Susan Jackson, with HRS Investments, is appearing in court as an expert witness. She will have to use research done at HRS, to which she did not contribute directly, during her testimony. Which of the following is true, in relation to Jackson's need to comply with Standard I (C) - Misrepresentation?
A. Jackson is representing herself and may or may not attribute any of HRS's research.
B. Jackson is representing HRS and must attribute any of HRS's research.
C. Jackson is representing herself and must attribute any of HRS's research.
D. Jackson is representing HRS and may or may not attribute any of HRS's research.
Question 2 of 120.
Victor Lazquez is an analyst with Amro Investments and follows the optical instrument manufacturers. In this capacity, he has learnt a few trade secrets pertaining to a leading edge firm, Fibroptica. Recently, he was approached by Fibroptica's competitor, Lensmakers Inc., who offered him a 3 month project on the optical industry practices. Victor realizes that such a project could reveal Fibroptica's trade secrets indirectly. However, he decides he will be very careful and accepts Lensmakers' offer. If he does not inform his employer about this project, he will
A. have violated Standard VI (A) - Disclosure of Conflicts.
B. have violated Standard IV (A) - Loyalty.
C. have violated Standard IV (B) - Additional Compensation Arrangements.
D. not have violated any CFA Institute code since the project does not give rise to a conflict of interest with Amro's business.
Question 3 of 120.
Omega Prime Securities is a sizable investment bank that undertakes security issuances on behalf of small and medium size businesses. Treffil Ellis is the senior vice president of corporate finance at Omega. Treffil, on one of his golf junkets, made acquaintance with Tralth Trevor, owner of a growing chain of resort hotels. Tralth invites Treffil to his estate mansion the next day and over drinks, asks him how fast Omega could issue equity linked callable notes to finance the $200 million construction of new hotel businesses in Cairo and Bali. He forthrightly tells him that Omega could receive as much as 150 basis points above the normal fee if the issuance could be completed within the month. Treffil knows that this is not enough time to complete a research on Tralth's business and determine the issue price. However, he does know that his research wing could quickly do a comparison with one of the other hotel chains and determine an approximate issue price. He instructs his department to do so. In a month, the public offering is ready for issuance and Omega ends up making almost $15 million more than on other similar business deals. Treffil receives commendation from the CEO for "going beyond the call of duty for his employer."
Treffil has: I. violated Standard III (B) Fair Dealing. II. not violated any code of ethics. III. violated Standard V (A) Diligence and Reasonable Basis. IV. violated Standard III (A) Loyalty, Prudence, and Care.
A. III and IV only.
B. I and III only.
C. III only.
D. II only.
Question 4 of 120.
If every one of your research reports had a statement stating that every research report on issues by a corporate client reflects the unbiased opinion of the analyst, you would be complying with Standard ______.
A. I (B) - Independence and Objectivity.
B. V (A) - Diligence and Reasonable Basis.
C. V (B) - Communication with Clients and Prospective Clients.
D. III (D) - Performance Presentation.
Question 5 of 120.
"Prohibited transactions" are discussed in Standard VI (B), Priority of Transactions. Which of the following is NOT suggested as a firm policy?
A. Participation by investment personnel in equity should be restricted.
B. Firms must determine specific requirements relating to blackout period.
C. All individuals who are involved in the investment decision-making process should be subject to the standard.
D. None of these answers.
Question 6 of 120.
A(n) ______ is someone who has knowledge of pending or actual investment recommendations or action.
A. access person
B. CFA Institute member
C. insider
D. none of these answers
Question 7 of 120.
Hillary Waters, CFA, is an investment analyst who has accumulated several pieces of nonpublic information through her contacts with drug firms. Although none of the information is material, Waters correctly concluded by analyzing the nonpublic information that the earnings of one of the drug firms would be unexpectedly high in the coming year. Under current U.S. law, Waters:
A. should urge the drug firm to make public dissemination of the information immediately.
B. can use the information to make investment recommendations and decisions.
C. may use the information, but only after approval from a compliance officer or supervisory analyst attesting to its non-materiality.
D. cannot legally invest or make investment recommendations based on this information.
Question 8 of 120.
Mason and Mason (M&M) are a bond management firm. They report their portfolio returns after including accrued interest and their asset weights are based on full prices.
A. M&M is fully GIPS compliant.
B. M&M is not GIPS compliant because asset weights should be based on market values.
C. M&M is not GIPS compliant because accrued interest should not be included in return calculations.
D. M&M is not GIPS compliant because asset weights should be based on market value and accrued interest should not be included in return calculations.
Question 9 of 120.
Mark Spencer manages portfolios for several corporate pension plans. While discussing investments with one of the plan sponsors he learns that the company is going to split itself into two divisions and spinoff one to the stockholders. Analysts have been recommending this action for almost two years and the stock price is expected to rebound by up to 15%, and perhaps more. Mark is already fully invested in the company's stock and cannot add more to his plans. While on his way home that evening, he meets an old acquaintance on the subway and the subject turns to street values. During one of the stops, Mark lets it slip that Carefree fashions is going to split itself into two divisions and spinoff one to shareholders. Brian makes a mental note and before getting off at the next station he thanks Mark and hopes they could someday drink some coffee after work together. The next morning Brian calls his broker the first thing and places a market order to buy 2,500 shares of Carefree Fashions. Brian
A. has not violated any standards since he is not a fiduciary of Carefree Fashions.
B. has not violated any standard because the information is not related to a tender offer,
C. has violated Standard II (A) - Material Nonpublic Information.
D. has violated Standard III (E) - Preservation of Confidentiality.
Question 10 of 120.
