2019 CFA level 3 qbank r 1 2 CFA ins code of ethics and standards of prof conduct standards I–VII 1 answers

10/11/2018 Learning Management System Question #1 of 181 Sandra Bulow, CFA, is responsible for updating her employing rm's website to include changes in analysis techniques and trading procedures She is often very delinquent in making these changes, despite working extensive hours She is aware clients are using the website to make investment decisions, and has received complaints from the sales department as the information on the website if often di erent from what is presented in sales meetings Bulow is most likely: in A) in violation of Standard I(C) "Misrepresentation." C) not in violation of any Standard Explanation en tre B) in violation of Standard III(B) "Fair Dealing." bo ok c Bulow is most likely in violation of Standard I(C) "Misrepresentation." The web site information is erroneous, and needs to be updated to match the rm's current practices (Study Session 1, Module 2.2, LOS 2-I.(C)) Related Material o m SchweserNotes - Book w w Question #2 of 181 Tony Calaveccio, CFA, is the manager of the TrustCo Small Cap Venture Fund in Toronto He w places trades for the fund with River City Brokerage River City presents Calaveccio with a bottle of inexpensive wine at Christmas each year Calaveccio does not disclose this fact in the prospectus of the small cap venture fund This action is: A) in violation of the Standard concerning disclosure of icts to clients and prospects B) in violation of the Standard concerning disclosure of additional compensation arrangements C) not in violation of the Code and Standards Explanation https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83386079/print 1/119 10/11/2018 Learning Management System Under Standard I(B) Independence and Objectivity, members are advised to "use reasonable care" in order to maintain independence While it is clearly understood that gifts from various entities have the potential to a ect a member's independence and objectivity, a member can accept token gifts as long as they are not intended to in uence or reward (Study Session 1, Module 2.1, LOS 2-I.(B)) Related Material SchweserNotes - Book in Question #3 of 181 Betsy Fox is an investment advisor who has a client, Don Gordon, who is an employment en tre lawyer At lunch, Fox noticed Gordon and the Chief Financial O cer of Blue Star Company at the next table She overhears them talking and ascertains that Blue Star is about to announce higher than expected earnings Before the earnings release, Gordon contacts Fox and asks her bo ok c to purchase 3,000 shares for his portfolio Fox: A) can only purchase shares for her personal account after informing all of her clients about the potential of the increase in earnings B) must refuse to purchase shares for Gordon C) can purchase shares for Gordon, but cannot ever purchase shares for her personal o Explanation m account w w w According to Standard II(A), Material Nonpublic Information, Fox cannot act or cause others to act on material nonpublic information until the information is made public The information overheard at lunch was material and nonpublic; therefore, Fox must wait until the information is made public before accepting Gordon's order (Study Session 1, Module 2, LOS 2.a) Related Material SchweserNotes - Book Question #4 of 181 https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83386079/print 2/119 10/11/2018 Learning Management System According to CFA Institute Standards of Professional Conduct, which of the following statements about the prohibition against plagiarism is most correct? The prohibition against plagiarism applies to written materials: A) and oral communications only B) only C) oral communications, and telecommunications Explanation The prohibition against plagiarism applies to all three areas .in (Study Session 1, Module 2.2, LOS 2-I.(C)) Related Material bo ok c Question #5 of 181 en tre SchweserNotes - Book Which of the following activities would be following a component of the Code of Ethics explicitly? m A) Attending continuing education seminars on investing and inviting colleagues to come along .o B) Consulting with colleagues about opinions you reach in your research w w C) Maintaining a list of colleagues who have violated the CFA Institute standards Explanation w 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 1.1, LOS 1.b) Related Material SchweserNotes - Book Question #6 of 181 https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83386079/print 3/119 10/11/2018 Learning Management System The CFA Institute Code of Ethics speci es that CFA Institute Members and Candidates must all of the following EXCEPT: A) use reasonable care and exercise independent professional judgment when engaging in professional activities B) refrain from any conduct that compromises the reputation or integrity of the CFA designation C) act with integrity, competence, diligence, respect, and in an ethical manner Explanation in Not compromising the reputation or integrity of the CFA designation is a part