2011年6�CFA_Level 1_NOTES EXAMS_ETHICS_A

2011年6�CFA_Level 1_NOTES EXAMS_ETHICS_A - NOTES...

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Unformatted text preview: NOTES PRACTICE EXAMS ANSWERS 目录 Ethics ............................................................... 2 Readings 1‐2 Answers ........................................................... 2 Readings 4 GIPS ANSWERS ............................................. 7 Self‐Test:Answers ............................................ 9 1 NOTES PRACTICE EXAMS ANSWERS Ethics Readings 1‐2 Answers 1. C To comply with Standard 1(A) Knowledge of the Law, a member must always abide by the strictest applicable law, regulation, or standard. 2. A Gifts from clients are acceptable under Standard 1(B) Independence and Objectivity, but the Standard requires members and candidates to disclose such gifts to their employers. Standard 1(B) allows issuer‐paid research as long as the analysis is thorough, independent, unbiased, and has a reasonable and adequate basis for irs conclusions, and the compensation from the issuer is disclosed. Members and candidates should consider the potential for conflicts of interest inherent in credit ratings and may need to do independent research to evaluate the soundness of these ratings. 3. C According to Standard 1(C) Misrepresentation, members and candidates must cite the sources of the information they use in their analysis, unless the information is factual data (as opposed to analysis or opinion) from a recognized financial or statistical reporting service. The U.S. Treasury is one example of a recognized source of factual data. 4. B Failing to act when required by one’s professional obligations, such as neglecting to perform due diligence related to an investment recommendation, violates Standard 1(D) Misconduct. Acts a member commits outside his professional capacity are misconduct if they reflect poorly on the member or candidate’s honesty, integrity, or competence (e.g., theft or fraud).Violations of the law that do not reflect on the member or candidate’s honesty, integrity, or competence (e.g., an act related to civil disobedience) are not necessarily regarded as misconduct. 5. A The statement from the CFO about the current quarter’s earnings is material nonpublic information. Ingus violated Standard 11(A) Material Nonpublic Information by acting or causing others to act on it. 2 NOTES PRACTICE EXAMS ANSWERS 6. B The intent of Green Brothers’ actions is to manipulate the appearance of market liquidity in order to attract investment to its own funds. The increased trading activity was not based on market fundamentals or an actual trading strategy to benefit investors. It was merely an attempt to mislead market participants in order to increase assets under Green Brothers’ management. The action violates Standard 11(B) Market Manipulation. 7. C Standard 111(A) Loyalty, Prudence, and Care specifies that for the manager of a pension or trust, the duty of loyalty is owed to the beneficiaries, not to the individuals who hired the manager. 8. B The firm must give its clients an opportunity to act on recommendation changes. Firms can offer different levels of service to clients as long as this is disclosed to all clients. The largest institutional clients would likely be paying higher fees for a greater level of service. The portfolio manager’s brother’s account should be treated the same as any other client account. 9. A According to Standard 111(C) Suitability, a member or candidate who is in an advisory relationship with a client is responsible for analyzing the suitability of an investment for the client before taking investment action or making a recommendation. A member or candidate who believes an unsolicited trade is unsuitable for the client can either decline to carry it out or ask the client to provide a statement that suitability is not a consideration for this trade. When managing a fund to an index or stated mandate, the manager is responsible for ensuring that potential investments are consistent with the fund’s mandate. Suitability for individuals would be a concern for an advisor who recommends the fund to clients, but not for the manager of the fund. 10. C Recommendations stated in Standard 111(D) Performance Presentation include considering the sophistication and knowledge of the audience when presenting performance dara Other recommendations are to include terminated accounts in past performance history; to present the performance of a composite as a weighted average of the performance of similar portfolios, rather than using a single representative account; and to maintain the records and data that were 3 NOTES PRACTICE EXAMS ANSWERS used to calculate performance. 11. B Members and candidates are required to cooperate with PCP investigations into their own conduct and encouraged to cooperate with PCP investigations into the conduct of others. Sharing confidential information with the PCP is not a violation of Standard 111(E) Preservation of Confidentiality. Any client information shared with the PCP will be kept in strict confidence. Standard 111(E) states that members and candidates are required to maintain confidentiality of client records even after the end of the client relationship. 12. C According to Standard IV(A) Loyalty, members and candidates are expected to act for the benefit of their employer and not deprive the employer of their skills. Fletcher is performing work similar to the services that her employer provides. Although the position is a volunteer position, Fletcher will receive compensation in the form of a free parking space. In light of the circumstances, Fletcher must disclose the details of the position to her employer and get written permission before accepting the volunteer position. 13. B Johnson should disclose her additional compensation arrangement in writing to her employer and obtain her employer’s written consent before accepting this offer, in accordance with Standard IV(B) Additional Compensation Arrangements. 