Reading 2-I: Standards of Professional Conduct & Guidanc

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Q1.The CFA Institute Standards of Practice Handbook requires CFA Institute members to do all the following EXCEPT:

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

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

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

Q2.WEB, an investment-banking firm, is the principal underwriter for MTEX's upcoming debenture issue. Wendy Berry, CFA, an analyst with WEB, has found out from an employee in MTEX's programming department that a serious glitch was recently discovered in the software program of their major new product line. In fact, the glitch is so bad that most of their orders have been canceled. Berry checked the debenture's prospectus and found no mention of this development. The red herring prospectus has already been distributed. Berry's best course of action is to:

A) notify potential investors of the omission on a fair and equitable basis.

B) inform her immediate supervisor at WEB of her discovery.

C) keep quiet since this is material non-public inside information.

Q3.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) Rely on past practices followed within his firm.

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

Q4.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 but not for his clients in Country L or himself.

Q5.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) 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.

B) 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.

C) 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.