Which of the following is a CORRECT statement of a member's duty under the Code and Standards?

A) A member is required to comply only with applicable local laws, rules, regulations, or customs even though the CFA Institute code and Standards may impose a higher degree of responsibility or a higher duty on the member.

B) A member who trades securities in a foreign securities market where no applicable local laws or stock exchange rules regulate the use of material nonpublic information may take investment action based on this information.

C) In the absence of specific applicable law or other regulatory requirements, the Code and Standards govern the member's actions.

D) A member who trades securities in a country with less strict laws, rules, regulations, or customs may follow those laws if he discloses this information to his client.

Mega Securities, a multinational investment advisor based in the United States, employs the following analysts who practice in multiple jurisdictions.

• Melissa Black, CFA, resides in Country N, which has no securities laws or regulations, but does business in Country L, which has securities laws and regulations that are less strict than the Code and Standards.
• Tom White, a CFA Institute member, resides in Country L, but does business in Country S, which has securities laws and regulations that are stricter than the Code and Standards.

According to the CFA Institute Code and Standards, which of the following statements about Black and White is TRUE?

A) law of Country N law of Country L

B) law of Country L law of Country S

C) Code and Standards law of Country S

D) law of Country L Code and Standards

Robe Advisory Services operates an office in San Francisco, where it manages portfolios for its clients based in the United States. The firm also maintains an office in Tokyo, where it employs Sam Lee, CFA, who researches Japanese stocks. Lee is required to maintain knowledge of and comply with all applicable laws, rules, and regulations in:

A) both the U.S. and Japan 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) the U.S., but not Japan, and the CFA Institute Standards of Professional Conduct.

D) Japan, but not the U.S., and the CFA Institute Standards of Professional Conduct.

According to the CFA Institute Standards of Professional Conduct, Standard I(A), Knowledge of the Law, members shall not knowingly participate or assist in any violations of laws, rules, or regulations. An analyst:

A) must report all legal violations to the proper regulatory commission and is held responsible for participating in illegal acts when the law is evident to anyone knowing the law.

B) is held responsible for violations by others when the analyst is unaware of the facts giving rise to the violation.

C) is held responsible for participating in illegal acts when the law is evident to anyone knowing the law and is held responsible for violations by others when the analyst is unaware of the facts giving rise to the violation.

D) is held responsible for participating in illegal acts when the law is evident to anyone knowing the law and can participate in a violation by having knowledge of the violation and taking no action to stop it or disassociate from it.

Janet Green, CFA, provides investment advice and other services to clients in several countries. She resides in Country A whose securities laws and regulations are less strict than the Code and Standards. She also conducts business with clients in Country B, which has no securities laws or regulations, and in Country C, which has securities laws and regulations that are stricter than the Code and Standards. Which of the following statements is TRUE? According to CFA Institute Standards of Professional Conduct, Green must adhere to the Code and Standards in:

A) Country A and Country B but the law in Country C.

B) Country A but the law in Country B and Country C.

C) Country B but the law in Country A and Country C.

D) Country A, Country B, and Country C.

Josh LeBlanc, a CFA charterholder, is an investment analyst for a small stock brokerage firm. He wants to acquire and maintain knowledge about applicable laws, rules, and regulations relating to his professional activities. According to the CFA Institute Standards of Professional Conduct, which of the following ways is least likely to meet compliance procedures?

A) Review written compliance procedures on a regular basis.

B) Maintain current files on applicable statues, rules, and regulations.

C) Keep informed about changes in applicable laws, rules, and regulations.

D) Rely on past practices followed within his firm.

Jason Blackwell, CFA, works as an investment manager for Mega Capital, a large multinational brokerage firm. He resides in a country whose applicable law is stricter than the Code and Standards but does business with clients in a country whose applicable law is less strict than the Code and Standards. Blackwell decides to follow the Code and Standards for clients in the less strict country. While Blackwell is still employed at Mega, Lego Associates verbally asks Blackwell to review client portfolios during evenings and weekends for a fee. Blackwell gets consent from his immediate supervisor at Mega to undertake this independent activity for a one-month trial basis.

Which of the following statements about Blackwells actions involving Standard I, Professionalism, and Standard IV(A), Loyalty is most accurate? Blackwell:

A) did not violate either Standard I or Standard IV(A).

B) violated both Standard I and Standard IV(A).

C) violated Standard I but did not violate Standard IV(A).

D) did not violate Standard I but violated Standard IV(A).

What is the rule of thumb for members, CFA charterholders and candidates in the CFA program when weighing the requirements of the CFA Institute Code and Standards and the requirements of local laws? If the applicable laws are:

A) more strict, they must still follow the Code and Standards.