14. B Members or candidates may delegate supervisory duties to subordinates but remain responsible for instructing them about how to detect and prevent violations. Reporting the violation and warning the employee are not sufficient to comply with Standard IV(C) Responsibilities of Supervisors. The supervisor must also take steps to prevent further violations while she conducts an investigation, such as limiting the employee’s activity or increasing her monitoring of the employee. Supervisors should enforce investment‐related and non‐investment related policies equally. 15. B Standard V(A) Diligence and Reasonable Basis requires analysts who use third‐party research to review its assumptions and evaluate the independence and objectivity of the 4 NOTES PRACTICE EXAMS ANSWERS research. The other choices are recommended procedures for compliance with the Standard. 16. A Standard V(B) Communication with Clients and Prospective Clients requires that members and candidates communicate the risk associated with the investment strategy used and how the strategy is expected to perform in a range of scenarios. These scenarios should include those different from the current trend. Marlin should have discussed how her strategy would perform if the euro depreciates instead of appreciating as she expects. 17. B When no other regulatory guidance applies, Standard V(C) Record Retention recommends that records be maintained for a minimum of seven years. 18. C Even though the shares are held in trust, Lyons is considered a beneficial owner under Standard VI(A) Disclosure of Conflicts because he has a pecuniary interest in the shares and because has the power to vote the shares. Lyons is obligated to inform his employer of the potential conflict. If Lyons’s employer permits him to continue issuing investment recommendations on the company, Lyons must disclose the existence of a potential conflict in his reports. 19. C Only one of these transactions is a violation. Standard VI(B). Priority of Transactions requires members and candidates to give clients an adequate opportunity to act on a recommendation before trading for accounts in which the member or candidate has a beneficial ownership interest. Members and candidates may trade for their own accounts as long as they do not disadvantage clients, benefit personally from client trades, or violate any regulations that apply. The Standard does not prohibit members and candidates from entering personal transactions that are contrary to what their firms are recommending for clients, as long as the transaction does not violate any of these criteria. 20. C According to Standard VI(C) Referral Fees, Hem must disclose the referral arrangement between itself and Baker so that potential clients can judge the true cost of Hem’s services and assess whether there is any partiality inherent in the recommendation of services. 5 NOTES PRACTICE EXAMS ANSWERS 21. B Standard VII(A) Conduct as Members and Candidates in the CFA Program prohibits candidates from revealing which portions of the Candidate Body of Knowledge were or were not covered on an exam. Members and candidates are free to disagree with the policies, procedures, or positions taken by the CFA Institute. The Standard does not prohibit participating in CFA Program—related internet blogs, forums, or social networks. 22. C Standard VII(B) Reference to CPA Institute, the CFA Designation, and the CFA Program prohibits members and candidates from implying superior performance as a result of being a CFA charterholder. Concise factual descriptions of the requirements to obtain the CFA Charter are acceptable. Osgood’s statement that she passed the exams on her first attempts is acceptable because it states a fact. 6 NOTES PRACTICE EXAMS ANSWERS Readings 4 GIPS ANSWERS 1. C GIPS apply to investment management firms. They are intended to serve prospective and existing clients of investment firms and consultants who advise these clients. 2. C To comply with GIPS, a composite must include all fee‐paying, discretionary portfolios managed according to the same investment objective, strategy, or mandate. The composite or composites in which a portfolio will be included must be determined on an ex‐ante basis (i.e., before the period for which the composite’s performance will be calculated). A GIPS‐compliant composite must include terminated accounts. 3. C Verification of GIPS compliance is optional, but if a firm chooses to seek thirdparty verification, the report must be issued with respect to the whole firm. GIPS verification cannot be carried out for a single composite. 4. A GIPS Section 0, “Fundamentals of Compliance,” states that firms must document their procedures for remaining in compliance with GIPS. Firms which state that they are in compliance with GIPS must comply fully and may not claim partial compliance. GIPS defines total firm assets as the fair value of all portfolios managed by the firm, including discretionary and non‐discretionary, fee‐paying and non‐fee‐paying portfolios. 5. B The definition of a firm for GIPS‐compliant performance presentation should include all geographical offices marketed under the same name brand. 6. C Firms must always comply with the laws and regulations of the country in which they reside. In cases where local regulations conflict with GIPS, a firm can still claim GIPS compliance if they disclose the conflict fully in an otherwise compliant presentation. 7. B The nine major sections of GIPS are (0) Fundamentals of Compliance; (I) Input Data; 7 NOTES PRACTICE EXAMS ANSWERS (2) Calculation Methodology; (3) Composite Construction; (4) Disclosure; (5) Presentation and Reporting; (6) Real Estate; (7) Private Equity; and (8) Wrap Feel Separately Managed Account (SMA) Portfolios. 8 NOTES PRACTICE EXAMS ANSWERS Self‐Test:Answers 1. B According to Standard 1(A) Knowledge of the Law, since she has taken steps to stop the illegal activities and the board has ignored her, Jones must dissociate from the board and seek legal advice as to what other actions would be appropriate in this instance. She may need to inform legal or regulatory authorities of the illegal activities. 