of the Standards of Professional Conduct, but is not speci cally mentioned the Code of Ethics en tre (Study Session 1, Module 1.1, LOS 1.b) Related Material Question #7 of 181 bo ok c SchweserNotes - Book Which of the following is a component of the Code of Ethics? o rules, or regulations m A) Members shall not knowingly participate or assist in any violation of such laws, w w B) Members shall not engage in any professional conduct involving dishonesty, fraud, deceit, or misrepresentation or commit any act that re ects adversely on their w h hi f i l 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 1.1, LOS 1.b) Related Material SchweserNotes - Book https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83386079/print 4/119 10/11/2018 Learning Management System Question #8 of 181 Susan Nielsen, CFA, is an equity research analyst on a fact- nding property tour with other analysts to learn about Just Kittens, Inc Just Kittens sells tungsten ball-bearings and has 16 warehouses, and 20 manufacturing, research, and wholesale sales outlets scattered over countries – mostly emerging markets Because of the remote location of some of the facilities, commercial travel is e ectively unavailable Just Kittens charters a jet and various busses to take the research analysts to the properties If Nielsen accepts these accommodations, she is most likely: commercial travel is e ectively unavailable en tre B) in violation of Standard I(B) "Independence and Objectivity." in A) not in violation of Standard I(B) "Independence and Objectivity" because C) not in violation of Standard I(B) "Independence and Objectivity" because best practices dictate that better access to company executives is likely to lead to more d i l i f i bo ok c Explanation Nielsen is not in violation of Standard I(B) "Independence and Objectivity" because commercial travel is e ectively unavailable (Study Session 1, Module 2.1, LOS 2-I.(B)) w w o SchweserNotes - Book m Related Material Question #9 of 181 w The Securities and Exchange Board of India (SEBI) has just enacted a new stock-trading rule SEBI will give brokers a 10-day grace period, during which violators of the rule will be immediately noti ed and given a chance to remedy their situation to comply with the new rule If a CFA Institute member located in India or doing business in India unknowingly violates the rule and then remedies the situation within the 10-day grace period, has the member violated Standard I(A)? A) No, because the member remedied the situation B) Yes, because the member did not maintain knowledge and know of the rule C) No, because the member unknowingly broke the rule https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83386079/print 5/119 10/11/2018 Learning Management System Explanation Standard I(A) explicitly says that a member shall maintain knowledge and comply with laws, rules, and regulations By not knowing of the rule, the member broke the standard (Study Session 1, Module 2.1, LOS 2-I.(A)) Related Material SchweserNotes - Book in Question #10 of 181 A) exploiting di erences in market ine ciencies en tre All of the following are violations of Standard II(B) Market Manipulation EXCEPT: B) securing a controlling interest in an equity security in order to in uence the price of a related derivative instrument bo ok c C) disseminating misleading information about the development of new products and technologies Explanation m Standard II(B) Market Manipulation prohibits practices that distort prices or arti cially in ate trading volumes with the intent to mislead market participants The Standard is not intended to prohibit legitimate trading strategies that exploit di erences in market ine ciencies w w Related Material o (Study Session 1, Module 2.3, LOS 2-II.(B)) w SchweserNotes - Book Question #11 of 181 https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83386079/print 6/119 10/11/2018 Learning Management System The following information involves two research analysts at a brokerage rm Erik Bagenot, CFA, is preparing a research report on Global Enterprises, Inc In preparing the report, he uses materials from many sources For example, he uses factual information published by Standard & Poor's Corporation without acknowledging the source He also uses excerpts from a research report prepared by another analyst Bagenot makes only a slight change in wording for these excerpts, but acknowledges the source Sally Wain, who is currently enrolled in the CFA program, is preparing a research report on Manson Telecommunications She attends a conference in which several investment experts provide their views about the future prospects of this company Wain cites in several quotations from these investment experts in her report without speci c en tre reference According to CFA Institute Standards of Professional Conduct involving prohibition against plagiarism, which of the following statements is CORRECT? bo ok c A) Bagenot violated the Standards, but Wain did not B) Both Bagenot and Wain violated the Standards C) Wain violated the Standards, but Bagenot did not Explanation o m Bagenot complied with Standard I(C), which permits publishing factual information from Standard & Poor's without acknowledgment and using excerpts with acknowledgment Wain committed plagiarism because she failed to give speci c references for the quotations that she used w w (Study Session 1, Module 2.2, LOS 2-I.