CFA2020L1QbanksAnswers ethics

Reading 1:: Ethics and Trust in the Inv vestment Profession Question #1 of 20 Question ID: 1203374 Standards of conduct are most accurately described as: A) a necessary part of any ethical code B) providing the public with the values and general expectations for a group of professionals C) giving members of a group a minimum level of acceptable behavior Explanation Standards of conduct address speci c minimum levels or expected behavior in various circumstances, while a code of ethics communicates provides the values and general expectations for professional behavior A code of ethics does not necessarily include standards of conduct (Study Session 1, Module 1.1, LOS 1.c) Question #2 of 20 Question ID: 1203371 Ethics least likely refers to: A) a person’s beliefs about right and wrong behavior B) the study of good and bad behavior C) moral principles to guide behavior Explanation An individual's beliefs are not ethics as it is used in the Level I CFA curriculum Ethics are described as commonly accepted principles of good and bad behavior and the study of good and bad behavior (Study Session 1, Module 1.1, LOS 1.a) Question #3 of 20 Question ID: 1203370 Ethics are most accurately de ned as: A) the study of moral principles B) a written code of standards C) a belief about proper conduct Explanation Ethics refers to the study of moral principles Ethics is broader than written codes of standards or a particular belief about proper conduct (Study Session 1, Module 1.1, LOS 1.a) Question #4 of 20 Question ID: 1203373 Which of the following statements about a code of ethics is most accurate? A code of ethics: A) does not need to include standards of conduct B) must include rules-based standards of conduct C) must include principles-based standards of conduct Explanation A code of ethics may include standards of conduct, but does not require them (Study Session 1, Module 1.1, LOS 1.b) Question #5 of 20 Question ID: 1203372 A code of ethics: A) provides the public with assurance of a minimum level of ethical behavior B) should not be used for marketing purposes C) may be rules-based or principles-based Explanation A code of ethics may be rules-based or principles-based There can be no assurance that none of a group or professionals will violate a code of ethics There is no requirement that a group of professionals agreeing to a code of ethics cannot be held out to the public as a positive thing for clients (Study Session 1, Module 1.1, LOS 1.b) Question #6 of 20 Question ID: 1203382 A requirement that investment professionals recommend securities that match their clients' requirements and constraints is a: A) suitability standard B) duciary standard C) portfolio standard Explanation A suitability standard refers to matching client return requirements and risk tolerances with the characteristics of the securities recommended (Study Session 1, Module 1.1, LOS 1.e) Question #7 of 20 Question ID: 1203387 An ethical decision-making framework: A) considers alternative actions and unintended consequences B) focuses on the near term impact on all stakeholders C) primarily addresses compliance with regulatory issues Explanation An ethical decision-making framework is designed to ensure that alternative actions and potential unintended consequences of decisions are considered (Study Session 1, Module 1.1, LOS 1.h) Question #8 of 20 Question ID: 1203381 A requirement that investment professionals act in the best interests of their clients is a: A) duciary standard B) suitability standard C) fair dealing standard Explanation A duciary standard requires professionals to use their knowledge and expertise to act in the best interests of their clients (Study Session 1, Module 1.1, LOS 1.e) Question #9 of 20 Question ID: 1203379 Unethical behavior by a nancial professional harms: A) only clients B) only clients and other employees C) clients, other employees, and society Explanation By reducing trust in the nancial services profession, unethical behavior can harm clients, other nancial services employees, and society, by increasing the perceived risk of investing, increasing the cost of capital, and a ecting the allocation of capital for the entire economy (Study Session 1, Module 1.1, LOS 1.d) Question #10 of 20 Question ID: 1203385 Which of the following statements about legal and ethical standards is most accurate? A) Legal standards are a subset of ethical standards B) Ethical standards are a subset of legal standards C) Ethical and legal standards often intersect, but not always Explanation Ethical and legal standards are not subsets of each other Some actions that are legal might not be ethical, and some actions that are ethical might not be legal (Study Session 1, Module 1.1, LOS 1.g) Question #11 of 20 Question ID: 1203375 Which of the following characteristics distinguishes a profession from an occupation? Members of a profession: A) view their work as a calling B) are better compensated for their services C) abide by a code of ethics Explanation One of the de ning characteristics of a profession according to the Level I CFA curriculum is that its members agree to abide by a common code of ethics (Study Session 1, Module 1.1, LOS 1.c) Question #12 of 20 Question ID: 1203386 CFA Institute Standards of Professional Conduct are most accurately described as being based on: A) a code of ethics B) accepted legal standards C) the best interests of members and candidates