CFA2020L1QbanksAnswers ethics

Study Session 1, Module 1.1, LOS 1.c CFA Institute Standards of Professional Conduct are most accurately described as being based on: A a code of ethics.. Explanation The Standards of Pr

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Question #1 of 20 Question ID: 1203374Standards of conduct are most accurately described as:

A) a necessary part of any ethical code.

B) providing the public with the values and general expectations for a group of professionals.

C) giving members of a group a minimum level of acceptable behavior.

Explanation

Standards of conduct address speci c minimum levels or expected behavior in various circumstances,while a code of ethics communicates provides the values and general expectations for professionalbehavior A code of ethics does not necessarily include standards of conduct

(Study Session 1, Module 1.1, LOS 1.c)

Ethics least likely refers to:

A) a person’s beliefs about right and wrong behavior.

B) the study of good and bad behavior.

C) moral principles to guide behavior.

Explanation

An individual's beliefs are not ethics as it is used in the Level I CFA curriculum Ethics are described ascommonly accepted principles of good and bad behavior and the study of good and bad behavior

(Study Session 1, Module 1.1, LOS 1.a)

Ethics are most accurately de ned as:

A) the study of moral principles.

B) a written code of standards.

C) a belief about proper conduct.

Explanation

Ethics refers to the study of moral principles Ethics is broader than written codes of standards or aparticular belief about proper conduct

RRReading 1::: Ethics and Trust in the IIInvvvestment

PPProfession

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Question #4 of 20 Question ID: 1203373Which of the following statements about a code of ethics is most accurate? A code of ethics:

A) does not need to include standards of conduct.

B) must include rules-based standards of conduct.

C) must include principles-based standards of conduct.

Explanation

A code of ethics may include standards of conduct, but does not require them

(Study Session 1, Module 1.1, LOS 1.b)

A code of ethics:

A) provides the public with assurance of a minimum level of ethical behavior.

B) should not be used for marketing purposes.

C) may be rules-based or principles-based.

Explanation

A code of ethics may be rules-based or principles-based There can be no assurance that none of a group

or professionals will violate a code of ethics There is no requirement that a group of professionals

agreeing to a code of ethics cannot be held out to the public as a positive thing for clients

A requirement that investment professionals recommend securities that match their clients' requirementsand constraints is a:

A) suitability standard.

B) duciary standard.

C) portfolio standard.

Explanation

A suitability standard refers to matching client return requirements and risk tolerances with the

characteristics of the securities recommended

(Study Session 1, Module 1.1, LOS 1.e)

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Question #7 of 20 Question ID: 1203387

An ethical decision-making framework:

A) considers alternative actions and unintended consequences.

B) focuses on the near term impact on all stakeholders.

C) primarily addresses compliance with regulatory issues.

Explanation

An ethical decision-making framework is designed to ensure that alternative actions and potential

unintended consequences of decisions are considered

(Study Session 1, Module 1.1, LOS 1.h)

A requirement that investment professionals act in the best interests of their clients is a:

A) duciary standard.

B) suitability standard.

C) fair dealing standard.

Explanation

A duciary standard requires professionals to use their knowledge and expertise to act in the best

interests of their clients

(Study Session 1, Module 1.1, LOS 1.e)

Unethical behavior by a nancial professional harms:

A) only clients.

B) only clients and other employees.

C) clients, other employees, and society.

Explanation

By reducing trust in the nancial services profession, unethical behavior can harm clients, other nancialservices employees, and society, by increasing the perceived risk of investing, increasing the cost ofcapital, and a ecting the allocation of capital for the entire economy

(Study Session 1, Module 1.1, LOS 1.d)

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Which of the following statements about legal and ethical standards is most accurate?

A) Legal standards are a subset of ethical standards.

B) Ethical standards are a subset of legal standards.

C) Ethical and legal standards often intersect, but not always.

Explanation

Ethical and legal standards are not subsets of each other Some actions that are legal might not be ethical,and some actions that are ethical might not be legal

(Study Session 1, Module 1.1, LOS 1.g)

Which of the following characteristics distinguishes a profession from an occupation? Members of a

profession:

A) view their work as a calling.

B) are better compensated for their services.

C) abide by a code of ethics.

Explanation

One of the de ning characteristics of a profession according to the Level I CFA curriculum is that itsmembers agree to abide by a common code of ethics

CFA Institute Standards of Professional Conduct are most accurately described as being based on:

A) a code of ethics.

B) accepted legal standards.

C) the best interests of members and candidates.

Explanation

The Standards of Professional Conduct are based on principles stated in the CFA Institute Code of Ethics.(Study Session 1, Module 1.1, LOS 1.g)

Which of the following best describes elements of a framework for ethical decision making?

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A) Identify relevant facts; consider in uences and alternatives; decide and act; re ect on outcomes B) Relevance; faithful representation; transparency; comprehensiveness; consistency.