(C)) Related Material w SchweserNotes - Book Question #12 of 181 CFA Institute members are required to all of the following, EXCEPT: A) disclose, in writing, all observed violations of security laws and regulations to the proper regulatory authorities B) inform their employer, clients, and potential clients of bene ts received for recommending products or services https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83386079/print 7/119 10/11/2018 Learning Management System C) receive permission from both their employer and outside clients to engage in investment consulting outside the rm Explanation Members are not required to report violations of others to regulatory authorities, either verbally or in writing, but such reporting may be prudent (Study Session 1, Module 2, LOS 2.a) Related Material in SchweserNotes - Book en tre Question #13 of 181 According to the Code of Ethics, a member re ects credit on the profession when a member: A) places the clients rst bo ok c B) consults with other members on a regular basis C) practices in a professional and ethical manner Explanation o m Component four of the Code says that a member shall "Practice and encourage others to practice in a professional and ethical manner that will re ect credit on members and the profession." Neither of the other choices are implied by the Code (Study Session 1, Module 1.1, LOS 1.b) w w Related Material w SchweserNotes - Book Question #14 of 181 According to the Code of Ethics, when practicing in a professional and ethical manner the goal is to: A) increase membership in CFA Institute B) resolve icts between clients and employers C) re ect credit on members and the profession https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83386079/print 8/119 10/11/2018 Learning Management System Explanation The Code states that a member shall "Practice and encourage others to practice in a professional and ethical manner that will re ect credit on members and their profession." (Study Session 1, Module 1.1, LOS 1.b) Related Material SchweserNotes - Book in Question #15 of 181 Michael Malone, CFA, is an investment analyst for a large brokerage rm in New York who en tre covers the airlines industry After hours in his personal time, Malone maintains an online blog on which he expresses his personal opinions about various investment opportunities, including, but not limited to, the airlines industry On his blog, he posts a very negative investment opinion about WestAir stock Malone knows that WestAir's stock will be downgraded to a "sell" bo ok c by his rm next week Malone has most likely violated: A) Standard VI(B) Priority of Transactions B) violated Standard II(A) Material Nonpublic Information m C) violated Standard IV(A) Loyalty Explanation w w o By expressing his investment analysis on his personal blog ahead of his employer, Malone deprived his employer of the bene ts of his skills and abilities and therefore violated Standard IV(A) Loyalty Malone did not possess material nonpublic information about WestAir and no transactions have taken place w (Study Session 1, Module 1.1, LOS 1.b) Related Material SchweserNotes - Book Question #16 of 181 An analyst is told by his supervisor that when he feels he should write a buy recommendation he is free to so, and when he feels he should write a sell recommendation he should check with the supervisor rst This practice is most likely: https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83386079/print 9/119 10/11/2018 Learning Management System A) consistent with the Code of Ethics and Standards of Professional Conduct B) in violation of Standard I(B) Independence and Objectivity C) in violation of Standard V(B), Communications with Clients and Prospective Clients Explanation The policy dictated by the supervisor would infringe upon the analyst's independence and objectivity It may discourage the analyst from making sell recommendations and, furthermore, present the opportunity for the supervisor to try and change the analyst's mind (Study Session 1, Module 2.1, LOS 2-I.