Explanation The Standards of Professional Conduct are based on principles stated in the CFA Institute Code of Ethics (Study Session 1, Module 1.1, LOS 1.g) Question #13 of 20 Question ID: 1203389 Which of the following best describes elements of a framework for ethical decision making? A) Identify relevant facts; consider in uences and alternatives; decide and act; re ect on outcomes B) Relevance; faithful representation; transparency; comprehensiveness; consistency C) State the objective; gather, process, and interpret the data; report the conclusions; update the analysis Explanation The framework for ethical decision making presented in the Level I CFA curriculum includes these elements: Identify relevant facts, stakeholders, ethical principles, and icts of interest Consider alternative actions, situational in uences, and whether to seek additional guidance Decide and act Re ect on whether the outcome was as expected, and why or why not (Study Session 1, Module 1.1, LOS 1.h) Question #14 of 20 Question ID: 1203380 Unethical behavior by individuals in the investment industry is most likely to: A) decrease nancing costs for businesses B) increase the overall pro ts of nancial services rms C) decrease the rate of economic growth Explanation Unethical behavior in the investment industry can divert capital away from its highest valued uses, which decreases the growth rate of the economy In the long run, unethical behavior decreases pro ts for nancial services rms by discouraging potential clients from using their services When savers and investors distrust the investment industry they provide less capital and demand a higher return for its use, which increases the cost of capital for businesses (Study Session 1, Module 1.1, LOS 1.d) Question #15 of 20 Question ID: 1203377 Establishing standards of ethical behavior and monitoring professional conduct are best described as ways that professions: A) avoid regulatory scrutiny B) increase the market value of their services C) establish trust Explanation Ways that professions establish trust include requiring high standards of expertise, knowledge, and skill; establishing standards of ethical behavior; monitoring professional conduct; encouraging continuing education to maintain and increase competence; being focused on clients' needs; and mentoring and inspiring others in the profession (Study Session 1, Module 1.1, LOS 1.c) Question #16 of 20 Question ID: 1203383 Challenges to ethical behavior are most likely to arise from: A) inadequate training B) internal motivations C) situational in uences Explanation Situational in uences, which are factors external to a decision maker, are the most likely source of challenges to ethical behavior (Study Session 1, Module 1.1, LOS 1.f) Question #17 of 20 Question ID: 1203378 Unethical behavior by nancial professionals: A) increases risk and the cost of capital B) does not a ect allocation of capital C) increases incomes for the profession Explanation In the long run, unethical behavior will decrease trust in nancial professionals and the use of nancial professionals by the public, ultimately decreasing incomes for the profession Unethical behavior, such as misleading clients, can adversely a ect the allocation of nancial capital (Study Session 1, Module 1.1, LOS 1.d) Question #18 of 20 Question ID: 1203376 A profession is most accurately described as an occupational group that requires its members to: A) have specialized expert knowledge B) abide by a code of ethical conduct C) put client interests rst Explanation A profession is an occupational group (e.g., doctors or lawyers) that has requirements of specialized expert knowledge, and often a focus on ethical behavior and service to the larger community or society While many professions require their members to put clients rst or abide by a code of ethical conduct, these are not de ning characteristics of a profession (Study Session 1, Module 1.1, LOS 1.c) Question #19 of 20 Question ID: 1203388 A framework for ethical decision making is most appropriately applied to: A) aid decision makers in considering alternatives and their potential impacts B) determine whether actions are legal C) reduce the need to maintain a large compliance department Explanation A framework for ethical decision making is a way to help decision makers consider alternatives and their impact on stakeholders (Study Session 1, Module 1.1, LOS 1.h) Question #20 of 20 Question ID: 1203384 Which of the following statements about legal and ethical standards is most accurate? A) Unethical acts are always illegal B) Illegal acts are always unethical C) Some illegal acts are considered ethical Explanation Some illegal acts, such as acts of civil disobedience, are considered ethical by many people All unethical behavior is not necessarily illegal (Study Session 1, Module 1.1, LOS 1.g) Reading 2:: Code of Ethics and Standards of Professional Conduct Question #1 of 30 Question ID: 1203399 Which of the following is NOT an act explicitly referred to in the Code of Ethics? A) Using reasonable care when making investment recommendations B) Improve professional competence C) Giving free introductory seminars on investing to the public Explanation Although the Code says a member has obligations to the public, educating the general public for whatever reason is not implied (Study Session 1, Module 2.1, LOS 2.b) Question #2 of 30 Question ID: 1203403 The rst component of the Code of Ethics does