B) more strict, they must adhere to the applicable laws.

C) less strict, they must still follow the local country laws.

D) less strict, they should make a judgment call on which to follow, the Code and Standards or the local laws and requirements.

CFA Institute believes:

A) that a maximum level of professional responsibility and conduct dictates that members be aware of and comply with laws, rules, and regulations governing their conduct.

B) that a minimum level of professional responsibility and conduct dictates that members be aware of and comply with laws, rules, and regulations governing their conduct.

C) companies should set standards based on the ethics of upper management and the board of directors.

D) that firms should comply with all domestic laws and regulations and that these laws also govern behavior in foreign markets, regardless of foreign laws and requirements.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

The SECs new stock-trading rule has just gone into effect. The SEC will give brokers a 10-day grace period, during which violators of the rule will be immediately notified and given a chance to remedy their situation to comply with the new rule. If a CFA Institute member unknowingly violates the rule and then remedies the situation within the 10-day grace period, has the member violated Standard I(A)?

A) Yes, because the member did not maintain knowledge and know of the rule.

B) Yes, because breaking a rule of the SEC has no remedy for a member of CFA Institute.

C) No, because the member remedied the situation.

D) No, because the member unknowingly broke the rule.

When a CFA Institute member suspects a client or a colleague of planning or engaging in ongoing illegal activities, which of the statements about the actions that the member should take is most correct? According to the CFA Institute Standards of Professional Conduct, the CFA Institute member should:

A) consult counsel to determine the legality of the activity.

B) ignore the suspected illegal activity unless the suspected party is a CFA Institute member.

C) disassociate from any illegal or unethical activity if the member has reasonable grounds to believe that the activity is illegal or unethical.

D) consult counsel to determine the legality of the activity and disassociate from any illegal or unethical activity if the member has reasonable grounds to believe that the activity is illegal or unethical.

Bob Smith, CFA, is an outside board member of Atlantic Technologies, but is not paid by the firm for his services. An employee at Atlantic informs Smith that Atlantic has improperly timed the booking of contracts to achieve the desired quarterly financial results. The misleading financial statements would turn losses into profits. Smith confers with the firm's legal counsel who indicates that this conduct is, in fact, illegal. Smith urges Sharon White, Atlantic's chief operating executive, to change the financial statements, but she refuses to do so. According to CFA Institute Standards of Professional Conduct, which of the following statements best describes what Smith should do in this situation?

A) Smith should immediately make CFA Institute aware of the situation at Atlantic.

B) Smith should promptly disassociate himself from Atlantic's actions by resigning as a director or by reporting the activities to the appropriate authorities.

C) Smith should wait until the next board meeting, which is scheduled in two weeks, to make other board members aware of the situation.

D) Smith does not have to take any additional action because he is not one of the firm's paid employees.

Shortly after becoming employed by Valco & Co., an investment banking firm, Stan McDowell, CFA, learns that most of Valco's initial public offerings (IPO) are really effected in order to profit management via price manipulation of the shares. McDowell observes an illegal act, sanctioned by senior management, in progress and refuses to sign off on his responsibility. Instead, McDowell takes the documentation to his supervisor and tells him he should sign it in his place. This action is:

A) an overreaction. Senior management's sanctioning of the act absolves McDowell from his ordinary responsibility as a CFA Institute member.

B) a suitable reaction, and he is in compliance with the Code and Standards.

C) a violation of the Code and Standards since he is required not to knowingly participate or assist in such an act.

D) a violation of the Code and Standards unless his supervisor is a CFA Institute member and signs off on the documentation.

Deloris Johnson, CFA, suspected that her intern, who was working without pay at her brokerage firm, had violated a federal securities regulation. Johnson discussed the matter with her company's legal counsel who said that the intern's conduct was illegal. According to the CFA Institute Code and Standards of Professional Conduct, Johnson can dissociate herself from this illegal activity by:

A) transferring supervision of the intern to another person.

B) reporting the violation to CFA Institute.

C) telling her intern to stop such conduct.

D) reporting the activity to the appropriate authorities.

If you suspect that a colleague is violating the law you should:

A) consult with the company counsel to determine if in fact a law is being violated.

B) report the illegal activity to CFA Institute Professional Standards Review Board for action.

C) report all illegal activities to the appropriate regulatory agency.

D) associate yourself with the illegal activity.

Bob Blanford, CFA, is an investment analyst for a large global brokerage firm. He recently 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 finance at Starr Industries. Starr is a major industrial firm in Ragatan and a client at Blanfords firm. Based on his analysis, Blanford suspects that Shanti may have deliberately overstated Starrs current earnings and its earnings for the past several quarters. If this information becomes public, Blanford believes that Starrs stock price will drop substantially. Blanford suspects that Shanti may have violated Ragatans 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.

