karoliukas

Shortly after becoming employed by Valco & Co., an investment banking firm, Stan McDowell, CFA, learns that most of Valco's initial public offerings (IPO) are really effected in order to profit management via price manipulation of the shares. McDowell observes an illegal act, sanctioned by senior management, in progress and refuses to sign off on his responsibility. Instead, McDowell takes the documentation to his supervisor and tells him he should sign it in his place. This action is:

A) a violation of the Code and Standards since he is required not to knowingly participate or assist in such an act.

B) an overreaction. Senior management's sanctioning of the act absolves McDowell from his ordinary responsibility as a CFA Institute member.

C) a suitable reaction, and he is in compliance with the Code and Standards.

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McDowell, by his action in taking the documentation to his supervisor, is knowingly participating in and/or assisting in an illegal act. This is clearly prohibited under Standard I(A), and he is in violation of the Standard.

karoliukas

An analyst is told by his supervisor that when he feels he should write a buy recommendation he is free to do so, and when he feels he should write a sell recommendation he should check with the supervisor first. This practice is:

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

B) congruent with Standard V(A), Diligence and Reasonable Basis.

C) in violation of Standard V(A), Diligence and Reasonable Basis.

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The policy dictated by the supervisor would infringe upon the analyst’s independence and objectivity . It would probably discourage the analyst from making sell recommendations and, furthermore, present the opportunity for the supervisor to try and change the analyst’s mind.

karoliukas

Joshua Rosenberg, CFA, is an equity analyst who covers Northwest Implements, a farm implement manufacturer. Northwest's main factory is located in a sparsely inhabited region six hours by automobile from the nearest airport. Northwest has its own corporate jet and a landing strip is located near the facility. When Rosenberg contacts Northwest’s management to gather information for a report he is preparing on the company, Northwest’s chief financial officer, Thomas Blake, invites Rosenberg to visit Northwest’s headquarters and meet with management. Blake offers to send Northwest’s corporate jet to pick up Rosenberg from an airport near Rosenberg’s home and to return him home the same evening. Rosenberg estimates that it would require three days for him to make the visit using commercial travel. If Rosenberg accepts Blake’s offer and makes the trip to Northwest’s headquarters on the corporate jet, Rosenberg:

A) has violated the Code and Standards unless he discloses the trip and the payment of his travel expenses in his report on Northwest.

B) has violated the Code and Standards unless he reimburses Northwest for the cost of the trip.

C) has not violated the Code and Standards.

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Standard I(B) requires members to maintain independence and objectivity. A visit by an analyst to an out-of-the-way site may be paid for by a client company host as long as the analyst can maintain objectivity. Members should encourage clients to limit the use of corporate aircraft, but exceptions can be made if transportation would not otherwise be available or would be inefficient.

karoliukas

Luis Rodriguez, CFA, is an analyst at XYZ Investments. He covers a company that is located in a region that is not easily accessible. The company invites analysts for their annual analyst meeting and pays for the transportation to the remote location. Rodriguez is:

A) allowed to accept the payment for transportation as long as it does not exceed $100.

B) allowed to accept the payment for transportation because the trip was all business and was out of the way.

C) not allowed to accept the payment for transportation because this is a considered a “perk” and may influence his independent judgment.

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Standard I(B) Independence and Objectivity. Analysts should pay for their own travel accommodations if the location is accessible by normal means. In this situation payment is acceptable because the location is out of the way and the purpose of the trip is all business.

karoliukas

In order to comply with the CFA Institute Standards, an analyst should:

A) use only his own research in making investment recommendations, because anything else would violate Standard I(B), Independence and Objectivity.

B) use only his company's research when making investment recommendations and use outside research for reports and analysis on stocks.

C) use outside research only after verifying its accuracy.

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Standard I(B), Independence and Objectivity: the analyst is allowed to use outside research only after an insightful review. There are no restrictions regarding the exclusive use of outside information or in-house information.

karoliukas

All of the following would be permitted according to the CFA Institute Standards of Professional Conduct EXCEPT:

A) air transportation paid by a corporate issuer for travel to a major metropolitan airport.

B) token gifts received from clients.

C) use of an issuer’s corporate aircraft when commercial transportation is not available.

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In order to maintain independence and objectivity, members and candidates should restrict special reimbursement arrangements concerning commercial transportation and hotel charges. Use of corporate aircraft is permitted when commercial transportation is not available.

karoliukas

Which of the following gifts to employees from clients does NOT need to be reported to the employee’s employer?

A) An expensive case of wine.

B) An inexpensive golf shirt.

C) A ski-vacation.

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According to Standard I(B), Independence and Objectivity, token gifts are allowed.

karoliukas

Tony Calaveccio, CFA, is the manager of the TrustCo Small Cap Venture Fund in Toronto. He places trades for the fund with Worldwide Brokerage. Worldwide is holding a conference in Amsterdam and has offered to pay for Calaveccio's airfare, meals, and accommodations associated with his attendance of the conference. The conference concerns European small cap securities and the EASDAQ. He decides that he will accept their offer and attend the conference. In order to comply with the Code and Standards, he:

A) should not attend unless he pays for the trip himself.

B) may attend, but he must disclose the arrangement to TrustCo's clients and prospects as required under Standard IV.B.

C) may attend, but he must disclose the arrangement to his employer as a gift.

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Under Standard I(B) gifts, benefits, compensation, or consideration cannot be accepted if the purpose was to influence or reward. Token items are OK. Worldwide Brokerage is not a client of Calaveccio but an entity that he does business with. As such Worldwide could influence Calaveccio to always do business with them which could be to the detriment of his fund if the execution of their trades starts to deteriorate compared to their competitors.

karoliukas

An analyst who is a CFA Institute member receives an invitation from a business associate’s firm to spend the weekend in a high-quality resort. In order to abide by the Standards, the analyst should (may):

A) refuse the invitation if the associate is from a firm he analyzes for his employer.

B) obtain written consent from his supervisor if the offer is contingent on achieving a target investment return.

C) do both of the actions listed here.

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According to Standard I(B) Independence and Objectivity, the analyst should refuse the invitation if it is from a firm the analyst covers for his employer. The analyst can accept the invitation if it is from a client but the analyst must get written consent from his employer if the offer is contingent on future performance, to comply with Standard IV(B) Additional Compensation Arrangements.

karoliukas

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

B) 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.

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

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