NOT explicitly say that a CFA Institute member will act in a certain manner with respect to which of the following groups? A) Prospective clients B) Colleagues C) CFA Institute members and candidates in the CFA Program Explanation Participants in the CFA Program are not speci cally mentioned in the Code of Ethics Component one mentions duties to the public, clients, prospects, employers, employees, colleagues, and other participants in the global capital markets (Study Session 1, Module 2.1, LOS 2.b) Question #3 of 30 Question ID: 1203404 Which of the following activities would be following a component of the Code of Ethics explicitly? A) Maintaining a list of colleagues who have violated the CFA Institute standards B) Attending continuing education seminars on investing and inviting colleagues to come along C) Consulting with colleagues about opinions you reach in your research Explanation The Code states that a member shall "Maintain and improve their professional competence and strive to maintain and improve the competence of other investment professionals." None of the other answers qualify (Study Session 1, Module 2.1, LOS 2.b) Question #4 of 30 Question ID: 1203410 The Code of Ethics does NOT explicitly say that a CFA Institute member shall which of the following? A) Re ect credit on the profession B) Actively lobby for new laws to protect the public C) Act with integrity Explanation The Code of Ethics says nothing about a CFA Institute member lobbying for new laws In fact, legal issues are not a part of the Code The Standards of Professional Conduct say that the member shall obey laws (Study Session 1, Module 2.1, LOS 2.b) Question #5 of 30 Question ID: 1203398 Which of the following is NOT part of the CFA Institute Code of Ethics? A) Competence B) Contractual provisions C) Independent judgment Explanation Contractual provisions are not part of the Code of Ethics (Study Session 1, Module 2.1, LOS 2.b) Question #6 of 30 Question ID: 1203408 Which of the following is a component of the Code of Ethics? A) Transactions for clients and employers have priority over transactions in which a member or candidate is the bene cial owner B) Practice and encourage others to practice in a professional and ethical manner that will re ect credit on members and their profession C) Members and candidates must not engage in conduct that compromises the integrity of the CFA designation or the security of the CFA examinations Explanation This is a component of the Code of Ethics Others pertain to the Standards of Practice (Study Session 1, Module 2.1, LOS 2.b) Question #7 of 30 Question ID: 1203416 According to the CFA Institute Code of Ethics, CFA Institute members shall: A) preserve the dentiality of information communicated by clients, prospects, or employers concerning investment matters B) act with integrity, competence, diligence, respect, and in an ethical manner when dealing with the public, clients, prospective clients, employers, employees, colleagues in the investment f i d h i i i h l b l i l k C) maintain knowledge and comply with all applicable laws, rules and regulations Explanation Acting with integrity, competence, diligence, respect, and in an ethical manner when dealing with the public, clients, prospective clients, employers, employees, colleagues in the investment profession, and other participants in the global capital markets is one of the six components of the Code of Ethics, whereas the other statements are part of the Standards of Professional Conduct (Study Session 1, Module 2.1, LOS 2.b) Question #8 of 30 Question ID: 1203413 Which of the following is a component of the Code of Ethics? A) Members shall not engage in any professional conduct involving dishonesty, fraud, deceit, or misrepresentation or commit any act that re ects adversely on their honesty, trustworthiness, f i l B) Members shall not knowingly participate or assist in any violation of such laws, rules, or regulations C) Members shall use reasonable care and exercise independent professional judgment Explanation This is a component of the Code of Ethics Others pertain to the Standards of Professional Conduct (Study Session 1, Module 2.1, LOS 2.b) Question #9 of 30 Question ID: 1203412 Which of the following is NOT part of the CFA Institute Code of Ethics Members of CFA Institute will: A) use reasonable care and exercise independent professional judgment B) strive to maintain and improve their competence and the competence of others in the profession C) recommend investments that maximize returns for a given level of risk Explanation The GIPS were designed to become "the" worldwide standard for all investment rms seeking to present historical investment performance (Study Session 1, Module 4.1, LOS 4.a) Question #7 of 19 Question ID: 1203812 Lora Murphy has an account at Ferrell Investments, a GIPS-compliant rm Murphy invests in small-cap value stocks and pays Ferrell a standard fee to execute her buy and sell orders According to GIPS, is Ferrell required to include Murphy's portfolio in their small-cap value stock composite? A) No, because constructing composites is voluntary B) No, because the portfolio is non-discretionary C) Yes, because the portfolio is fee-paying Explanation To comply with GIPS, a rm must include all fee-paying discretionary portfolios in at least one composite Discretionary portfolios are those for which the rm makes investment decisions Because this portfolio's owner is making