C) take no action.

D) urge his firm to attempt to persuade Shanti to cease such conduct, if the activity is illegal.

Allen Parsons, a CFA candidate, suspects a colleague at his firm of engaging in an illegal activity. Which of the following statements about procedures for compliance involving Standard I(A), Knowledge of the law is FALSE? Parsons:

A) should consult counsel to determine whether the conduct is, in fact, illegal.

B) should disassociate from any illegal activity.

C) should urge his firm to attempt to persuade the perpetrator to cease such conduct.

D) is required to report this legal violation to the appropriate governmental or regulatory organizations.

Michael Bellow, CFA, CAIA, is an investment banker who is involved with an initial public offering (IPO) of NewCo. Because this is Bellows first involvement in an IPO, he reports to an experienced supervisor. While reviewing past financial statements provided by NewCo, Bellow suspects that NewCo deliberately overstated its earnings for the past several quarters. Bellow seeks the advice of his firms highly competent general counsel and follows the advice given without deviation. Based on the general counsels advice, Bellow consults his immediate supervisor about the suspected overstatement of earnings. After reviewing the situation, Bellows supervisor explains why NewCos calculations of its earnings are correct. Bellow realizes that his inexperience and exuberance initially led him to an incorrect conclusion about NewCos earnings.

Which of the following statements about Bellows actions involving Standard I(A), Knowledge of the law, and Standard I(C), Misrepresentation, is TRUE? Bellow:

Which of the following statements about Bellows actions involving Standard I(A), Knowledge of the law, and Standard I(C), Misrepresentation, is TRUE? Bellow:

A) violated both Standard I(A) and Standard I(C).

B) violated Standard I(A) but did not violate Standard I(C).

C) did not violate Standard I(A) but violated Standard I(C).

D) did not violate either Standard I(A) or Standard I(C).

Which of the following statements about the CFA Institute Code and Standards is most accurate? The Code and Standards:

A) prohibit members from accepting gifts that create a conflict with their employer's interest.

B) require members to resign from their jobs to disassociate themselves from clients engaging in illegal activities.

C) require members to persuade the perpetrator to cease illegal activities.

D) do not require that members report legal violations to the appropriate governmental or regulatory organization.

John Martin, an analyst and CFA charterholder, discovers that Jurix Co. has knowingly misstated information in their prospectus. To comply with CFA Institutes Code of Ethics and Standards of Professional Conduct, he should:

A) resign from his job in order to disassociate from the potentially illegal activity.

B) call the appropriate regulatory agency and report the action.

C) report the finding to the appropriate supervisory person in his firm.

D) do nothing and see if the firm corrects the problem.

Maria Valdes, CFA, is an analyst for Venture Investments in the country of Newamerica, which has laws prohibiting the acceptance of any gift from a vendor if the gift exceeds US $250. Valdes has evidence that her Venture Investments colleague, Ernesto Martinez, CFA, has been receiving gifts from vendors in excess of US $250.

Valdes is obligated to:

Valdes is obligated to:

A) disassociate herself from the activity.

B) disassociate herself from the activity, urge Venture to persuade Martinez to cease the activity, and inform CFA Institute of the violation.

C) disassociate herself from the activity, urge Venture to persuade Martinez to cease the activity, and inform CFA Institute and regulatory authorities of the violation.

D) disassociate herself from the activity, and urge Venture to persuade Martinez to cease the activity.

Which of the following is least likely an example of a violation of Standard I, Professionalism, of the Code and Standards? An analyst:

A) knowingly breaks a securities law.

B) learns of a standard or law violation when acting on an outside board and takes a "wait and see" approach to the violation.

C) quietly quits his job when he learns that a client knowingly misstates information on a prospectus.

D) learns of a client's violation of a standard or law and notifies the proper supervisory person in the analyst's firm.

Georgia Jones, CFA, is an analyst for Johnson, Thomas & Co. She also serves as an outside director for Dewey Manufacturing, Inc. In the course of her duties, she begins to believe that Deweys income statement for the most recent period may have been misstated. Georgia should do all of the following EXCEPT:

A) consult with Dewey Manufacturing's legal counsel.

B) consult with Johnson, Thomas' legal counsel.

C) refrain from voting to approve any of Dewey's financial statements that include the element in question.

D) inform the Securities and Exchange Commission.