(B)) Related Material en tre in SchweserNotes - Book Question #17 of 181 bo ok c Jennifer Gates is an individual portfolio manager who only uses mutual funds for her clients; she has therefore never created a portfolio of stocks She enters an Internet chat room on investments and starts answering questions about investments She states in the chat room that she has a CFA designation One woman in particular is interested and questions her about the viability of creating her own stock portfolio Gates feels that this would be a mistake m because she only has $150,000 to invest, and states, "I have experience creating stock o portfolios, and it does not make sense to so with only $150,000." The woman she has w w chatted with sends her an e-mail and eventually becomes a client of hers Gates has: A) not violated the Standards w B) violated the Standards by misrepresenting her experience C) violated the Standards by soliciting business over the Internet Explanation One cannot misrepresent their experience, even over the Internet (Study Session 1, Module 2, LOS 2.a) Related Material SchweserNotes - Book Question #18 of 181 https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83386079/print 10/119 10/11/2018 Learning Management System Susan Nielsen, CFA, works for a rating agency which competes directly with S&P and Moody's Her friend, Lance Parker, works for the same company but in a di erent department which is involved in advisory services for structured products Nielsen frequently receives pressure from Parker to "put a positive face" on client ratings to help him sell advisory services She is reluctant to discuss client ratings with Parker and tries to avoid the topic She consults her company's compliance department and learns that there are no policies or procedures to discourage Nielsen and Parker from sharing information and is encouraged to consider his advice on company ratings Nielsen should most likely: A) continue to consult with Parker on company ratings as the compliance in department’s position is that there is no ict B) advise regulators of the potential ict of interest and seek legal counsel en tre C) advise her rm to develop rewalls and protections to allow the di erent departments to function independently and avoid talking with Parker about client i Explanation bo ok c Nielsen should advise her rm to develop rewalls and protections to allow the di erent departments to function independently If Nielsen and Parker are going to remain friends, they should stop talking about client ratings (Study Session 1, Module 2, LOS 2.a) w w o SchweserNotes - Book m Related Material Question #158 of 181 w Which of the following is a component of the Code of Ethics? CFA Institute members shall: A) use reasonable care and exercise independent professional judgment B) not knowingly participate or assist in any violation of laws, rules, or regulations C) use particular care in determining applicable duciary duty Explanation Using reasonable care and exercising independent professional judgment is one of the components of the Code of Ethics, whereas the other statements are part of the Standards of Professional Conduct (Study Session 1, Module 1.1, LOS 1.b) https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83386079/print 105/119 10/11/2018 Learning Management System Related Material SchweserNotes - Book Question #159 of 181 Which of the following statements regarding disciplinary procedures is least accurate? A) A review panel is created from Disciplinary Review Committee members B) If the CFA member or candidate rejects the sanction, the charges and sanctions in may be reviewed en tre C) The sanctions imposed by the Professional Conduct sta are nal and conclusive Explanation bo ok c In the event of misconduct by a member or candidate the CFA Institute Professional Conduct sta decides whether a violation occurred and what action to take If the Professional Conduct sta decides a disciplinary sanction is appropriate the member or candidate may decide to reject the sanction In this case the matter is referred to a panel of Disciplinary Review Committee members comprised of volunteer CFA charterholders The panel decides whether a violation of the Code and Standards occurred and what sanction should be imposed Related Material w w o SchweserNotes - Book m (Study Session 1, Module 1.1, LOS 1.a) w Question #160 of 181 Don Roberts, a CFA Institute member, resides in Country L, where the securities laws and regulations are less strict than the CFA Institute Code and Standards Roberts also does business in Country N, which has no securities laws or regulations Thus, Country N has no laws prohibiting the use of material nonpublic information Roberts has clients in both Country L and N Country L's law states that the law of the locality where business is conducted governs According to CFA Institute Standards of Professional Conduct about the use of material nonpublic information, Roberts may: A) take investment action based on this information only for his clients in Country N but not for his clients in Country L or himself https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83386079/print 106/119 10/11/2018 Learning Management System B) take investment action based on this information for clients in both Country N and Country L and for himself C) not take investment action on the basis of this information Explanation Because applicable law states that the law of the locality where the business is conducted governs and local law is less strict than the Code and Standards, the member must adhere to the Code and Standards Standard II(A) prohibits the use of material nonpublic information (Study Session 1, Module 2.1, LOS 2-I.