her own investment decisions, the portfolio is non-discretionary and should not be included in the rm's composites (Study Session 1, Module 4.1, LOS 4.b) Question #8 of 19 Question ID: 1203809 A good way to describe the Global Investment Performance Standards (GIPS) is a: A) screening mechanism for determining appropriate international investments B) common yardstick for means of comparison C) legal doctrine with criminal penalties Explanation Just like the Presentation Performance Standards (PPS), the GIPS serve as a yardstick so the performance of one individual or rm can be properly compared to that of another (Study Session 1, Module 4.1, LOS 4.a) Question #9 of 19 Question ID: 1203813 Which of the following statements most accurately describes veri cation under the Global Investment Performance Standards (GIPS)? GIPS veri cation: A) is required for a rm to claim GIPS compliance B) requires a veri cation report to be issued for the entire rm C) requires veri cation of individual composites Explanation A single veri cation report is issued with respect to the entire rm; GIPS veri cation cannot be carried out for a single composite (Study Session 1, Module 4.1, LOS 4.c) Question #10 of 19 Question ID: 1203804 Which of the following statements most accurately describes why the Global Investment Performance Standards (GIPS) were created? To: A) provide comparability of performance results among nations for which no presentation guidelines currently exist B) meet the need for a single globally accepted set of regulatory guidelines among developed securities markets C) meet the need for a single globally accepted set of investment performance presentation standards Explanation Recognizing the need for one globally accepted set of investment performance presentation standards, CFA Institute sponsored and funded the Global Investment Performance Standards Committee to develop and publish a single global standard by which all rms in all countries calculate and present performance to clients and prospective clients (Study Session 1, Module 4.1, LOS 4.a) Question #11 of 19 Question ID: 1203806 Which of the following statements regarding CFA Institute Global Investment Performance Standards (GIPS) is CORRECT? A rm that employs members of CFA Institute: A) must comply with the GIPS only within the United States B) is not required to conform to the GIPS C) must choose to comply with either the Performance Presentation Standards (PPS) or GIPS Explanation No rm is required to comply with either PPS or GIPS These are CFA Institute guidelines, and a rm can choose to conform to one or both (Study Session 1, Module 4.1, LOS 4.a) Question #12 of 19 Question ID: 1203801 If the Chief Investment O cer of an investment advisory rm also is a CFA charterholder, which of the following statements is CORRECT? A) All performance results that are presented must comply with the CFA Institute Global Investment Performance Standards B) The rm must comply with the CFA Institute Global Investment Performance Standards only if it states that it follows the Standards C) The rm must present an historical composite Explanation Global Investment Performance Standards (GIPS) are the best way to comply with the Standard on performance presentation; however, adoption of GIPS is voluntary (Study Session 1, Module 4.1, LOS 4.a) Question #13 of 19 Question ID: 1152219 Which of the following statements most accurately describes the requirements for GIPS veri cation? A) Veri cation of GIPS compliance is recommended, but not required B) Third-party veri cation is required for a rm to claim compliance with GIPS C) A rm must select a representative set of composites for third-party GIPS veri cation Explanation Veri cation of GIPS compliance is recommended but not required If a rm chooses veri cation, GIPS require the veri cation to be performed by a third party and apply to the entire rm's methods and practices, rather than that of selected composites (Study Session 1, Module 4.1, LOS 4.c) Question #14 of 19 Question ID: 1203808 As countries adopt the Global Investment Performance Standards (GIPS), which of the following is least likely to occur? A) The trend toward cross border investments will decline B) Existing and potential clients will be able to make fair and unambiguous comparisons among investment rms C) Competition in the global investment industry will be enhanced Explanation There is no reason to expect the level of international investing to decline as a result of the adoption of a global set of performance standards If anything, international investing will become more attractive as the credibility of reported performance results improves (Study Session 1, Module 4.1, LOS 4.a) Question #15 of 19 Question ID: 1203805 Which of the following best describes the underlying principles upon which the Global Investment Performance Standards (GIPS) are based? A) Uniformity and consistent application of standards for the global regulation of the securities industry B) Fair and consistent application of a global set of regulatory requirements C) Full disclosure and fair representation of performance results Explanation The GIPS standards are a set of voluntary standards based on the fundamental principles of full disclosure and fair representation of performance results (Study Session 1, Module 4.1, LOS 4.a) Question #16 of 19 Question ID: 1152202 When measuring and presenting their investment performance, GIPS compliant