C) State the objective; gather, process, and interpret the data; report the conclusions; update the

analysis

Explanation

The framework for ethical decision making presented in the Level I CFA curriculum includes these

elements:

Identify relevant facts, stakeholders, ethical principles, and con icts of interest

Consider alternative actions, situational in uences, and whether to seek additional guidance.Decide and act

Re ect on whether the outcome was as expected, and why or why not

Unethical behavior by individuals in the investment industry is most likely to:

A) decrease nancing costs for businesses.

B) increase the overall pro ts of nancial services rms.

C) decrease the rate of economic growth.

Explanation

Unethical behavior in the investment industry can divert capital away from its highest valued uses, whichdecreases the growth rate of the economy In the long run, unethical behavior decreases pro ts fornancial services rms by discouraging potential clients from using their services When savers andinvestors distrust the investment industry they provide less capital and demand a higher return for its use,which increases the cost of capital for businesses

Establishing standards of ethical behavior and monitoring professional conduct are best described as waysthat professions:

A) avoid regulatory scrutiny.

B) increase the market value of their services.

C) establish trust.

Explanation

Ways that professions establish trust include requiring high standards of expertise, knowledge, and skill;establishing standards of ethical behavior; monitoring professional conduct; encouraging continuingeducation to maintain and increase competence; being focused on clients' needs; and mentoring andinspiring others in the profession

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Question #16 of 20 Question ID: 1203383Challenges to ethical behavior are most likely to arise from:

A) inadequate training.

B) internal motivations.

C) situational in uences.

Explanation

Situational in uences, which are factors external to a decision maker, are the most likely source of

challenges to ethical behavior

(Study Session 1, Module 1.1, LOS 1.f)

Unethical behavior by nancial professionals:

A) increases risk and the cost of capital.

B) does not a ect allocation of capital.

C) increases incomes for the profession.

Explanation

In the long run, unethical behavior will decrease trust in nancial professionals and the use of nancialprofessionals by the public, ultimately decreasing incomes for the profession Unethical behavior, such asmisleading clients, can adversely a ect the allocation of nancial capital

A profession is most accurately described as an occupational group that requires its members to:

A) have specialized expert knowledge.

B) abide by a code of ethical conduct.

C) put client interests rst.

Explanation

A profession is an occupational group (e.g., doctors or lawyers) that has requirements of specializedexpert knowledge, and often a focus on ethical behavior and service to the larger community or society.While many professions require their members to put clients rst or abide by a code of ethical conduct,these are not de ning characteristics of a profession

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A framework for ethical decision making is most appropriately applied to:

A) aid decision makers in considering alternatives and their potential impacts.

B) determine whether actions are legal.

C) reduce the need to maintain a large compliance department.

Explanation

A framework for ethical decision making is a way to help decision makers consider alternatives and theirimpact on stakeholders

Which of the following statements about legal and ethical standards is most accurate?

A) Unethical acts are always illegal.

B) Illegal acts are always unethical.

C) Some illegal acts are considered ethical.

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Question #1 of 30 Question ID: 1203399Which of the following is NOT an act explicitly referred to in the Code of Ethics?

A) Using reasonable care when making investment recommendations.

B) Improve professional competence.

C) Giving free introductory seminars on investing to the public.

Explanation

Although the Code says a member has obligations to the public, educating the general public for whateverreason is not implied

The rst component of the Code of Ethics does NOT explicitly say that a CFA Institute member will act in acertain manner with respect to which of the following groups?

A) Prospective clients.

B) Colleagues.

C) CFA Institute members and candidates in the CFA Program.

Explanation

Participants in the CFA Program are not speci cally mentioned in the Code of Ethics Component one

mentions duties to the public, clients, prospects, employers, employees, colleagues, and other participants

in the global capital markets

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

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

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

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

Explanation

The Code states that a member shall "Maintain and improve their professional competence and strive tomaintain and improve the competence of other investment professionals." None of the other answers

qualify

RRReading 2::: Code of Ethics and SSStandards of PPProfessional

Conduct

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Question #4 of 30 Question ID: 1203410The Code of Ethics does NOT explicitly say that a CFA Institute member shall do which of the following?

A) Re ect credit on the profession.

B) Actively lobby for new laws to protect the public.

C) Act with integrity.

Explanation

The Code of Ethics says nothing about a CFA Institute member lobbying for new laws In fact, legal issuesare not a part of the Code The Standards of Professional Conduct say that the member shall obey laws.(Study Session 1, Module 2.1, LOS 2.b)

Which of the following is NOT part of the CFA Institute Code of Ethics?

A) Competence.

B) Contractual provisions.

C) Independent judgment.

