1 . For years JohnBerger, a CFA charterholder and CEO of a company, relied upon a set ofreasonable procedures for preventing violations of the Code and Standards ofProfessional Conduct in the firm. To not be liable for a violation of theStandards, Berger must:
A)both periodicallyreview the procedures and ensure the procedures are monitored and enforced.
B)do nothing more thanhave the set of procedures in place as stated.
C)ensure theprocedures are monitored and enforced.
The correct answer wasA
As a CEO, Berger isresponsible for implementing and maintaining appropriate compliance procedures.He must also ensure the procedures are monitored and enforced.
2 . A CFA Institutemember works for Secure Securities, Inc., and plays rugby on the firm’s rugbyteam. Secure Securities’ team recently played the team of a rival firm. Duringthe game, a fight broke out and the CFA Institute member was the instigator,but no one was seriously hurt. Is this a violation of I(A) concerningmaintaining knowledge and complying with laws, rules, and regulations?
A)Yes, because themember is bound by the Code of Ethics.
B)No, because a fightat a rugby game is not a professional activity.
C)Yes, because themember could have hurt someone in the fight.
The correct answer was:B
Standard I(A) coversmembers´ professional activity only. Violations outside professional activitythat involve fraud, theft or deceit would potentially be violations.
3 . Which of thefollowing statements least accurately describes a key characteristic of theGlobal Investment Performance Standards (GIPS)?
A)All fee-paying,discretionary portfolios must be included in at least one composite.
B)A firm may not claimcompliance with GIPS until it has recorded at least five years ofGIPS-compliant performance data.
C)The distinctbusiness entity that is claiming compliance with GIPS must be defined.
The correct answer wasB
If a firm has been inexistence less than five years, it can claim GIPS compliance if it presents GIPS-compliantperformance data since the firm´s inception. The other statements are accurate.
4 . If the ChiefInvestment Officer of an investment advisory firm also is a CFA charterholder,which of the following statements is CORRECT?
A)The firm must presentan historical composite.
B)The firm must complywith the CFA Institute Global Investment Performance Standards only if itstates that it follows the Standards.
C)All performanceresults that are presented must comply with the CFA Institute Global InvestmentPerformance Standards.
The correct answer wasB
Global InvestmentPerformance Standards (GIPS) are the best way to comply with the Standard onperformance presentation; however, adoption of GIPS is voluntary.
5 . Bill Fox, CFA, hasbeen preparing a research report on New London Wire and Cable, one of his majorinvestment clients. He had completed much of his analysis and had planned onhaving his report typed and bound today. Unfortunately, his briefcase wasstolen while he ate breakfast, and he lost all his notes and working papers.The lost materials included his notes from management interviews, conversationswith suppliers and competitors, dates of company visits, and his computerdiskette containing much of his quantitative analysis. Fox´s client needs thisreport tomorrow. In a panic, Fox called New London´s vice president of financeand was faxed a copy of the company´s most recent financial projections. Foxremembered that his own analysis showed that management´s estimates were too high.He did not remember the exact amount, so he revised New London´s figuresdownward 10%. Fox also incorporated some charts and graphs on New London from aresearch report he had received last week from a small regional research firmand used some information from a Standard & Poor´s reference work. With thehelp of his secretary, a Xerox machine, and some creative word processing, Foxgot the report done in time for the evening Fedex pick up. On the way home fromthe office that night, Fox wondered if he had violated any CFA InstituteStandards of Professional Conduct. Fox has:
A)violated none of theStandards.
B)violated therequirement to have a reasonable basis for a recommendation, the prohibitionagainst plagiarism, and the requirement to maintain appropriate records.
C)violated therequirement to have a reasonable basis for a recommendation and the prohibitionagainst plagiarism.
The correct answerwas: B
New London´s report ispotentially self serving, so Fox did not exercise diligence or have an adequatebasis for his recommendation. In addition, Fox did not acknowledge his sourceof the charts and graphs. Finally, he did not maintain adequate records.