LOS a: Summarize the reasons for the creation of the GIPS standards, the Standards’ evolution, and their benefits to prospective clients and investment managers.

Q1. Which of the following statements most accurately describes why the Global Investment Performance Standards (GIPS) were created? To:

A)   meet the need for a single globally accepted set of investment performance presentation standards.

B)   meet the need for a single globally accepted set of regulatory guidelines among developed securities markets.

C)   provide comparability of performance results among nations for which no presentation guidelines currently exist.

Q2. As countries adopt the Global Investment Performance Standards (GIPS), which of the following is least likely to occur?

A)   The trend toward cross country investments will decline.

B)   Existing and potential clients will be able to make fair and unambiguous comparisons among investment firms.

C)   Competition in the global investment industry will be enhanced.

Q3. Which of the following best describes the underlying principles upon which the Global Investment Performance Standards (GIPS) are based?

A)   Full disclosure and fair representation of performance results.

B)   Fair and consistent application of a global set of regulatory requirements.

C)   Uniformity and consistent application of standards for the global regulation of the securities industry.

Q4. All of the following are reasons why the Global Investment Performance Standards (GIPS) are necessary EXCEPT enhancing:

A)   market efficiency:

B)   competition in global markets.

C)   investor confidence.

Q5. The Global Investment Performance Standards (GIPS) apply to investment management firms. They are NOT intended to serve which of the following?

A)   Consultants that advise investors.

B)   Securities market regulators.

C)   Prospective clients of investment firms.

Q6. The Global Investment Performance Standards (GIPS) are necessary for all of the following reasons EXCEPT to:

A)   enhance competition in global markets by creating a universal set of standards that places managers from all countries on an equal footing in soliciting clients.

B)   broaden the application and acceptance of the performance presentation guidelines of foreign and domestic regulatory entities.

C)   enhance investor confidence and allow investors to make more meaningful comparisons.

Q7. All of the following are reasons why the Global Investment Performance Standards (GIPS) are necessary EXCEPT to enhance:

A)   competition in global markets.

B)   consistency in performance presentation for inter-country holdings.

C)   the application of global accounting standards.

Q8. Which of the following lines of argument has/have been put forth to justify the establishment of the Global Investment Performance Standards (GIPS)?

A)   Enhancing competition in global markets.

B)   Enhancing the consistency in performance presentation for inter-country holdings.

C)   All of these choices are correct.

Q9. Which of the following lines of argument has/have been put forth to justify the establishment of the Global Investment Performance Standards (GIPS)?

A)   All of these choices are correct.

B)   To enhance consistency in the use of the standards.

C)   To increase the confidence that prospective and existing clients have in the industry.

LOS a: Summarize the reasons for the creation of the GIPS standards, the Standards’ evolution, and their benefits to prospective clients and investment managers. fficeffice" />

Q1. Which of the following statements most accurately describes why the Global Investment Performance Standards (GIPS) were created? To:

A)   meet the need for a single globally accepted set of investment performance presentation standards.

B)   meet the need for a single globally accepted set of regulatory guidelines among developed securities markets.

C)   provide comparability of performance results among nations for which no presentation guidelines currently exist.

Correct answer is A)

Recognizing the need for one globally accepted set of investment performance presentation standards, CFA Institute sponsored and funded the Global Investment Performance Standards Committee to develop and publish a single global standard by which all firms in all countries calculate and present performance to clients and prospective clients.

Q2. As countries adopt the Global Investment Performance Standards (GIPS), which of the following is least likely to occur?

A)   The trend toward cross country investments will decline.

B)   Existing and potential clients will be able to make fair and unambiguous comparisons among investment firms.

C)   Competition in the global investment industry will be enhanced.

Correct answer is A)

There is no reason to expect the level of international investing to decline as a result of the adoption of a global set of performance standards. If anything, international investing will become more attractive as the credibility of reported performance results improves.

Q3. Which of the following best describes the underlying principles upon which the Global Investment Performance Standards (GIPS) are based?

A)   Full disclosure and fair representation of performance results.

B)   Fair and consistent application of a global set of regulatory requirements.

C)   Uniformity and consistent application of standards for the global regulation of the securities industry.

Correct answer is A)

The GIPS standards are a set of voluntary standards based on the fundamental principles of full disclosure and fair representation of performance results.

Q4. All of the following are reasons why the Global Investment Performance Standards (GIPS) are necessary EXCEPT enhancing:

A)   market efficiency:

B)   competition in global markets.