Explanation

Contractual provisions are not part of the Code of Ethics

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

A) Transactions for clients and employers have priority over transactions in which a member or

candidate is the bene cial owner

B) Practice and encourage others to practice in a professional and ethical manner that will re ect

credit on members and their profession

C) Members and candidates must not engage in conduct that compromises the integrity of the CFA

designation or the security of the CFA examinations

Explanation

This is a component of the Code of Ethics Others pertain to the Standards of Practice

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Question #7 of 30 Question ID: 1203416According to the CFA Institute Code of Ethics, CFA Institute members shall:

A) preserve the con dentiality of information communicated by clients, prospects, or employers

concerning investment matters

B) act with integrity, competence, diligence, respect, and in an ethical manner when dealing with

the public, clients, prospective clients, employers, employees, colleagues in the investment

whereas the other statements are part of the Standards of Professional Conduct

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

A) Members shall not engage in any professional conduct involving dishonesty, fraud, deceit, or

misrepresentation or commit any act that re ects adversely on their honesty, trustworthiness,

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

profession

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

Explanation

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

Michael Malone, CFA, is an investment analyst for a large brokerage rm in New York who covers the airlinesindustry After hours in his personal time, Malone maintains an online blog on which he expresses hispersonal 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'sstock will be downgraded to a "sell" by his rm next week Malone has most likely violated:

A) violated Standard II(A) Material Nonpublic Information.

B) Standard VI(B) Priority of Transactions.

C) violated Standard IV(A) Loyalty.

Explanation

By expressing his investment analysis on his personal blog ahead of his employer, Malone deprived hisemployer of the bene ts of his skills and abilities and therefore violated Standard IV(A) Loyalty Malone didnot possess material nonpublic information about WestAir and no transactions have taken place

According to the Code of Ethics, a member re ects credit on the profession when a member:

A) consults with other members on a regular basis.

B) practices in a professional and ethical manner.

C) places the clients rst.

Explanation

Component four of the Code says that a member shall "Practice and encourage others to practice in aprofessional and ethical manner that will re ect credit on members and the profession." Neither of theother choices are implied by the Code

A member or candidate who rejects a disciplinary sanction proposed by the Professional Conduct Program:

A) will be suspended from membership or participation in the CFA Program.

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B) may request an appeal to a hearing panel.

C) will typically not be subject to further disciplinary procedure unless a new investigation is

initiated

Explanation

A member or candidate may accept a proposed disciplinary sanction or request an appeal to a hearingpanel

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

A) maintain and improve their competence and strive to maintain the competence of others in the

profession

B) comply with the CFA Institute Global Investment Performance Standards.

C) use reasonable care and exercise independent professional judgment.

Explanation

The CFA Institute-GIPS are voluntary standards for the industry Firms are not required to comply withthese standards when presenting performance The other statements are each components of the CFAInstitute Code of Ethics

With respect to CFA Institute enforcement of the Code and Standards, possible disciplinary sanctions leastlikely include:

A) suspension from participation in the CFA Program.

B) payment of a ne.

C) public censure.

Explanation

CFA Institute does not impose nes CFA Institute may impose sanctions including public censure,

suspension of a candidate from participation in the CFA program, or suspension or revocation of a

member's right to use the CFA designation

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Which of the following is least likely to be a reason for imposing a suspension on a member or candidate?

A) Misdemeanor charge for possession of narcotics.

B) Discussing a question from the CFA exams on social media.

C) Failing to return the annual professional conduct statement.

Explanation

A misdemeanor charge not related to professional conduct is not grounds for a suspension The otherchoices are violations of the Code and Standards and may result in CFA Institute imposing a suspension ofmembership or participation

In accordance with Standard III (A) Loyalty, Prudence and Care, which of the following statements is not arequired or recommended action?

A) Utilize client brokerage to the sole bene t of the client.

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

(Study Session 1, Module 3.3, LOS 3-III.(A))

Liam McCoy has lunch with a wealthy client whose portfolio he manages McCoy advises the client to doublehis current position in the JKM Corporation due to an anticipated increase in sales In accordance withStandard (V) Investment Analysis, Recommendations and Actions, when McCoy returns to his o ce heshould:

A) identify other clients for whom JKM may be a suitable investment and notify them immediately

of his recommendation

B) verify the suitability of the investment recommendation before placing the client’s order.

C) document the details of the conversation with the client with regard to his investment

recommendation

Explanation

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Standard V(C) Record Retention requires that Members and Candidates document all recommendationand communications with clients McCoy should document the details of the conversation, including anyresulting investment decisions and/or actions The suitability of the investment should have already beenconsidered before the recommendation and McCoy should not execute the order until the client instructshim to Identifying other clients for this investment would fall under Standard III(B) Fair Dealing.

