Ethical and Professional Standards 【Reading 1】Sample 2012, following, statements, accordance

bapswarrior

In accordance with Standard III (A) Loyalty, Prudence and Care, which of the following statements is least accurate? Members and Candidates should:

A) utilize client brokerage to the sole benefit of the client.

B) submit to clients, at least quarterly, itemized statements detailing all of the period’s transactions.

C) vote all proxies on behalf of clients in a responsible manner.

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Because of the time and expense involved in voting a proxy, Members and Candidates are not required to vote every proxy. A cost benefit analysis can be performed to determine if it is necessary to vote a proxy.

leadcfa

According to the Standards of Professional Conduct, investment transactions for clients and employers must have priority over investment transactions in which a Member or Candidate is the beneficial owner. This concept is most directly addressed in:

A) Standard V, Investment Analysis, Recommendations, and Actions

B) Standard VI, Conflicts of Interest

C) Standard I, Professionalism

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Standard VI(B) addresses priority of transactions, and states that “Investment transactions for clients and employers must have priority over investment transactions in which a Member or Candidate is the beneficial owner.”

leadcfa

Which of the following activities would be following a component of the Code of Ethics explicitly?

A) Consulting with colleagues about opinions you reach in your research.

B) Attending continuing education seminars on investing and inviting colleagues to come along.

C) Maintaining a list of colleagues who have violated the CFA Institute standards.

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The Code states that a member shall “Maintain and improve their professional competence and strive to maintain and improve the competence of other investment professionals.” None of the other answers qualify.

leadcfa

Michael Malone, CFA, is an investment analyst for a large brokerage firm in New York who covers the airlines industry. After hours in his personal time, Malone maintains an online blog on which he expresses his personal opinions about various investment opportunities, including, but not limited to, the airlines industry. On his blog, he posts a very negative investment opinion about WestAir stock. Malone knows that WestAir's stock will be downgraded to a “sell” by his firm next week. Malone has:

A) violated Standard IV(A) Loyalty by divulging confidential information that is the intellectual property of his employer.

B) violated Standard II(A) Material Nonpublic Information by releasing material that could negatively impact the price of the security.

C) violated Standard VI(B) Priority of Transactions by releasing material information to the public before releasing to the firm’s clients.

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Malone is in violation of Standard II(A) because the information is both material and nonpublic. He is in violation whether or not he divulges the impending downgrade by his firm on his blog, because he is using nonpublic information. A “sell” opinion on a security issued by a large brokerage firm will almost certainly impact the stock’s price.

invic

According to the Code of Ethics, when practicing in a professional and ethical manner the goal is to:

A) increase membership in CFA Institute.

B) resolve conflicts between clients and employers.

C) reflect credit on members and the profession.

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The Code states that a member shall “Practice and encourage others to practice in a professional and ethical manner that will reflect credit on members and their profession.”

invic

According to the Code of Ethics, the professional judgment of a member should be:

A) independent.

B) guided by the SEC guidelines.

C) dependent on that of his/her colleagues.

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The Code of Ethics states that the CFA Institute member shall “Use reasonable care and exercise independent professional judgment.” None of the other answers resemble anything in the Code.

invic

Which of the following is NOT part of the CFA Institute Code of Ethics. Members of CFA Institute will:

A) use reasonable care and exercise independent professional judgment.

B) recommend investments that maximize returns for a given level of risk.

C) strive to maintain and improve their competence and the competence of others in the profession.

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Standard of Professional Conduct III(C), not the Code of Ethics, requires that investments be appropriate and suitable.

invic

Which of the following is a component of the Code of Ethics?

A) Members shall use reasonable care and exercise independent professional judgment.

B) Members shall not knowingly participate or assist in any violation of such laws, rules, or regulations.

C) Members shall not engage in any professional conduct involving dishonesty, fraud, deceit, or misrepresentation or commit any act that reflects adversely on their honesty, trustworthiness, or professional competence.

This is a component of the Code of Ethics. Others pertain to the Standards of Professional Conduct.

invic

Which of the following is least likely a component of the Code of Ethics? In dealing with the public, clients, prospects, employers, employees, and fellow members, CFA Institute members shall act with:

A) humility.

B) integrity.

C) respect.

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Although acting with humility may be desirable, CFA Institute members are not required to do so. However, they should act in a manner that reflects credit on themselves and their profession.

invic

According to the Code of Ethics, which of the following statements is NOT correct? CFA Institute members are required to:

A) use reasonable care and exercise independent professional judgment.

B) comply with the CFA Institute Performance Presentation Standards.

C) maintain and improve their competence and strive to maintain the competence of others in the profession.

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The CFA Institute-PPS are voluntary standards for the industry. Firms are not required to comply with these standards when presenting performance. The other statements are each components of the CFA Institute Code of Ethics.