(A)) Related Material en tre in SchweserNotes - Book Question #161 of 181 bo ok c All of the following are components of the Code of Ethics EXCEPT: A) demonstrating diligence, independence, and thoroughness when preparing investment reports B) striving to maintain and improve their competence and the competence of others m in the profession Explanation o C) using reasonable care and exercising independent professional judgment w w Demonstrating diligence, independence, and thoroughness when preparing investment reports is found in the Standards of Professional Conduct w (Study Session 1, Module 1.1, LOS 1.b) Related Material SchweserNotes - Book Question #162 of 181 https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83386079/print 107/119 10/11/2018 Learning Management System Robe Advisory Services operates an o ce in San Francisco, where it manages portfolios for its clients based in the United States The rm also maintains an o ce in Tokyo, where it employs Sam Lee, CFA who researches Japanese stocks According to the CFA Institute Standards of Professional Conduct, Lee is required to maintain knowledge of and comply with all applicable laws, rules, and regulations in: A) Japan, but not the U.S., and the CFA Institute Standards of Professional Conduct B) both the U.S and Japan, but not the CFA Institute Standards of Professional Conduct C) both the U.S and Japan and the CFA Institute Standards of Professional Conduct .in Explanation (Study Session 1, Module 2.1, LOS 2-I.(A)) SchweserNotes - Book m Question #163 of 181 bo ok c Related Material en tre To abide by the Standards, employees who work for foreign-based rms are required to apply the stricter of the foreign (here, U.S.) law, the domestic (here, Japanese) law, or CFA Institute standards .o The Standards of Professional Conduct explicitly outlines responsibilities to four groups Which w w of the following is NOT a group mentioned in that list? A) The profession w B) The Federal Reserve C) The investing public Explanation The Standards explicitly mention responsibilities to the profession, employers, clients, prospects, and the investing public The Federal Reserve is not mentioned (Study Session 1, Module 2.1, LOS 2-I.(A)) Related Material SchweserNotes - Book https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83386079/print 108/119 10/11/2018 Learning Management System Question #164 of 181 Wes Smith, CFA, has been working toward the completion of a Master of Science in Finance He has passed all the necessary courses and written the necessary thesis He still must defend the thesis in one month Smith's thesis advisor assures him that he will pass the thesis defense Smith has new business cards printed with "M.S in Finance" after his name This is a violation of: A) Standard I(C), Misrepresentation B) Standard VII(B), Reference to CFA Institute, the CFA Designation, and the CFA Program .in C) none of the Standards if Smith does not make the cards public until after he en tre defends his thesis and receives his degree Explanation bo ok c If the cards were distributed today he would be in violation of Standard I(C), Misrepresentation However, if Smith does not make the cards public until after he receives the degree, there is no violation (Study Session 1, Module 2.2, LOS 2-I.(C)) Related Material o m SchweserNotes - Book w w Question #165 of 181 According to the CFA Institute Code of Ethics, CFA Institute members shall: w A) act with integrity, competence, diligence, respect, and in an ethical manner when dealing with the public, clients, prospective clients, employers, employees, ll i h i f i d h i i i h l b l i l B) maintain knowledge and comply with all applicable laws, rules and regulations C) preserve the dentiality of information communicated by clients, prospects, or employers concerning investment matters Explanation https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83386079/print 109/119 10/11/2018 Learning Management System 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 1.1, LOS 1.b) Related Material SchweserNotes - Book in Question #166 of 181 en tre According to the Code of Ethics, which of the following statements is NOT correct? CFA Institute members are required to: A) comply with the CFA Institute Global Investment Performance Standards others in the profession bo ok c B) maintain and improve their competence and strive to maintain the competence of C) use reasonable care and exercise independent professional judgment Explanation o m The CFA Institute-GIPS are voluntary standards for the industry Firms are not required to comply with these standards when presenting performance The other statements are each components of the CFA Institute Code of Ethics w w (Study Session 1, Module 1.1, LOS 1.b) Related Material w SchweserNotes - Book Question #167 of 181 Kevin Lowell, CFA, manages a pension plan for a national grocery retailer All of the following are required as a part of Lowell's duciary duties, EXCEPT: A) place the client’s interest before the employer’s interest B) support the sponsor's management during proxy ghts C) act in a prudent and judicious manner