Judy Greffner is an analyst with Buy My Lunch Associates. She is approached by a stock marketing agency that asks her to publish a positive recommendation on a small stock, Hope We Make It Inc., in exchange for a trip to Bahamas, all expenses paid so as not to leave any paper trail. Judy accepts the offer and issues a strong buy on Hope even though she believes it is a neutral prospect at best. Judy has violated
I. Standard IV (B) - Additional Compensation Arrangements. II. Standard VI (A) - Disclosure of Conflicts. III. Standard I (B) - Independence and Objectivity.
A. I and II.
B. II and III.
C. I and III.
D. I, II and III.
Question 11 of 120.
Derrick Montana routinely invests in penny stocks and has a better than 50% batting average. He sometimes covers such stocks in his research reports for Tannon and Gannon Securities (TGS). He delays the release of his report which covers the industry so that his broker can buy a penny stock of a small firm in that industry at a reasonable price. Derrick has
I. violated Standard VI (A) - Disclosure of Conflicts as he does not disclose his conflict of interest to his clients in his report. II. violated Standard VI (A) - Disclosure of Conflicts to the employer due to beneficial ownership of securities. III. violated Standard VI (B) - Priority of Transactions.
A. I, II and III.
B. I and III.
C. II and III.
D. not violated any standard as his report was objective and untainted since he finished it before buying the stock.
Question 12 of 120.
Chicago Option Strategies (COS) advertises the huge profits that can be made by trading foreign currency options, on the morning radio show. It cites examples of traders who have turned a few thousand dollars into huge sums overnight. The advertisement highlights the gains and low downside risk. Clint O'Meara manages COS' advertising program with which they want to attract brokerage clients among the average radio listners. O'Meara has
A. not violated any standards because mass media advertisements are exempt from the purview of the Code and Standards since they are short and only certain aspects can be highlighted and everyone understands that they are meant to push product or a service and people discount them anyway.
B. violated Standard I (C) - Misrepresentation.
C. violated Standard III (C) - Suitability.
D. violated both Standard I (C) and Standard III (C).
Question 13 of 120.
For a member to claim that (s)he does not have a beneficial interest in a security, which of the following statements is/are FALSE?
I. (s)he has the authority to include it in a client's portfolio. II. not have a direct pecuniary interest in a security. III. not have the power to direct its voting privilege if present. IV. not have the power to dispose of the security in any way.
A. I only.
B. I and III.
C. II, III and IV.
D. I and IV.
Question 14 of 120.
Geoffrey Myers manages several individual client portfolios. One of his less risky accounts has several municipal bonds. Geoffrey feels that the stock market is in a bubble formation near the top and decides to write index calls for the portfolio. He explains his decision to the client stating that this strategy will produce income with little or no risk.
A. Geoffrey has violated Standard III (C) - Suitability.
B. Geoffrey has violated Standard III (A) - Loyalty, Prudence, and Care.
C. Geoffrey has violated Standard I (B) - Independence and Objectivity by not conducting a thorough analysis of the market.
D. Geoffrey has not violated any standard as he has explained the rationale and risks of the strategy to the client.
Question 15 of 120.
Garfield and Associates manages funds for its clients based on quantitative models and research. It has successfully managed hundreds of millions of dollars for its clients over the past decade. Due to a change in the market structure, it has discovered that its models need to be updated to include global variables for projecting risk and return, and identifying attractive investments with a potential of above average return. Without informing its clients, Garfield makes the change in 2004 and its research director, Candy Brower delivers a banner year for its clients. Candy
A. has not violated any standard.
B. has violated Standard V (B) - Communication with Clients and Prospective Clients.
C. has violated Standard II (A) - use of Material Nonpublic Information in estimating her models.
D. has violated Standard V (A) - Diligence and Reasonable Basis.
Question 16 of 120.
Brad Hartley directs portfolio trades for his clients to a brokerage firm that gives him price concessions for his personal trades. Brad does not fill out the compliance forms that required reporting of personal trades regularly. Brad knows that another broker can execute trades faster.
I. Brad has violated Standard III (A) - Loyalty, Prudence, and Care. II. Brad's supervisor has violated Standard IV (C) - Responsibilities of Supervisors.
A. I and II.
B. I only.
C. II only.
D. Neither I nor II.
Question 17 of 120.
Katy Olson is a portfolio manager for Mystic Capital Management. She directs her clients' trades to the brokerage firm of Polly and Black (P&B). In return P&B underwrite Karen's annual trip to Europe where she takes a skiing vacation in the French Alps and attends a local conference on investment opportunities in northern France. Katy has violated
I. Standard III (A) - Loyalty, Prudence, and Care. II. Standard I (B) - Independence and Objectivity. III. Standard IV (B) - Additional Compensation Arrangements.
A. I and II.
B. I and III.
C. II and III.
D. So long as she is getting the best price and execution for her clients, and does not compromise her objectivity and independence, Katy has not violated any standard.
Question 18 of 120.
Gladstone Partners follow the manufacturing industry and are well known in the market for their analytical acumen. Several institutional clients rely on their reports for managing their portfolios. Gary Fontana is a senior analyst with Gladstone. While revising a report due immediately, he ran short of time and based on his past experience, revised the industry sales figure for the upcoming quarter by 2%. The manufacturing industry shows cyclicality during the year and drops by an average of 2% in the fall quarter before ramping up in the winter and summer. However, the 2% average drop masks the variability in year to year changes in the fall output. Over the past ten years, the fall change has fluctuated between -7% and +6%.
A. Gary has properly accounted for the expected change in fall output based on the past experience.
B. Gary has violated Standard I (C) - Misrepresentation.
C. Gary has violated Standard V (A) - Diligence and Reasonable Basis, by not researching the upcoming quarter more than he did.
D. Gary has violated Standard I (C) and Standard V (A).
