diversify its product offering to clients. The product introduction comes after months of researching Kenyan property correlations with other property markets and asset classes in Africa. Sokoza assigns Mbuwanga as part of the sales team in introducing this product to its clients across Africa. Mbuwanga subsequently determines that most of Sokoza’s clients’ portfolios would benefit from having a small Kenyan property exposure to help diversify their investment portfolios. By promoting the Kenyan REITS for Sokoza’s client portfolios as planned, Mbuwanga would least likely violate which of the following Standards?

C. Independence and Objectivity

Vishal Chandarana, an unemployed research analyst, recently registered for the CFA Level I exam. After two months of intense interviewing, he accepts a job with a stock brokerage company in a different region of the country. Chandarana posts on a social media blog how being a CFA candidate really helped him get a job. He also notes how relieved he was when his new employer didn’t ask him about being fired from his former employer. Which CFA Institute Code of Ethics or Standards of Professional Conduct did Chandarana least likely violate?

C. Reference to the CFA Program

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.

Q. Jamison is a junior research analyst with Howard & Howard, a brokerage and investment banking firm. Howard & Howard’s mergers and acquisitions department has represented the Britland Company in all of its acquisitions for the past 20 years. Two of Howard & Howard’s senior officers are directors of various Britland subsidiaries. Jamison has been asked to write a research report on Britland. What is the best course of action for her to follow?

C. Jamison may write the report if she discloses the special relationships with the company in the report.

A. Jamison may write the report but must refrain from expressing any opinions because of the special relationships between the two companies.

B. Jamison should not write the report because the two Howard & Howard officers serve as directors for subsidiaries of Britland.

Q. Michelieu tells a prospective client, “I may not have a long-term track record yet, but I’m sure that you’ll be very pleased with my recommendations and service. In the three years that I’ve been in the business, my equity-oriented clients have averaged a total return of more than 26% a year.” The statement is true, but Michelieu only has a few clients, and one of his clients took a large position in a penny stock (against Michelieu’s advice) and realized a huge gain. This large return caused the average of all of Michelieu’s clients to exceed 26% a year. Without this one investment, the average gain would have been 8% a year. Has Michelieu violated the Standards?

C. Yes, because the statement misrepresents Michelieu’s track record.

A. No, because Michelieu is not promising that he can earn a 26% return in the future.

B. No, because the statement is a true and accurate description of Michelieu’s track record.

Q. According to the Code of Ethics, members of CFA Institute and candidates for the CFA designation must:

B. place the integrity of the investment profession and the interests of clients above their own personal interests.

A. maintain their professional competence to exercise independent professional judgment.

C. practice in a professional and ethical manner with the public, clients, and others in the global capital markets.

The benefits of an ethical decision-making framework would least likely include:

B. focusing on immediate consequences.

C. limiting unintended consequences.

Q. Which of the following best identifies an internal trait that may lead to poor ethical decision making?

C. Promise of money or prestige

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.

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?

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.

Q. Which of the following statements best describes the costs of international trade?

B. Resources may need to be allocated into or out of an industry and less-efficient companies may be forced to exit an industry, which in turn may lead to higher unemployment.

A. Countries without an absolute advantage in producing a good cannot benefit significantly from international trade.

C. Loss of manufacturing jobs in developed countries as a result of import competition means that developed countries benefit far less than developing countries from trade.

Which of the following is most likely a characteristic of a country that follows the dollarization exchange rate regime? The country:

B. has the currency credibility of the US dollar.

A. is able to monetize its domestic debt.

C. has a term structure similar to that of the United States.

Q. Carey Company adheres to US GAAP, whereas Jonathan Company adheres to IFRS. It is least likely that:

A. Carey has reversed an inventory write-down.

B. Jonathan has reversed an inventory write-down.

C. Jonathan and Carey both use the FIFO inventory accounting method.

Which of the following best describes the link between the cash flow statement and the balance sheet?