https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83386079/print 110/119 10/11/2018 Learning Management System Explanation Members are required to act in the interest of their clients In voting proxies, the client's interest must prevail over management's interest (Study Session 1, Module 1.1, LOS 1.b) Related Material SchweserNotes - Book in Question #168 of 181 A money manager works for a full-service brokerage rm After meeting with a new client and en tre gathering all relevant information, the money manager says that she thinks her rm can perform all the nancial services the new client needs With respect to Standard I(C), Misrepresentation, this: bo ok c A) may not be a violation if the representation was made orally B) is a violation because she cannot make statements like this under any circumstances C) may not be a violation if the manager's opinion is based upon the factual m information gathered Explanation w w o There is no violation if the opinion is based upon the factual information gathered and the rm's actual capabilities This is true whether or not the representation was written, oral, or electronic None of the other choices are correct (Study Session 1, Module 2.2, LOS 2-I.(C)) w Related Material SchweserNotes - Book Question #169 of 181 The Code of Ethics does NOT explicitly say that a CFA Institute member shall which of the following? A) Actively lobby for new laws to protect the public https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83386079/print 111/119 10/11/2018 Learning Management System B) Act with integrity C) Re ect credit on the profession 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 1.1, LOS 1.b) Related Material en tre in SchweserNotes - Book Question #170 of 181 Lee Roth, who is an investment advisor, is riding in a taxi and nds a le of information labeled "Genco Valuation." The folder contains a great deal of nancial data, projections and nonpublic bo ok c information concerning the food products industry that lead Roth to believe that Genco will be worth 50% more than its current stock value Roth also nds some correspondence that leads him to believe that the le belonged to Tom Hagan Roth tries to nd out where Hagan works so he can return the le Roth can recommend Genco to his clients unless Hagan works for: m A) Roth cannot recommend Genco to his clients at this time .o B) the corporate nance department for Genco w w C) the equity research department for a brokerage rm Explanation w The information is material and nonpublic; therefore, Roth cannot act or cause others to act at this time (Study Session 1, Module 2, LOS 2.a) Related Material SchweserNotes - Book Question #171 of 181 https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83386079/print 112/119 10/11/2018 Learning Management System An analyst has been writing research reports on a company for many years As part of the analyst's continuing research e orts, the analyst allows the rm to y him to the rm's headquarters and put him up in the guest quarters the company has for all corporate visitors According to Standard I(B), Independence and Objectivity, this is: A) a violation if the headquarters are within reasonable driving distance from the analyst's home B) a violation no matter what the circumstances C) not a violation under any circumstances Explanation (Study Session 1, Module 2.1, LOS 2-I.(B)) Related Material Question #172 of 181 bo ok c SchweserNotes - Book en tre in If such a trip is "out-of-the-way," payment by the company for the trip is acceptable If the headquarters are within reasonable driving distance, the analyst should drive there m All of the following are violations of Standard I(D), Misconduct, EXCEPT: o A) any conduct that undermines dence that the CFA charter represents a level of w w achievement based on merit and ethical conduct B) conviction of a crime involving fraud C) conviction of a misdemeanor involving civil disobedience in support of one’s w personal beliefs Explanation The Code and Standards not focus on personal conduct as long as the conduct does not re ect poorly on one's professional reputation, integrity, or competence (Study Session 1, Module 2.2, LOS 2-I.(D)) Related Material SchweserNotes - Book https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83386079/print 113/119 10/11/2018 Learning Management System Question #173 of 181 Which one of the following least accurately describes the CFA Institute Standard about using material nonpublic information? A) An analyst may use nonmaterial nonpublic information as long as it has been developed under the Mosaic Theory B) An analyst using material nonpublic information may be ned by CFA Institute C) An analyst may violate this Standard by passing information to others even when it has been obtained from outside the company .in Explanation (Study Session 1, Module 2.3, LOS 2-II.