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LOS b: Formulate the objectives, key characteristics, and scope of the GIPS standards. ffice ffice" />
Q1. Which of the following is NOT a key characteristic of the Global Investment Performance Standards (GIPS)? GIPS:
A) require managers to include all actual fee-paying and non-fee-paying discretionary portfolios in composites defined according to similar strategy and/or investment objective.
B) require firms to use certain calculation and presentation methods and to make certain disclosures along with the performance record.
C) do not address every aspect of performance measurement, valuation, attribution, or coverage of all assets.
Correct answer is A)
The GIPS do not require managers to include non-fee-paying accounts in composites.
Q2. Which of the following is NOT an objective of the Global Investment Performance Standards (GIPS)?
A) To foster the notion of industry self-regulation on a global basis.
B) To obtain worldwide recognition by securities regulators of a standard for the calculation and presentation of investment performance in a fair, comparable format that provides full disclosure.
C) To promote fair, global competition among investment firms for all markets without creating barriers to entry for new firms.
Correct answer is B)
GIPS applies to investment management firms and is intended to serve the existing and prospective clients of investment management firms, not regulators.
Q3. Each of the following is one of the objectives of the Global Investment Performance Standards (GIPS) EXCEPT to:
A) obtain worldwide awareness of country-specific standards for the calculation and presentation of investment performance.
B) foster the notion of industry self-regulation on a global basis.
C) promote fair, global competition among investment firms for all markets without creating barriers to entry for new firms.
Correct answer is A)
GIPS Objectives:
§ To obtain worldwide acceptance of a global standard (not country-specific) for the calculation and presentation of investment performance in a fair, comparable format that provides full disclosure.
§ To ensure accurate and consistent investment performance data for reporting, record keeping, marketing, and presentation.
§ To promote fair, global competition among investment firms for all markets without creating barriers to entry for new firms.
§ To foster the notion of industry self-regulation on a global basis.
Q4. Each of the following is an objective of the Global Investment Performance Standards (GIPS) EXCEPT to:
A) promote fair, global competition among investment firms for all markets without creating barriers to entry for new firms.
B) foster the notion of industry self-regulation on a global basis.
C) broaden the application and acceptance of the performance presentation guidelines of foreign and domestic regulatory entities.
Correct answer is C)
GIPS Objectives:
§ To obtain worldwide acceptance of a global standard (not country-specific) for the calculation and presentation of investment performance in a fair, comparable format that provides full disclosure.
§ To ensure accurate and consistent investment performance data for reporting, record keeping, marketing, and presentation.
§ To promote fair, global competition among investment firms for all markets without creating barriers to entry for new firms.
§ To foster the notion of industry self-regulation on a global basis.
Q5. Each of the following is an objective of the Global Investment Performance Standards (GIPS) EXCEPT to:
A) foster the notion of industry self-regulation on a global basis.
B) promote fair, global competition among investment firms that adopt GIPS and to create barriers to entry for new firms that do not.
C) obtain worldwide acceptance of a standard for the calculation and presentation of investment performance in a fair, comparable format that provides full disclosure.
Correct answer is B)
GIPS Objectives:
§ To obtain worldwide acceptance of a global standard (not country-specific) for the calculation and presentation of investment performance in a fair, comparable format that provides full disclosure.
§ To ensure accurate and consistent investment performance data for reporting, record keeping, marketing, and presentation.
§ To promote fair, global competition among investment firms for all markets without creating barriers to entry for new firms.
§ To foster the notion of industry self-regulation on a global basis.
Q6. Stuart Lessing, CFA, is the Minister of Finance for the small country of Panila. Part of Lessing’s responsibilities includes supervising and regulating the investment management industry for Panila. He is interested in adopting Global Investment Performance Standards (GIPS) to simplify the process of comparing investment results from different money management firms within the country. In addition, he believes that adoption would give Panila an advantage against similarly situated countries. Panila currently has no standards. After pondering the question, he decides to adopt GIPS. Was he justified in his actions?
A) No, because one of the objectives of GIPS is to promote fair global competition without creating barriers to entry.
