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Which of the following statements about the responsibilities of CFA charterholders is TRUE? CFA charterholders:

A) must comply with the laws and rules governing their profession or must not engage in any individual behavior that reflects adversely on the entire profession.

B) are not obligated to a special set of standards, but must act honorably.

C) must comply with the laws and rules governing their profession and must not engage in any individual behavior that reflects adversely on the entire profession.

D) are only obligated to comply with securities laws in the U.S.

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Answer and Explanation

CFA charterholders must comply with the laws and rules governing their profession and must not engage in any individual behavior that reflects adversely on the entire profession. While they should act honorably and follow U.S. securities laws, they are obligated to more than that, as set forth in the Code and Standards.

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An analyst, who is a CFA charterholder, is working in a foreign country. Which of the following statements is TRUE? The analyst is:

A) covered by the strictest of the following laws and rules: his own country's, the foreign country's or CFA Institute's Code and Standards.

B) governed by CFA Institute's Code and Standards.

C) governed by the laws and standards of the country in which he is living and working.

D) covered by U.S. securities laws.

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Answer and Explanation

The analyst is covered by the strictest of the following laws and rules: his own countrys, the foreign countrys or CFA Institutes Code and Standards.

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CFA Institute members should encourage their employers to do all of the following EXCEPT:

A) make clear that dishonest personal behavior reflects poorly on the profession.

B) adopt a code of ethics to which every employee must subscribe.

C) require employees to write personal ethics statements.

D) conduct background checks on potential employees to ensure that they are of good character and eligible to work in the investment industry.

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Answer and Explanation

There is no reason to have employees write personal ethics statements. CFA Institute encourages all of the other actions.

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Benito Salvatore, CFA, is licensed in the established country of Oldworld but has clients and makes investments in the emerging county of Newworld. The regulations of Oldworld prohibit licensed investment professionals from taking gifts or gratuities in any amount from vendors or persons connected with potential investments. The laws of Newworld are silent on this issue. Unsolicited, Salvatore is offered a vase worth US $75 by a Newworld trust company and a bronze statue worth US $200 by a Newworld company that Salvatore is considering as a potential investment.

Salvatore is:

A) permitted to accept the vase but not the statue.

B) permitted to accept the statue but not the vase.

C) not permitted to accept either gift.

D) permitted to accept both gifts.

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Answer and Explanation

Under Standard I(A), Salvatore must, as a CFA charterholder, apply the CFA Institute Code and Standards or the controlling law, whichever is stricter. In this instance the stricter laws of Oldworld, where Salvatore is licensed, apply to prohibit the gifts, even though the gifts are offered in Newworld.

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Mary Kim, CFA, practices in the established country of Oldasia as well as in the emerging country of Newasia. By regulation, Oldasia prohibits licensed investment advisors from trading in securities ahead of their clients. Newasia has no laws or regulations in this area. Mary Kim may:

A) trade ahead of her clients in Newasia only.

B) trade ahead of her clients in Newasia only, as long as she has made full disclosure to her clients that she reserves the right to do this.

C) not trade ahead of her clients in either country.

D) trade simultaneously with her clients in Newasia only, as long as she has made full disclosure to her clients that she reserves the right to do this.

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Answer and Explanation

Under Standard I(A), Mary Kim, as a CFA charterholder, must apply the CFA Institute Code and Standards or the controlling law, whichever is stricter. Because Standard VI(B) requires members to put client trades ahead of their own transactions, Mary Kim must follow the standard in the absence of governing law, or where the law is less strict than the standard.

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The Standards of Professional Conduct explicitly outlines responsibilities to four groups. Which of the following is NOT a group mentioned in that list?

A) The Federal Reserve.

B) The profession.

C) Employers.

D) The investing public.

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Answer and Explanation

The Standards explicitly mention responsibilities to the profession, employers, clients, prospects, and the investing public. The Federal Reserve is not mentioned.

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For an employee with the CFA designation who works for a firm, which of the following is NOT necessary to meet the requirements of the Code and Standards?

A) Deliver a copy of the Code and Standards to their employer.

B) It is recommended that their employer is aware of the Code and Standards.

C) Recommend notifying their employer of their responsibility to follow the Code and Standards.

D) Recommended that their immediate supervisor is aware of the Code and Standards.

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Answer and Explanation

It is no longer required but recommended that CFA members and candidates notify their employer that they are required to follow the Code and Standards.

It is no longer required but recommended that CFA members and candidates notify their employer that they are required to follow the Code and Standards.

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A CFA Institute member is also a member and the portfolio manager of an environmentalist group. In its charter, the environmentalist group lists a group of companies its members should boycott. The CFA Institute member would violate Standard I(A) concerning obeying all rules and regulations if the member:

A) buys, for personal use, a product made by a boycotted firm.

B) actively protests against a publicly traded firm boycotted by the group.

C) performs any of the activities listed here.

D) purchases stock of a boycotted firm for the group's portfolio.

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Answer and Explanation

Standard I(A) says the member must be guided by all applicable rules and regulations of professional associations governing the members professional activities. Purchasing the stock for the firm would be a violation because it involves the members professional activities and the rules of a group to which the member belongs and works for. Buying a product for personal use from a boycotted company would not be covered by Standard I(A) nor would actively protesting be covered by that standard.

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A CFA Institute member conscientiously maintains records of changes in security regulations. The member notices that his colleagues do NOT, and does NOT say anything. Is this a violation of Standard I(A)?

A) Yes, and the member should disassociate from these colleagues.

B) No, as long as the colleagues do not violate the new rules.

C) No, as long as he allows the colleagues access to his files.

D) Yes, because the member is bound by the Code of Ethics.

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Answer and Explanation

Component three of the Code says that a member shall Strive to maintain and improve their competence and the competence of others in the profession. Ignoring the neglect of rule changes of others would clearly be incongruent with this component. Simply allowing the colleagues access to the files is not enough effort to constitute striving. As long as the colleagues do not violate the laws, the member does not have to disassociate himself from the colleagues.

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A CFA Institute member works for Secure Securities, Inc., and plays rugby on the firms rugby team. Secure Securities team recently played the team of a rival firm. During the game, a fight broke out and the CFA Institute member was the instigator, but no one was seriously hurt. Is this a violation of I(A) concerning maintaining knowledge and complying with laws, rules, and regulations?

A) Yes, because the member could have hurt someone in the fight.

B) Yes, because the member is bound by the Code of Ethics.

C) No, because a fight at a rugby game is not a professional activity.

D) No, because no one was seriously hurt.

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Answer and Explanation

Standard I(A) requires that a CFA Institute member obey the Code of Ethics. Among other things, the Code says the member shall act with respect and in an ethical manner with the public and colleagues.