Reading 41: Execution of Portfolio Decisions－LOS n execution, criteria, meaning

tycoon

Which of the following is FALSE regarding best execution?

A) Best execution can be measured for a single trade.

B) Each party to a trade determines what best execution is.

C) Best execution cannot be judged separately of the investment decision.

D) Best execution can be measured ex post over time.

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Answer and Explanation

Although best execution can be measured ex post over time, it cannot be measured for a single trade. Best execution cannot be judged independently of the investment decision. Best execution cannot be known with certainty ex ante, it depends on the particular circumstances of the trade. Each party to a trade determines what best execution is.

tycoon

Which of the following is FALSE regarding best execution? Best execution:

A) is similar to the prudence concept.

B) cannot be known with certainty ex ante.

C) should be judged independently of the investment decision.

D) depends on relationships and practices.

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Answer and Explanation

Best execution cannot be judged independently of the investment decision. Prudence and best execution both attempt to improve portfolio performance and meet fiduciary responsibilities. Best execution cannot be known with certainty ex ante. Relationships and practices are integral to best execution.

tycoon

CFA Institute Area 3-5, 7, 12, 14-18: Portfolio Management
Session 14: Execution of Portfolio Decisions
Reading 41: Execution of Portfolio Decisions
LOS n: Explain the meaning and criteria of best execution.

tycoon

Which of the following is FALSE regarding best execution?

A) Best execution can determine a traders effectiveness over time.

B) Best execution prevents high cost trades from taking place.

C) Best execution can be measured after the fact for a series of trades.

D) Best execution depends on the circumstances of the trade.

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Answer and Explanation

Some strategies might have high trading costs but that does not mean they should not be pursued if in net they enhance portfolio value. Best execution depends on the circumstances of the trade. Best execution can be measured after the fact for a series of trades.