B) No, because a majority of investment firms did not OK the adoption.
C) Yes, if Panila can benefit globally, then they should adopt the GIPS.
Correct answer is A)
One of the objectives of GIPS is to promote global competition without creating barriers to entry. Adopting GIPS to keep out competition via other countries violates this objective. Firms, and not countries, decide upon GIPS standards. Also, GIPS are voluntary standards. Required adoption of the standards by a cuntry would go against the vision of the GIPS standards which are intended to foster industry self-regulation. Versions of GIPS must be translated into the native language to foster adoption locally.
Q7. Which of the following statements is a key characteristic of Global Investment Performance Standards (GIPS)?
A) GIPS require firms to show GIPS-compliant history for a minimum of ten years, or since inception of the firm or composite if in existence less than ten years.
B) GIPS require managers to include all actual fee-paying and non-fee-paying discretionary portfolios in composites defined according to similar strategy and/or investment objective.
C) GIPS exist as a minimum worldwide standard where local or country-specific law, regulation, or industry standards may not exist for investment performance measurement and/or presentation.
Correct answer is C)
The GIPS standards: (1) do not require managers to include non-fee-paying accounts in composites, (2) require five years of GIPS compliant history, and (3) require compliance with local laws when they conflict with GIPS and disclosure of the conflict.
Q8. Which of the following statements about the Global Investment Performance Standards (GIPS) is TRUE?
A) GIPS can be used by good investment management firms to create barriers to entry.
B) GIPS allows firms to select which portfolios to include.
C) Non-English speaking countries are allowed to translate GIPS.
Correct answer is C)
Countries are allowed to translate GIPS to improve local acceptance of the standards. If management firms use GIPS to create barriers to entry, then the firm has violated one of the objectives of the standard (to promote global competition). Firms are not allowed to present only the results of select (best performing) portfolios.
Q9. Which of the following is an incorrect representation of requirements needed to meet the Global Investment Performance Standards (GIPS)?
A) Dollar-weighted rates of return should be used for the return calculations.
B) A firm is required to present at least five years of annual investment performance that is in compliance with GIPS. If the firm has been in existence for less time, then the performance must be presented since inception.
C) Benchmarks and composites should be created on an ex ante basis.
Correct answer is A)
Time-weighted rates of return should be used for the return calculations.
Q10. 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.
In the conversation that John and Jessica had concerning the objective of GIPS with respect to competition:
A) both are incorrect.
B) only Jessica was incorrect.
C) only John was incorrect.
Correct answer is C)
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. (Study Session 18, LOS 49.b)
Q11. With respect to the conversation that John and Jessica had concerning how to define themselves as a firm:
A) only Jessica is correct.
B) both are correct.
C) only John is correct.
Correct answer is C)
Firms must be defined as: "An investment firm, subsidiary, or division held out to clients or potential clients as a distinct business entity." (Study Session 18, LOS 49.c)
Q12. Of the choices made concerning the presentation of the data, all of the following are presentation and reporting requirements of the GIPS EXCEPT:
A) cumulative returns for composites and benchmarks for all periods.
B) a measure of the dispersion of individual component portfolio returns around the aggregate composite return.
C) annual returns for all years.
Correct answer is A)
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. (Study Session 18, LOS 49.d)
Q13. With respect to the discussion concerning the reporting of the historic performance record of the portfolios under management, who made a CORRECT statement?
A) only Jessica is incorrect.
B) both are incorrect.
C) only John is incorrect.
Correct answer is A)
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. (Study Session 18, LOS 49.b)
Q14. Which of the proposed compliance statements is acceptable under GIPS?
A) Jessica’s statement only.
B) John’s statement only.
C) Neither Jessica’s nor John’s statements.
Correct answer is A)
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. (Study Session 18, LOS 49.s)
Q15. With respect to John and Jessica’s statements regarding comparing the local laws to the GIPS Standards:
A) only Jessica is incorrect.
B) only John is incorrect.
C) John's statement is correct as long as the local laws are more strict than the GIPS Standards.
Correct answer is A)
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. (Study Session 18, LOS 49.b)
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发表于 2009-4-10 15:43
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