C)   investor confidence.

Correct answer is A)

The GIPS are necessary for the following reasons:

§   Enhancing consistency in performance presentation for inter-country holdings. The financial markets are becoming increasingly more global in nature. Because of extensive inter-country holdings, standardization of presentation is vital for meaningful and consistent performance presentations to occur.

§   Enhancing consistency in the use of standards: Return calculation and performance presentation guidelines, if present, vary greatly among countries. Even when guidelines exist in a county, they may not be extensively followed.

§   Enhancing competition in global markets: The establishment of global standards places managers from all countries on an equal footing in soliciting clients. Managers from countries that previously had inferior standards will be taken more seriously when presenting their performance, while managers from countries with stronger standards will not be penalized when competing in markets where inferior standards prevail.

§   Enhancing investor confidence: Global standards increase the confidence that prospective and existing clients have in the industry and allow them to make more meaningful comparisons.

Q5. The Global Investment Performance Standards (GIPS) apply to investment management firms. They are NOT intended to serve which of the following?

A)   Consultants that advise investors.

B)   Securities market regulators.

C)   Prospective clients of investment firms.

Correct answer is B)

The GIPS are intended to serve potential and existing clients and consultants that advise these investors.

Q6. The Global Investment Performance Standards (GIPS) are necessary for all of the following reasons EXCEPT to:

A)   enhance competition in global markets by creating a universal set of standards that places managers from all countries on an equal footing in soliciting clients.

B)   broaden the application and acceptance of the performance presentation guidelines of foreign and domestic regulatory entities.

C)   enhance investor confidence and allow investors to make more meaningful comparisons.

Correct answer is B)

GIPS are necessary for the following reasons:

§   Enhancing consistency in performance presentation for inter-country holdings. The financial markets are becoming increasingly more global in nature. Because of extensive inter-country holdings, standardization of presentation is vital for meaningful and consistent performance presentations to occur.

§   Enhancing consistency in the use of standards: Return calculation and performance presentation guidelines, if present, vary greatly among countries. Even when guidelines exist in a county, they may not be extensively followed.

§   Enhancing competition in global markets: The establishment of global standards places managers from all countries on an equal footing in soliciting clients. Managers from countries that previously had inferior standards will be taken more seriously when presenting their performance, while managers from countries with stronger standards will not be penalized when competing in markets where inferior standards prevail.

§   Enhancing investor confidence: Global standards increase the confidence that prospective and existing clients have in the industry and allow them to make more meaningful comparisons.

Q7. All of the following are reasons why the Global Investment Performance Standards (GIPS) are necessary EXCEPT to enhance:

A)   competition in global markets.

B)   consistency in performance presentation for inter-country holdings.

C)   the application of global accounting standards.

Correct answer is C)

GIPS are necessary for the following reasons:

§   Enhancing consistency in performance presentation for inter-country holdings. The financial markets are becoming increasingly more global in nature. Because of extensive inter-country holdings, standardization of presentation is vital for meaningful and consistent performance presentations to occur.

§   Enhancing consistency in the use of standards: Return calculation and performance presentation guidelines, if present, vary greatly among countries. Even when guidelines exist in a county, they may not be extensively followed.

§   Enhancing competition in global markets: The establishment of global standards places managers from all countries on an equal footing in soliciting clients. Managers from countries that previously had inferior standards will be taken more seriously when presenting their performance, while managers from countries with stronger standards will not be penalized when competing in markets where inferior standards prevail.

§   Enhancing investor confidence: Global standards increase the confidence that prospective and existing clients have in the industry and allow them to make more meaningful comparisons.

Q8. Which of the following lines of argument has/have been put forth to justify the establishment of the Global Investment Performance Standards (GIPS)?

A)   Enhancing competition in global markets.

B)   Enhancing the consistency in performance presentation for inter-country holdings.

C)   All of these choices are correct.

Correct answer is C)        

The GIPS are needed are to enhance consistency in performance presentation for inter-country holdings, consistency in the use of standards, competition in global markets, and investor confidence.

Q9. Which of the following lines of argument has/have been put forth to justify the establishment of the Global Investment Performance Standards (GIPS)?

A)   All of these choices are correct.

B)   To enhance consistency in the use of the standards.

C)   To increase the confidence that prospective and existing clients have in the industry.

Correct answer is A)

The GIPS are needed are to enhance consistency in performance presentation for inter-country holdings, consistency in the use of standards, competition in global markets, and investor confidence.

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