rms are required to: A) exclude time periods that are unrepresentative of the rm's performance history B) disclose the performance of the best-performing accounts in each composite C) include terminated accounts in their performance history Explanation Because excluding terminated accounts introduces survivorship bias, GIPS requires rms to include these accounts in their performance history The other two choices describe misleading performance presentation practices that GIPS are designed to avoid (Study Session 1, Module 4.1, LOS 4.a) Question #17 of 19 Question ID: 1152205 When verifying a rm's compliance with Global Performance Investment Standards (GIPS), the veri er must: A) clearly identify the composites for which veri cation has been performed B) disclose whether the veri cation was performed by the rm’s internal auditors or a third party C) attest that the rm’s processes and procedures are established to present performance in accordance with GIPS requirements Explanation The veri er must attest that the rm has complied with all GIPS requirements for composite construction on a rm-wide basis and that the rm's processes and procedures are established to present performance in accordance with the calculation methodology, data, and format requirements of GIPS Veri cation is not a GIPS requirement If performed, veri cation applies to the rm as a whole, not to individual composites, and must be performed by an independent third party, not the rm itself (Study Session 1, Module 4.1, LOS 4.c) Question #18 of 19 Question ID: 1152207 Viroqua DeSoto, CFA, is reading a discussion in an online forum about the construction and purpose of composites in performance reporting She nds these statements from participants: Statement 1: The purpose of composites is to let investors know how well a rm has performed managing di erent types of securities or investment strategies Statement 2: A managed portfolio should have a performance history of at least one year before the rm assigns it to a composite With respect to both statements: A) both are correct B) both are incorrect C) only one is correct Explanation DeSoto should agree with Statement but disagree with Statement Reporting on the performance of composites gives clients and prospects information about the rm's success in managing various types of securities or investment styles The rm should identify which composite each managed portfolio will be included in before the portfolio's performance is known, to prevent the rm from including portfolios selectively and arti cially creating composites with superior returns (Study Session 1, Module 4.1, LOS 4.b) Question #19 of 19 Question ID: 1203810 McGregor Investment Management promotes itself as a xed-income investment management rm The vast majority of the portfolios it manages are xed-income portfolios McGregor does, however, manage a few portfolios, utilizing a growth equity investment strategy, but the rm has no intention of ever promoting this strategy Under the Global Investment Performance Standards (GIPS), must these portfolios be included in a composite? A) Yes, because the portfolios are managed to a widely recognized investment strategy B) Yes, because the portfolios are discretionary and fee paying C) No, because the rm does not normally manage portfolios to a growth equity strategy and is not planning to promote it Explanation The GIPS Standards require that all actual fee-paying discretionary portfolios are included in at least one composite It does not matter if the rm ever plans to promote the particular strategy to which a portfolio is being managed, if the portfolio is fee-paying and discretionary, it must be included in at least one composite Thus, McGregor must include the growth equity portfolios in at least one of its composites (Study Session 1, Module 4.1, LOS 4.b) Reading 5:: Glob bal Inv vestment Performance Standards (GIPS) Question #1 of 23 Question ID: 1203817 Which of the following statements least accurately describes a key characteristic of the Global Investment Performance Standards (GIPS)? A) The distinct business entity that is claiming compliance with GIPS must be de ned B) A rm may not claim compliance with GIPS until it has recorded at least ve years of GIPScompliant performance data C) All fee-paying, discretionary portfolios must be included in at least one composite Explanation If a rm has been in existence less than ve years, it can claim GIPS compliance if it presents GIPScompliant performance data since the rm's inception The other statements are accurate (Study Session 1, Module 5.1, LOS 5.a) Question #2 of 23 Question ID: 1203832 To prepare a GIPS-compliant performance presentation, a rm must: A) maintain a complete list of the rm’s composites and their descriptions B) disclose which speci c performance calculations are made in compliance with GIPS C) restate the performance history of its composites if the rm’s organization has changed materially Explanation GIPS Section 0, "Fundamentals of Compliance," states that rms: Must provide a complete list of the rm's composites, including those that have been discontinued within the last ve years, to any prospective client who requests one Must not claim any partial compliance with GIPS or state that a speci c calculation is in compliance with GIPS Must not alter historical performance of composites based on a change in the rm's organization (Study Session 1, Module 5.1, LOS 5.d) Question #3 of 23 