Reading 49: Global Investment Performance Standards－LOS a benefits, standards, investment, Investment, 2008

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CFA Institute Area 3-5, 7, 12, 14-18: Portfolio Management
Session 18: Global Investment Performance Standards
Reading 49: Global Investment Performance Standards
LOS a: Summarize the reasons for the creation of the GIPS standards, the Standards evolution, and their benefits to prospective clients and investment managers.

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接着上一帖的题

In the conversation that John and Jessica had concerning the objective of GIPS with respect to competition:

A) John was correct and Jessica was wrong.

B) John and Jessica were both correct.

C) John and Jessica were both wrong.

D) John was wrong and Jessica was correct.

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Answer and Explanation

An objective of the GIPS standards is to promote fair, global competition among investment firms for all markets without creating barriers to entry for new firms. 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.

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With respect to the conversation that John and Jessica had concerning how to define themselves as a firm:

A) John was wrong and Jessica was correct.

B) John was correct and Jessica was wrong.

C) John and Jessica were both correct.

D) John and Jessica were both wrong.

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Answer and Explanation

Firms must be defined as: "An investment firm, subsidiary, or division held out to clients or potential clients as a distinct business entity."

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Of the choices made concerning the presentation of the data, all of the following are presentation and reporting requirements of the GIPS EXCEPT:

A) annual returns for all years.

B) cumulative returns for composites and benchmarks for all periods.

C) a measure of the dispersion of individual component portfolio returns around the aggregate composite return.

D) the number of portfolios and amount of assets in the composite and the percentage of the firm's total assets represented by the composite at the end of each period.

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Answer and Explanation

GIPS recommend, not require, presentation of cumulative returns for composites and benchmarks for all periods. All of the other choices are required by Requirement 5.A.

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With respect to the discussion concerning the reporting of the historic performance record of the portfolios under management, who made a CORRECT statement?

A) John was wrong and Jessica was correct.

B) John and Jessica were both correct.

C) John and Jessica were both wrong.

D) John was correct and Jessica was wrong.

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Answer and Explanation

According to Standard 5.a a firm may link non-GIPS-compliant performance to their compliant history as long as only GIPS compliant performance is presented for periods after January 1, 2000, and the firm discloses the periods of non-compliance with an explanation of why the presentation is not GIPS compliant. Five years of compliance is sufficient, and after five years of compliant history has been achieved, firms must add additional years of performance each year until a 10-year performance record of GIPS-compliant history has been established.

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Which of the proposed compliance statements is acceptable under GIPS?

A) Johns statement only.

B) Both Jessicas and Johns statements.

C) Neither Jessicas nor Johns statements.

D) Jessicas statement only.

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Answer and Explanation

GIPS mandates that firms use the following compliance statement when claiming compliance with the Standards: [Insert name of firm] has prepared and presented this report in compliance with the Global Investment Performance Standards (GIPS^®). Note the registered trademark symbol(®). CFA Institute should not be referenced.

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With respect to John and Jessicas statements regarding comparing the local laws to the GIPS Standards:

A) Johns statement is incorrect, Jessicas statement is correct.

B) Jessicas statement is correct as long as the GIPS Standards are more strict than the local laws.

C) Jessicas statement is incorrect, Johns statement is correct.

D) John's statement is correct as long as the local laws are more strict than the GIPS Standards.

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Answer and Explanation

If a conflict exists between country specific laws and GIPS the standards require that firms comply with the local law or regulation and make full disclosure of the conflict.

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For the past eight years, John and Jessica Smith have had their own small financial planning company named JJS Financial in a country where financial regulation is still developing. They have a goal of bringing JJS into compliance with the Global Investment Performance Standards^® (GIPS) by January 1, 2005. They begin by researching the history and philosophy of GIPS so they can better understand the requirements for GIPS compliance. As they discuss what they have learned concerning the objective of GIPS with respect to competition among financial firms such as theirs, John expresses his eagerness for the competitive edge GIPS compliance will give JJS. Soon, those of us that are GIPS compliant will have a monopoly, he says. Jessica counters by saying the goal of GIPS is to promote competition, but that will probably benefit small firms like ours that are in developing countries.

John and Jessica discuss how they should define themselves as a firm. John says that they only need to define themselves as an investment firm held out to clients or potential clients as a distinct business unit. Jessica says that they must also define themselves as being registered with the appropriate national regulatory authority overseeing the entity's investment management activities.

John and Jessica begin compiling and computing the data needed for GIPS compliance. They choose to report annual returns for all years and the cumulative returns for composites and benchmarks for all periods. In computing past returns as well as future returns, they choose to use accrual accounting for fixed income securities but not for equities. Other measures they compute are the dispersion of individual component portfolio returns around the aggregate composite return as well as the number of portfolios and amount of assets in the composite and the percentage of JJS's total assets represented by the composite at the end of each period.

As John and Jessica compile the data, they realize that they can satisfy GIPS requirements for the past five years, but they cannot do so for years prior to that. John says they can link non-GIPS-compliant performance to their compliant history as long they disclose the periods of non-compliance with an explanation of why the presentation is not GIPS compliant. Jessica says this will not be sufficient since only the previous five years will be in compliance.

Finally, they must decide on a performance compliance statement. John proposes:

In this statement, JJS Financial has used the CFA Institute^® guidelines outlined in the Global Investment Performance Standards (GIPS^®).

Jessica proposes:

JJS Financial has prepared and presented this report in compliance with the Global Investment Performance Standards (GIPS^®).

As they put the finishing touches on their report, they realize that some local laws may conflict with the GIPS Standards. John says they need to compare the local laws with the GIPS Standards to make sure there are no conflicts and if there are to change their report to meet the requirements of the local laws and make full disclosure of the conflicts. Jessica disagrees and says if there is a conflict between local laws and the GIPS Standards that the GIPS Standards should be followed.    

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

A) Securities market regulators.

B) Prospective clients of investment firms.

C) Existing clients of investment firms.

D) Consultants that advise investors.

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Answer and Explanation

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

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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 the use of standards.

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

D) the application of global accounting standards.

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Answer and Explanation

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.

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.

tycoon

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

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

B) meet the increasing need for standardization of calculation and presentation that accompanies the increasing globalization of financial markets.

C) 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.

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

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Answer and Explanation

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.

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.

tycoon

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

A) investor confidence.

B) competition in global markets.

C) consistency in the use of standards.

D) market efficiency:

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Answer and Explanation

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.

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.

tycoon

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

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

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

C) All of these choices are correct.

D) To make the managers from countries (that previously had inferior standards) taken more seriously when presenting their performance.

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Answer and Explanation

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.

tycoon

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 the consistency in performance presentation for inter-country holdings.

B) Enhancing consistency in the use of the standards.

C) Enhancing competition in global markets.

D) All of these choices are correct.

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Answer and Explanation

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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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) Competition in the global investment industry will be enhanced.

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

D) Investment consultants will be better equipped to fairly assess historical investment performance.

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Answer and Explanation

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.