(A)) SchweserNotes - Book m Question #174 of 181 bo ok c Related Material en tre There is no provision for CFA Institute to issue nes to members Members may not use material nonpublic information for trading purposes Nonmaterial, nonpublic information may be used together with analysis of public information under the Mosaic Theory .o Bob Smith, CFA, is an independent board member of Atlantic Technologies, but is not paid by the rm for his services An employee at Atlantic informs Smith that Atlantic has improperly w w timed the booking of contracts to achieve the desired quarterly nancial results The misleading nancial statements would turn losses into pro ts Smith confers with the rm's legal counsel w who indicates that this conduct is, in fact, illegal Smith urges Sharon White, Atlantic's chief nancial executive, to change the nancial statements, but she refuses to so and indicates the rm's external auditors have approved the method of revenue recognition she has used According to CFA Institute Standards of Professional Conduct, which of the following actions is least likely appropriate for Smith: in this situation? A) Bring his concerns to the other board members B) Report the illegal activity to CFA Institute C) Dissociate from the activity by resigning as a director or by reporting the activities to the appropriate authorities Explanation https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83386079/print 114/119 10/11/2018 Learning Management System Reporting violations of the Standards to the CFA Institute may be appropriate for concerns about a member's conduct, but is not the proper avenue for reporting corporate malfeasance in general Members must dissociate from any activity they know is illegal and if Smith cannot get his rm for correct the misleading nancial report he must leave the board There are intermediate steps that Smith can take in order to remedy the situation Smith may bring his concerns to the other board members in order to get the rm to stop the illegal activity If the board will not remedy the situation, dissociating from the board may be Smith's only way to remain in compliance with the Code and Standards (Study Session 1, Module 2.1, LOS 2-I.(A)) Related Material Question #175 of 181 en tre in SchweserNotes - Book According to the Code of Ethics, the professional judgment of a member should be: bo ok c A) guided by the SEC guidelines B) dependent on that of his/her colleagues C) independent Explanation o m The Code of Ethics states that the CFA Institute member shall "Use reasonable care and exercise independent professional judgment." None of the other answers resemble anything in the Code w w (Study Session 1, Module 1.1, LOS 1.b) Related Material w SchweserNotes - Book Question #176 of 181 Which of the following is NOT part of the CFA Institute Code of Ethics? A) Competence B) Contractual provisions C) Independent judgment Explanation https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83386079/print 115/119 10/11/2018 Learning Management System Contractual provisions are not part of the Code of Ethics (Study Session 1, Module 1.1, LOS 1.b) Related Material SchweserNotes - Book Question #177 of 181 Bob Blanford, CFA, is an investment analyst for a large global brokerage rm He recently in moved to Ragatan, a developing country with few securities laws and regulations As part of conducting a company analysis, Blanford interviews Ravi Shanti, vice-president of nance at en tre Starr Industries Starr is a major industrial rm in Ragatan and a client at Blanford's rm Based on his analysis, Blanford suspects that Shanti may have deliberately overstated Starr's current earnings and its earnings for the past several quarters If this information becomes public, Blanford believes that Starr's stock price will drop substantially Blanford suspects that Shanti bo ok c may have violated Ragatan's securities laws Which of the following statements is least likely to comply with Standard I, Professionalism? Blanford should: A) determine the legality of the activity, possibly by consulting counsel B) disassociate himself from the client, if the activity is illegal or unethical .o Explanation m C) take no action w w w Because Blanford suspects Shanti of engaging in ongoing illegal activities, Blanford should take action by determining the legality of the suspected action, disassociating from any illegal activity, and urging his rm to attempt to persuade Shanti to cease such conduct if such an activity is illegal or unethical (Study Session 1, Module 2.1, LOS 2-I.