Question ID: 1203818 Which of the following statements regarding Global Investment Performance Standards (GIPS) is most accurate? A) GIPS requires that all fee-paying discretionary portfolios be included in composites de ned according to investment objective or similar strategy and rms must show GIPS compliant hi B) GIPS is intended to foster the notion of a world-wide regulatory body to oversee investment performance and measurement on a global scale C) GIPS exists as a best or maximum worldwide standard where local or country speci c law for investment performance measurement does not exist Explanation GIPS provides a minimum, not a maximum, standard for investment performance measurement and/or presentation GIPS requires that all fee-paying discretionary portfolios be included in a composite, not rank ordered, to prevent rms from presenting the results of their best portfolios GIPS is intended to foster the notion of self-regulation, not a world-wide regulatory body, to oversee investment performance and measurement (Study Session 1, Module 5.1, LOS 5.a) Question #4 of 23 Question ID: 1152200 Which of the following is least likely to be a requirement for a rm claiming compliance with Global Investment Performance Standards (GIPS)? A) Provide a compliant presentation only to prospects who request one B) When jointly marketing with a noncompliant rm, make sure the compliant rm is clearly de ned as separate from the noncompliant rm C) List discontinued composites for at least ve years Explanation To comply with GIPS, a rm must provide a compliant presentation to all prospects For all prospects who request them, the rm must also provide a composite list and composite description, and a compliant presentation and composite description for any composite included in the rm's list (Study Session 1, Module 5.1, LOS 5.a) Question #5 of 23 Question ID: 1152186 The El Rey Investment Company, located in Barcelona, Spain, is in the process of adopting the Global Investment Performance Standards (GIPS) for the current scal year One of the GIPS standards is in direct ict with Spanish investment reporting regulations In order to be in full compliance with GIPS, El Rey must: A) comply with the local regulation and make full disclosure of the ict B) choose either the GIPS standard or the local regulation, whichever is the more conservative approach, and make full disclosure of the ict C) comply with the GIPS standard and make full disclosure of the ict Explanation A GIPS requirement is that rms comply with the local law and make full disclosure of the ict (Study Session 1, Module 5.1, LOS 5.c) Question #6 of 23 Question ID: 1203816 Longhorn Investments prepares its performance presentations in accordance with Global Investment Performance Standards (GIPS) As part of its employee bene ts package, Longhorn does not charge a fee to its employees for managing their portfolios When calculating total rm assets for the purpose of GIPS compliance, Longhorn should: A) include these employee portfolios B) not include these employee portfolios because they are in non-fee-paying accounts C) only include those employee portfolios that are in discretionary accounts Explanation When calculating the rm's total assets for a GIPS-compliant presentation, the market value of all discretionary and non-discretionary assets should be included, regardless of whether the account is feepaying or not (Study Session 1, Module 5.1, LOS 5.a) Question #7 of 23 Question ID: 1203823 Assume that on January 1, 2005, a rm with no Global Investment Performance Standards (GIPS) compliant history since its inception four years ago wishes to claim compliance with GIPS Which of the following accurately re ects the appropriate action for the rm to take? A) Comply with GIPS for the year beginning January 1, 2002, and report its performance prior to this date with a disclosure of why the earlier years are not GIPS compliant B) Nothing, a rm must have ve years of compliant performance history to claim compliance with GIPS C) Comply with GIPS for all four periods since the rm's inception Explanation In order to claim GIPS compliance, a rm must present at least ve years of annual investment performance that is compliant with GIPS If a rm or composite is less than ve years old, the performance since the inception of the rm or composite must be presented (Study Session 1, Module 5.1, LOS 5.b) Question #8 of 23 Question ID: 1152209 Within the Global Investment Performance Standards (GIPS) are supplemental provisions which must be applied to which of the following asset classes? A) Emerging markets and private equity B) Private equity and real estate C) Alternative investments and derivatives Explanation The GIPS standards not address performance measurement or coverage of all asset classes, but sections 6, and are supplemental provisions which must be speci cally applied to private equity, real estate, and wrap fee/separately managed account (SMA) portfolios (Study Session 1, Module 5.1, LOS 5.d) Question #9 of 23 Question ID: 1203820 Which of the following statements is most accurate with regard to Global Investment Performance Standards (GIPS)? A) GIPS are ethical principles that rms can follow voluntarily where local or country-speci c law, regulation, or industry standards may not exist for investment performance presentation B) Firms that adopt GIPS must initially show GIPS-compliant history for a minimum of ten years, or since inception