Sometimes a CFA Institute member simply feels a law has been violated by his firm, and sometimes the member knows a law has been violated. Which of the following pairs of guidelines is CORRECT with respect to the first step a member should take in each case? The member should first contact:

A) the firm's counsel if he feels a law has been violated and contact his supervisor if he knows a law has been violated.

B) his supervisor in the firm if he feels a law has been violated and contact the firm's counsel if he knows a law has been violated.

C) the SEC if he feels a law has been violated and contact the firm's counsel if he knows a law has been violated.

D) the firm's counsel if he feels a law has been violated and the SEC if he knows a law has been violated.

If a CFA Institute member knows that a fellow employee has violated a law, according to Standard I(A) the member must NOT do which of the following?

A) Report the employee violating the law to the appropriate supervisor in the firm.

B) Report the employee violating the law to the SEC.

C) Disassociate from the employee violating the law.

D) Seek legal advice.

Lawrence Kelly is the Chief Investment Officer at a money management company that claims it is in compliance with CFA Institute Soft Dollar Standards. For the first time, the company has purchased securities in the country of Santa Rosa. He learns that under Santa Rosen law, one of the company's soft dollar policies is forbidden, yet to conform with the law, Lawrence would have to violate the Soft Dollar Standards, but not the Standards of Professional Conduct. Lawrence:

A) must follow the CFA Institute Soft Dollar Standards, informing the Santa Rosen regulators of his reasons.

B) should follow the Santa Rosen Law and can still claim compliance with CFA Institute Soft Dollar Standards.

C) must follow the Santa Rosen Law and cease claiming compliance with CFA Institute Soft Dollar Standards.

D) must place all securities from Santa Rosa on its restricted list.

A U.S. Congressional oversight committee has concluded that investment company fees should be detailed in dollar terms each quarter and has proposed the enactment of new legislation to this end. Currently, the legal requirement is to report such data annually. In compliance with current legal requirements, Dolphin investments, a Florida-based investment firm, reports annually. Eun Shin, CFA and employee of Dolphin, learns of the proposed changes but does not convert Dolphin's reporting to a quarterly basis. This action:

A) is not a violation of the Code and Standards.

B) constitutes professional misconduct as defined in the Code and Standards.

C) is a violation of his duty to employer as defined in the Code and Standards.

D) is a violation of his responsibilities as a supervisor as defined in the Code and Standards.

Which of the following is a CORRECT statement of a member's duty under the Code and Standards?

A) A member is required to comply only with applicable local laws, rules, regulations, or customs even though the CFA Institute Code and Standards may impose a higher degree of responsibility or a higher duty on the member.

B) In the absence of specific applicable law or other regulatory requirements, the Code and Standards govern the member's actions.

C) A member who trades securities in a foreign securities market where no applicable local laws or stock exchange rules regulate the use of material nonpublic information may take investment action based on this information.

D) A member who trades securities in a country with less strict laws, rules, regulations, or customs may follow those laws if he discloses this information to his client.

The CFA Institute Standards of Practice Handbook requires CFA Institute members to do all the following EXCEPT:

A) to inform employer, clients, and potential clients of benefits received for recommending products or services.

B) receive written permission from both their employer and outside clients to engage in investment consulting outside the firm.

C) to disclose to their employer in writing all monetary compensation or benefits received for services performed in addition to their company compensation.

D) to disclose in writing to the proper regulatory authority all observed violations of the securities laws and regulations.

Mary White, CFA, sits on the board of directors of XYZ Manufacturing, Inc. She discovers that management has knowingly participated in an activity she knows is illegal. According to the CFA Institute Standards of Professional Conduct, White is required to:

A) disassociate herself from the activity.

B) All of these choices are correct.

C) seek legal advice to determine what actions should be taken.

D) report the activity to the appropriate supervisory person at her firm.

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 for clients in both Country N and Country L and for himself.

B) not take investment action on the basis of this information.

C) take investment action based on this information only for his clients in Country N and Country L but not for himself.

D) take investment action based on this information only for his clients in Country N but not for his clients in Country L or himself.

Joan Platt, CFA, operates an investment advisory service in New York but maintains an office in Xania. Xania recently establish a stock market, which is not very efficient. None of the Xanian stocks trade in the U.S. market. Xania legally permits the use of material inside information. Platt believes that using inside information would help her compete against other Xanian investment advisors and also help some of her Xanian clients reach their investment objectives. Platt is considering adopting local investment practices in Xania. According to CFA Institute Standards of Professional Conduct, Platt may:

A) use material inside information, but only after notifying CFA Institute.

B) use material inside information because Xania legally permits this practice.

C) not use material inside information.

D) use material inside information because CFA Institute Standards apply only to countries where the use of material inside information is illegal.