(A)) Related Material SchweserNotes - Book Question #178 of 181 https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83386079/print 116/119 10/11/2018 Learning Management System Harold Klein, CFA, is an expert on ethical conduct in the investment banking industry and has been asked by an association of investment bankers to give a presentation on interpreting codes of ethics and standards of practice such as the CFA Institute Code of Ethics and Standards of Professional Conduct In his presentation, Klein makes two key points: Sound ethical judgment requires careful and thoughtful application of ethical standards which are precise and exacting in nature An ethical professional must begin the ethical decision making process by determining the applicable code and standards that govern the situation Determine whether Klein's statements are correct or incorrect and state your conclusion Correct B) Incorrect Incorrect C) Correct Correct bo ok c A) Incorrect in Statement en tre Statement Explanation o m Statement is incorrect Ethical standards and codes of conduct are not mathematically precise and exacting but are ambiguous and open to interpretation This characteristic requires wisdom and a mature approach on the part of the professional Statement is correct In deciding what course of action is ethically sound, a professional must rst determine the applicable code and standards and assess their requirements in light of the circumstances w w (Study Session 1, Module 1.1, LOS 1.b) Related Material w SchweserNotes - Book Question #179 of 181 Sometimes a CFA Institute member simply feels a law has been violated by his rm, and sometimes the member knows a law has been violated Which of the following pairs of guidelines is CORRECT with respect to the rst step a member should take in each case? The member should rst contact: A) the rm's counsel if he feels a law has been violated and contact his supervisor if he knows a law has been violated https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83386079/print 117/119 10/11/2018 Learning Management System B) the rm's counsel if he feels a law has been violated and the SEC if he knows a law has been violated C) his supervisor in the rm if he feels a law has been violated and contact the rm's counsel if he knows a law has been violated Explanation Standard I(A) says that when a member feels a law has been broken, the member should seek advice from the rm's counsel If the member feels the advice is unbiased and competent, the member should follow it If the member knows a law has been violated, the member should contact a supervisor (Study Session 1, Module 2.1, LOS 2-I.(A)) in Related Material en tre SchweserNotes - Book bo ok c Question #180 of 181 Which of the following actions is least likely to prevent the misuse of insider information? A) Controlling relevant interdepartmental information B) Monitoring all the phone calls made by the brokers m C) Placing securities on a restricted list when the rm is in possession of material w w Explanation o nonpublic information w Standard II(A), Material Nonpublic Information, applies in this situation Standard II(A) suggests the use of " re walls" to protect the rm and to conform to the Standards A re wall is an information barrier designed to prevent the communication of material nonpublic information between departments of a rm Although the re wall system should provide a means to review transactions, it is not feasible to monitor all communications into/out of departments Placing sensitive securities/ rms on "watch, "restricted," or "rumor" lists helps management target monitoring of transactions (Study Session 1, Module 2, LOS 2.a) Related Material SchweserNotes - Book Question #181 of 181 https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83386079/print 118/119 10/11/2018 Learning Management System Nancy Hall, a candidate in the CFA program, is an analyst for a mutual fund As part of her job she makes company visits to interview executives On a recent trip she stayed with her sister instead of at a hotel In her expenses Hall included a hotel charge of $100, which was less than the amount allowed by her employer After receiving a check for her expenses, Hall disclosed to her supervisor that she had stayed with her sister instead of at a hotel She also returned the $100 to her employer According to CFA Institute Standards of Professional Conduct, which of the following statements best describes Hall's professional conduct? A) Hall did not engage in professional misconduct because she did not meet all of the requirements to use the CFA designation .in B) Hall engaged in professional misconduct C) Hall did not engage in professional misconduct because she eventually disclosed en tre this information and returned the $100 to her employer Explanation bo ok c Hall engaged in professional misconduct because her act involved dishonesty, fraud, and deceit (Study Session 1, Module 2.2, LOS 2-I.(D)) Related Material w w w o m SchweserNotes - Book https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83386079/print 119/119 ... https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495 925 615 029 a3fd/practice /qbank/ 24 038 518 /quiz/ 833 86079/print 23 / 11 9 10 /11 /2 018 Learning Management System SchweserNotes - Book Question #38 of 18 1 Mary White, CFA, sits on the board of. .. https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495 925 615 029 a3fd/practice /qbank/ 24 038 518 /quiz/ 833 86079/print 11 /11 9 10 /11 /2 018 Learning Management System Question #20 of 18 1 Andrea Waters is an investment... https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495 925 615 029 a3fd/practice /qbank/ 24 038 518 /quiz/ 833 86079/print 37 /11 9 10 /11 /2 018 Learning Management System The Code and Standards not require