of the rm or composite if in existence less than ten years C) GIPS require managers to include all actual fee-paying and non-fee-paying discretionary portfolios in composites de ned according to similar strategy and/or investment objective Explanation The GIPS standards: (1) not require managers to include non-fee-paying accounts in composites, and (2) require ve years (or since inception) of GIPS compliant history in a rm's initial GIPS-compliant performance presentation (Study Session 1, Module 5.1, LOS 5.a) Question #10 of 23 Question ID: 1203822 With respect to reporting investment results, Global Investment Performance Standards (GIPS) require a minimum of: A) ve years of historical performance B) ten years of historical performance C) three years of historical performance Explanation GIPS require a minimum of ve years of conforming historical performance results (Study Session 1, Module 5.1, LOS 5.b) Question #11 of 23 Question ID: 1203827 According to the Global Investment Performance Standards (GIPS), where existing laws or regulations ict with GIPS, rms: A) are required to comply with GIPS in preparing a compliant presentation B) may choose to comply with either GIPS or local laws and regulations, but must make full disclosure of the ict in any compliant presentation C) are required to comply with local laws and regulations in preparing a compliant presentation Explanation In a situation where GIPS ict with local laws and regulations members are required to follow local laws and regulations and to include an explanation of the ict in any compliant presentation (Study Session 1, Module 5.1, LOS 5.c) Question #12 of 23 Question ID: 1203831 All of the following are titles of one of the nine sections of the Global Investment Performance Standards (GIPS) EXCEPT: A) Input Data B) Real Estate C) Implementation Explanation "Implementation" is not a name of one of the nine major sections of the GIPS standards (Study Session 1, Module 5.1, LOS 5.d) Question #13 of 23 Question ID: 1203815 Assume that on January 1, 2005, a 15-year old rm with no Global Investment Performance Standards (GIPS) compliant performance history wishes to claim compliance with the GIPS standards Which of the following accurately re ects the appropriate action for the rm to take? A) Comply with the GIPS standards for the 5-year period January 1, 2000, through December 31, 2004, and report ve additional years of non-GIPS-compliant performance and disclosure of why h f i h li i G S li B) Comply with GIPS for the year beginning January 1, 2004, and report nine additional years of performance history (ten total) and disclose why the earlier years are not GIPS compliant C) Comply with GIPS for the year beginning January 1, 2004, and report four additional years of performance history ( ve total) and disclose why the earlier years are not GIPS compliant Explanation In order to claim GIPS compliance, a rm must present at least ve years of annual investment performance that is compliant with GIPS If a rm or composite is less than ve years old, the performance since the inception of the rm or composite must be presented A rm may link a non-GIPS-compliant performance record to their 5-year compliant history as long as only GIPS-compliant performance is presented for periods after January 1, 2000, and the rm discloses the periods of non-compliance with an explanation of why the presentation is not GIPS compliant (Standard 4.A.15 and 5.A.1.a) (Study Session 1, Module 5.1, LOS 5.a) Question #14 of 23 Question ID: 1152206 Which of the following is NOT a key characteristic of the Global Investment Performance Standards (GIPS)? GIPS: A) require managers to include all actual fee-paying and non-fee-paying discretionary portfolios in composites de ned according to similar strategy and/or investment objective B) not address every aspect of performance measurement, valuation, attribution, or coverage of all assets C) require rms to use certain calculation and presentation methods and to make certain disclosures along with the performance record Explanation The GIPS not require managers to include non-fee-paying accounts in composites (Standard 3.A.1) (Study Session 1, Module 5.1, LOS 5.a) Question #15 of 23 Question ID: 1203819 Which of the following is NOT an objective of the Global Investment Performance Standards (GIPS)? A) To encourage full disclosure and fair global competition without barriers to entry B) To obtain worldwide recognition by securities regulators of a standard for the calculation and presentation of investment performance in a fair, comparable format that provides full di l C) To encourage self-regulation Explanation GIPS applies to investment management rms and is intended to serve the existing and prospective clients of investment management rms, not regulators (Study Session 1, Module 5.1, LOS 5.a) Question #16 of 23 Question ID: 1203826 The Global Investment Performance Standards (GIPS) were designed to be applied with the goal of full disclosure and fair representation of investment performance in all instances EXCEPT: A) when a rm or composite has been in existence for less than ve years, in which case, less stringent standards apply B) when applicable local laws or regulations ict with the GIPS, in which case, rms must comply with local laws and fully disclose the ict C) when a composite includes nondiscretionary funds to which the GIPS are not applicable Explanation In the case of a ict, GIPS