tango_gs

Susan Nielsen, CFA, is an equity research analyst on a fact-finding property tour with 6 other analysts to learn about Just Kittens, Inc. Just Kittens sells tungsten ball-bearings and has 16 warehouses, and 20 manufacturing, research, and wholesale sales outlets scattered over 8 countries – mostly emerging markets. Because of the remote location of some of the facilities, commercial travel is effectively unavailable. Just Kittens charters a jet and various busses to take the research analysts to the properties. If Nielsen accepts these accommodations, she is most likely:

A) not in violation of Standard I(B) "Independence and Objectivity" because commercial travel is effectively unavailable.

B) in violation of Standard I(B) "Independence and Objectivity."

C) not in violation of Standard I(B) "Independence and Objectivity" because best practices dictate that better access to company executives is likely to lead to more accurate and timely information.

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Nielsen is not in violation of Standard I(B) "Independence and Objectivity" because commercial travel is effectively unavailable.

tango_gs

Francisco Perez, CFA, CPA, is a portfolio manager for an investment advisory firm. Due to the prominence of his position, he is often invited to attend free marketing and educational events hosted by firms which seek to inform the investment community about their investment processes. One such firm, Unlimited Horizons, has invited Perez to attend free educational events which qualify for Continuing Education credits which could help Perez maintain his CPA designation. Perez should most likely:

A) accept the invitation as no cash compensation is involved and the primary intent is to educate and inform the investment community.

B) decline to attend the event as it could result in a violation of Standard I(B) "Independence and Objectivity."

C) decline to attend the event as it could result in a violation of Standard I(A) "Knowledge of the Law."

Perez should decline the invitation as it creates the impression of lack of independence. If he does not accept the free continuing education courses, he would have to pay for them some other way so the free courses are a form of compensation. Nothing in the vignette suggests the free classes are illegal.

tango_gs

A money manager works for a full-service brokerage firm. After meeting with a new client and gathering all relevant information, the money manager says that she thinks her firm can perform all the financial services the new client needs. With respect to Standard I(C), Misrepresentation, this:

A) may not be a violation if the representation was made orally.

B) may not be a violation if the manager's opinion is based upon the factual information gathered.

C) is a violation because she cannot make statements like this under any circumstances.

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There is no violation if the opinion is based upon the factual information gathered and the firm’s actual capabilities. This is true whether or not the representation was written, oral, or electronic. None of the other choices are correct.

tango_gs

According to CFA Institute Standards of Professional Conduct, which of the following statements about the prohibition against plagiarism is most correct? The prohibition against plagiarism applies to written materials:

A) oral communications, and telecommunications.

B) only.

C) and oral communications only.

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The prohibition against plagiarism applies to all three areas.

JonnyKay

Steve Barton, CFA, used to work for Advisors, Inc. After he left Advisors, Barton developed a new screening methodology for determining which stocks to include in a portfolio. Barton is on friendly terms with his former colleagues at Advisors and shares his screening methodology with them. If Advisors uses the screening methodology without notifying Barton, then:

A) Advisors must assume the responsibility of any client losses.

B) Barton must assume the responsibility of any client losses.

C) Advisors has violated Standard I(C), Misrepresentation.

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According to Standard I(C), if an analyst or firm uses the work of others, they must seek authorization from the creators. Such work includes algorithms, such as a stock screening methodology.

JonnyKay

Marc Randall, CFA, is an investment analyst. During a meeting with a potential client, Randall's boss states that, "You can be sure our investments will always outperform Treasury Bonds because of our fine research staff members, like Marc." Randall knows that this statement is:

A) a violation of fiduciary duties owed to clients under the Standards.

B) not in violation of the Code and Standards.

C) a violation of the Standard concerning prohibition against misrepresentation.

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Under Standard I(C), members are forbidden from guaranteeing a specific rate of return on volatile investments. Therefore, the statement is in violation of the Standard.

JonnyKay

A copyrighted technique for measuring the downside risk of an investment has just been revealed to the public. If an analyst adopts the technique, he must cite the use of the technique in all research reports in which the technique is used EXCEPT:

A) Neither of these answers provide grounds for an exception.

B) if the analyst does not modify the technique at all.

C) if the analyst uses reasonable care and verifies that the technique provides superior results.

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Neither of the answers in this question provide adequate grounds for not citing the source of the methodology. Although “verifying” the technique is a good idea and congruent with the Code and Standards, the analyst still needs to cite the use of the copyrighted technique even after modifying it slightly to avoid violation of Standard I(C), Misrepresentation.

JonnyKay

A CFA charterholder gathers the closing prices of a security from a widely read publication. The charterholder uses the data as part of a report she is preparing and fails to report the data source in the report. This is:

A) a violation of Standard I(C).

B) not a violation of Standard I(C) if the data cannot be gathered from several public sources.

C) not a violation of Standard I(C) if the data can be gathered from several public sources.

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Since the security prices represent factual information that can be verified from several sources, there is no violation. It could have been a violation had the information been exclusively published by the source.

JonnyKay

At the time of its initial public offering (IPO), a mutual fund is invested primarily in junk bonds. As part of its strategy, it is also invested in some zero-coupon U.S. Treasury bonds. The amount of the investment in the Treasury bonds is such that their maturity value equals 90% of the current value of the fund. Which of the following may a CFA Institute member say to her clients concerning the fund at issuance?

A) Since the fund is backed by the U.S. government, you know you will get your money back.

B) The fund is virtually default risk free.

C) A CFA Institute member may not make either of these statements.

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Standard I(C), Misrepresentation, prohibits making statements that mention a guarantee of returns or misrepresent the true nature of the investment.

JonnyKay

Wes Smith, CFA, has been working toward the completion of a Master of Science in Finance. He has passed all the necessary courses and written the necessary thesis. He still must defend the thesis in one month. Smith’s thesis advisor assures him that he will pass the thesis defense. Smith has new business cards printed with “M.S. in Finance” after his name. This is a violation of:

A) Standard VII(B), Reference to CFA Institute, the CFA Designation, and the CFA Program.

B) Standard I(C), Misrepresentation.

C) none of the Standards if Smith does not make the cards public until after he defends his thesis and receives his degree.

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If the cards were distributed today he would be in violation of Standard I(C), Misrepresentation. However, if Smith does not make the cards public until after he receives the degree, there is no violation.