2. A Quigley’s trades are most likely an attempt to take advantage of an arbitrage opportunity that exists between Crarger’s common stock and its put options. She is not manipulating the prices of securities in an attempt to mislead market participants, which would violate Standard 11(B) Market Manipulation. She is pursuing a legitimate investment strategy. Participants in her hedge fund are aware of the fund’s investment strategy, and thus Quigley did not violate the Code and Standards by not disclosing this specific set of trades in advance of trading. 3. B Standard 111(C) Suitability requires that before taking investment action, members and candidates must make a reasonable inquiry into a client’s or prospect’s investment objectives and constraints as well as their prior investment experience. Byrne cannot assume that because the brothers have similar lifestyles and are close in age that they should have similarly managed portfolios. Byrne should have interviewed Cliff directly before investing his portfolio. 4. C According to Standard IV(C) Responsibilities of Supervisors, because he is aware that the firm’s compliance procedures are not being monitored and followed and because he has repeatedly tried to get company management to correct the situation, Blair should decline supervisory responsibility until adequate procedures to detect and prevent violations of laws, regulations, and the Code and Standards are adopted and followed. If he does not do so, he will be in violation of the Code and Standards. 5. A Anderson must maintain the confidentiality of client information according to Standard 111(E) Preservation of Confidentiality. Confidentiality may be broken in instances involving illegal 9 NOTES PRACTICE EXAMS ANSWERS activities on the part of the client, but the client’s information may only be relayed to proper authorities. Anderson did not have the right to inform the investment bank of her client’s investigation. 6. A Historical growth can be cited as a fact. The report states that the firm expects further growth and profitability, which phrases the statement as an opinion. Under Standard V(B) Communication with Clients and Prospective Clients, it is not necessary to include every detail about a potential investment in a report. Members and candidates are expected to use their judgment and identify the most important factors to include. 7. C Standard VII(B) governs acceptable methods of referencing the CFA Institute, CFA designation, and CFA Program. Candidates may reference their candidacy if they are enrolled for, or waiting for the results of, a CPA exam. Pulin may also reference his membership status with the CFA Institute as well as his remaining eligibility requirements to become a CFA charterholder. 8. B Even though the laws of Zanuatu would not preclude trading on the information, as a CFA Charterholder, Gordon is bound by the CFA Institute Code and Standards. Standard 11(A) prohibits the use of material nonpublic information, and Gordon may not trade the stocks about which she has such information under any circumstances. 9. C In this situation, Donovan, Smythe, and Yeats all violated Standard VII(A) Conducr as Members and Candidates in the CPA Program. The Standard prohibits conduct that compromises the integrity, validity, or security of the CFA exams. Donovan clearly breached the exam security. Smythe and Yeats both compromised the integrity of the exams by planning to use the actual exam question to gain an advantage over other candidates. Even though Yeats did not ultimately use the information to study for the exam, she participated in a scheme to cheat on the CFA exam. 10. A Aibright may accept work for which she receives outside compensation and which may compete with her employer only if she obtains her employer’s consent. Under Standard IV(A) 10 NOTES PRACTICE EXAMS ANSWERS Loyalty, such consent must be obtained from her employer prior to beginningrhe work. 11. C Since the statements are vague, we have no direct evidence that a violation of securities law has occurred. However, under Standard 1(D) Misconduct, members and candidates are prohibited from engaging in activities involving deceit. Karloff’s action is a clear attempt to mislead the investing public regarding the value of Summit IPOs. 12. C Standard 111(B) Fair Dealing requires that members not use their position to disadvantage clients, specifically in the case of IPOs. 13. B NV management is asking Hunter to violate Standard 11(B) Market Manipulation, which prohibits actions that are designed to distort prices or artificially increase trading volume. The intent is to mislead market participanrs and allow corporate insiders to take advantage of artificially high prices. 14. A Pick has not violated the Standards. The referral arrangement is fully disclosed to clients before they agree to do business with Pick. Therefore, clients can fully assess the effect of the agreement on the referral and how the agreement may affect their accounts before hiring Pick as their asset manager. 15. B Standard VI(B) Priority of Transactions recommends that members and candidates avoid the appearance of conflict of interest by not participating in IPOs. If a family member is a fee‐paying client, the member or candidate should treat them like any other client, not giving any advantage or disadvantage to their accounts. 16. B Firms cannot alter historical performance records of composites simply because of a reorganization of the firm. This is required by GIPS Standard 0.A.15. Third‐party verification of GIPS compliance and including all geographical offices in the definition of the firm are recommended, but not required. 11 NOTES PRACTICE EXAMS ANSWERS 17. C Composites are groups of portfolios that represent a similar investment strategy, objective, or mandate. Clearly, grouping all portfolios managed to mirror the S&P 500 Index return constitutes a composite according to this definition. Organizing composites by office or by a generic active management category is not acceptable as these categories do not reflect any sort of strategy, objective, or mandate. 18. B GIPS verification must be performed by an independent third party. The SEC audit does not constitute a GIPS verificatio 12 ...
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This note was uploaded on 11/02/2011 for the course FINANCE 612 taught by Professor Liyang during the Spring '11 term at Covenant School of Nursing.

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