require that rms comply with local or country-speci c laws or regulations rather than GIPS, but must fully disclose the nature and scope of the ict (Study Session 1, Module 5.1, LOS 5.c) Question #17 of 23 Question ID: 1203828 The provisions for each section of the Global Investment Performance Standards (GIPS) are divided between: A) fee-paying and non fee-paying portfolios B) requirements and recommendations C) minimum standards and recommendations Explanation Firms must meet all requirements in order to claim compliance with the GIPS standards, and are encouraged to adopt and implement the recommendations (Study Session 1, Module 5.1, LOS 5.d) Question #18 of 23 Question ID: 1203829 The section of the Global Investment Performance Standards (GIPS) that outlines de ning the rm and documenting rm policies and procedures is: A) Presentation and Reporting B) Disclosures C) Fundamentals of Compliance Explanation According to Section 0, Fundamentals of Compliance, the de nition of the rm is the foundation for rmwide compliance and creates boundaries in order to determine total rm assets (Study Session 1, Module 5.1, LOS 5.d) Question #19 of 23 Question ID: 1203824 Which of the following was NOT a motivation for creating the Global Investment Performance Standards (GIPS)? A) Achieve greater uniformity and comparability among presentations of performance B) Improve the service o ered to investment management clients C) Increase the role of government agencies in the investment industry Explanation All of these were motivations for creating GIPS except to increase the role of government In fact, these standards have been created to bolster the notion of self-regulation and reduce the encroachment of government into the investment industry (Study Session 1, Module 5.1, LOS 5.b) Question #20 of 23 Question ID: 1203825 Which of the following statements regarding GIPS is least accurate? A) To stay GIPS compliant, a rm must abide by GIPS guidelines even when icting with local or country-speci c regulations B) GIPS allows clients to have more dence in reported performance C) A GIPS objective is to promote global “self-regulation.” Explanation To stay GIPS compliant, rms are required to comply with local laws even if they ict with GIPS However, the discrepancy must be disclosed (Study Session 1, Module 5.1, LOS 5.c) Question #21 of 23 Question ID: 1152175 Which of the following is NOT an important characteristic of how a rm de nes itself? The rm de nition establishes the: A) entity to which local securities laws apply when they exceed the GIPS requirements B) set of portfolios that must be included in at least one of a rm's composites C) boundaries for what is included when measuring the total rm's assets Explanation When a rm claims compliance with GIPS, it must be compliant on a rm-wide basis The de nition of the " rm" under the GIPS standards establishes the boundaries for what constitutes rm assets, and the set of portfolios that must be included in at least one composite (Study Session 1, Module 5.1, LOS 5.b) Question #22 of 23 Question ID: 1203830 The nine major sections of the Global Investment Performance Standards (GIPS) least likely include: A) veri cation procedures B) required disclosures C) input data requirements Explanation The nine major sections of GIPS are: 0) Fundamentals of compliance; 1) Input data; 2) Calculation methodology; 3) Composite construction; 4) Disclosures; 5) Presentation and reporting; 6) Real estate; 7) Private equity; 8) Wrap fee/Separately Managed Account (SMA) portfolios (Study Session 1, Module 5.1, LOS 5.d) Question #23 of 23 Question ID: 1203821 Jessica French is an individual investment advisor with 200 clients and claims she conforms to Global Investment Performance Standards (GIPS) French includes all of the clients on her books One of those clients is her father, to whom she charges no fee However, she manages that portfolio using the same processes as she uses for her paying clients Another client included in the composite is John Randolph, a wealthy entrepreneur Randolph is the only client who does not give her discretion over the assets and makes every decision himself, getting suggestions from French and using her to implement decisions French: A) has violated GIPS because it includes Randolph's account, but not because it includes her father's account B) has violated GIPS because it includes her father's account, but not because it includes Randolph's account C) conforms to GIPS, if disclosures are made about the non-fee-paying account Explanation Non-fee-paying clients can be included in the same composite as fee-paying clients as long as it is disclosed Nondiscretionary clients should not be included in the composite as the clients would not adhere to the investment strategy used by the investment advisor (Study Session 1, Module 5.1, LOS 5.a) ... #4 of 20 Question ID: 1203373 Which of the following statements about a code of ethics is most accurate? A code of ethics: A) does not need to include standards of conduct B) must include rules-based... Explanation A code of ethics may include standards of conduct, but does not require them (Study Session 1, Module 1.1, LOS 1.b) Question #5 of 20 Question ID: 1203372 A code of ethics: A) provides... principles-based Explanation A code of ethics may be rules-based or principles-based There can be no assurance that none of a group or professionals will violate a code of ethics There is no requirement