B. The cash flow statement reconciles the beginning and ending balances of cash reported on the balance sheet.

A. The statement’s investing activities section reconciles the changes in current assets on the balance sheet.

C. The cash flow statement reconciles changes in all accounts on the balance sheet.

Q. Which of the following best represents a contractionary fiscal policy?

C. A freeze in discretionary government spending.

A. Public spending on a high-speed railway.

B. A temporary suspension of payroll taxes.

Q. Income tax expense reported on a company’s income statement equals taxes payable, plus the net increase in:

C. deferred tax liabilities, less the net increase in deferred tax assets.

A. deferred tax assets and deferred tax liabilities.

B. deferred tax assets, less the net increase in deferred tax liabilities.

Q. Which of the following statements is correct with respect to the p-value?

C. It can be compared directly with the level of significance in reaching test conclusions.

A. It is a less precise measure of test evidence than rejection points.

B. It is the largest level of significance at which the null hypothesis is rejected.

Non-operating items reported on the income statement:

A. include interest expense and interest revenue for non-financial service firms.

B. are shown as either financing or investing items on the cash flow statement.

C. are required to be reported as separate entries.

The unemployment rate is best described as the ratio of unemployed to:

B. labor force minus frictionally unemployed.

C. total population of people who are of working age.

TE10 Mock test 3 ss1

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Professional Development

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90 questions

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MULTIPLE CHOICE QUESTION

2 mins • 1 pt

Q. Specialized knowledge and skills, a commitment to serve others, and a shared code of ethics best characterize a(n):

A. vocation.

B. profession.

C. occupation.

MULTIPLE CHOICE QUESTION

2 mins • 1 pt

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.

MULTIPLE CHOICE QUESTION

2 mins • 1 pt

Charlie Mancini, CFA, is the Managing Director for Business Development at SV Financial (SVF), a large US-based mutual fund organization. Mancini has been under pressure recently to increase revenues. In order to secure business from a large hedge fund manager based in Asia, Mancini recently approved flexible terms for the fund’s client agreement. To allow for time zone differences, the agreement permits the hedge fund to trade in all of SVF’s mutual funds six hours after the close of US markets, which is prohibited by US regulators. Did Mancini violate any CFA Institute Standards of Professional Conduct?

A. No.

B. Yes, with regard to Fair Dealing.

C. Yes, with regard to Fair Dealing and Material Nonpublic Information.

MULTIPLE CHOICE QUESTION

2 mins • 1 pt

Q. Which of the following responses most completely represents an ethical principle of CFA Institute as outlined in the Standards of Practice Handbook?

A. Individual professionalism

B. Responsibilities to clients and employers

C. Ethics involved in investment analysis and recommendations

MULTIPLE CHOICE QUESTION

2 mins • 1 pt

Danielle Deschutes, CFA, is a portfolio manager who is part of a 10-person team that manages equity portfolios for institutional clients. A competing firm, South West Managers, asks Deschutes to interview for a position within its firm and to bring her performance history to the interview. Deschutes receives written permission from her current employer to bring the performance history of the stock portfolio with her. At the interview, she discloses that the performance numbers represent the work of her team and describes the role of each member. To bolster her credibility, Deschutes also provides the names of institutional clients and related assets constituting the portfolio. During her interview Deschutes most likely violated the CFA Institute Standards of Professional Conduct with regards to:

A. the stock portfolio’s performance history.

B. her contribution to the portfolio’s returns.

C. providing details of the institutional clients.

MULTIPLE CHOICE QUESTION

2 mins • 1 pt

Q. Which of the following statements best describes an aspect of the Professional Conduct Program process?

A. Inquiries are not initiated in response to information provided by the media.

B. Investigations result in Disciplinary Review Committee panels for each case.

C. Investigations may include requesting a written explanation from the member or candidate.

MULTIPLE CHOICE QUESTION

2 mins • 1 pt

Ethical conduct is most likely behavior that:

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

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

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

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