Which of the following is a component of the Code of Ethics? CFA Institute members shall:

A) strive to maintain and improve their competence and the competence of others in the

profession

B) make reasonable e orts to detect and prevent violations by those who are under their

supervision

C) disclose to their employer all matters that reasonably could be expected to interfere with their

duty to their employer or ability to make unbiased and objective recommendations

Explanation

Striving to maintain and improve their competence and the competence of others in the profession is one

of the components of the Code of Ethics, whereas the other statements are part of the Standards ofProfessional Conduct

All of the following are components of the Code of Ethics EXCEPT:

A) demonstrating diligence, independence, and thoroughness when preparing investment reports B) using reasonable care and exercising independent professional judgment.

C) striving to maintain and improve their competence and the competence of others in the

profession

Explanation

Demonstrating diligence, independence, and thoroughness when preparing investment reports is found inthe Standards of Professional Conduct

In dealing with the public and others, the CFA Institute Code of Ethics requires that CFA Institute membersact with:

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A) honesty, professionalism, and high ethical standards.

B) integrity, competence, and respect.

C) candor, skill, and honor.

Explanation

Integrity, competence, and respect are mentioned by name in the rst component of the Code of Ethics.(Study Session 1, Module 2.1, LOS 2.b)

Sanctions that CFA Institute may impose on a member or candidate under the Professional Conduct Programinclude:

A) public censure.

B) suspension from employment in the nancial services industry.

C) returning of all pro ts gained through violations of the Code and Standards.

Explanation

Sanctions that CFA Institute may impose include public censure, suspension from membership and use ofthe CFA designation, revocation of the CFA charter, or suspension of a candidate's participation in the CFAprogram

The rst component of the Code of Ethics does NOT explicitly say that a CFA Institute member will act withwhich of the following?

A) Integrity.

B) Competence.

C) Solemnity.

Explanation

Component one mentions all of these except solemnity

Steve Jones is a member of CFA Institute but has not earned the CFA designation yet CFA Institute is

investigating Jones' activities If Jones declines to cooperate, he:

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A) may not be suspended because cooperating could be self incriminating.

B) may not be suspended because he does not have the CFA designation yet.

C) may be suspended from membership.

Explanation

Refusing to cooperate with a CFA Institute investigation of a member's behavior could lead to suspension

of membership or participation in the CFA Program

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

A) independent.

B) dependent on that of his/her colleagues.

C) guided by the SEC guidelines.

Explanation

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

With respect to the professional conduct of a member or candidate, CFA Institute sta will consider acomplaint from:

A) only other members and candidates.

B) only other members and candidates or professionals in the investment industry.

C) anyone.

Explanation

Complaints to the Professional Conduct Program may be led by anyone

The CFA Institute's Professional Conduct Program may learn about potential violations of the Code andStandards by members and candidates:

A) only from members and candidates self-reporting.

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B) only from written complaints or members and candidates self-reporting.

C) from sources other than written complaints or members and candidates self-reporting.

Explanation

In addition to self-reporting by members and candidates and written complaints about members andcandidates, the Professional Conduct Program may learn about potential violations through public sourcessuch as the news media, through reports from CFA exam proctors, by review of exam results and

materials, or through monitoring of online and social media activity

Which of the following is a component of the Code of Ethics? CFA Institute members shall:

A) use reasonable care and exercise independent professional judgment.

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

C) use particular care in determining applicable duciary duty.

Explanation

Using reasonable care and exercising independent professional judgment is one of the components of theCode of Ethics, whereas the other statements are part of the Standards of Professional Conduct

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) re ect credit on members and the profession.

C) resolve con icts between clients and employers.

Explanation

The Code states that a member shall "Practice and encourage others to practice in a professional andethical manner that will re ect credit on members and their profession."

The CFA Institute Professional Conduct Program may impose sanctions on:

A) CFA charterholders only.

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B) CFA charterholders and candidates for the CFA designation.

C) CFA charterholders, member rms, and candidates for the CFA designation.

Explanation

The CFA Institute Professional Conduct Program may impose sanctions on CFA charterholders and

candidates for the CFA designation Firms are not members of CFA Institute

The CFA Institute Code of Ethics speci es that CFA Institute Members and Candidates must do all of thefollowing EXCEPT:

A) refrain from any conduct that compromises the reputation or integrity of the CFA designation B) use reasonable care and exercise independent professional judgment when engaging in

professional activities

C) act with integrity, competence, diligence, respect, and in an ethical manner.

Explanation

Not compromising the reputation or integrity of the CFA designation is a part of the Standards of

Professional Conduct, but is not speci cally mentioned the Code of Ethics

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Question #1 of 47 Question ID: 1203443Bob Smith, CFA, is an independent board member of Atlantic Technologies, but is not paid by the rm for hisservices An employee at Atlantic informs Smith that Atlantic has improperly timed the booking of contracts

to achieve the desired quarterly nancial results The misleading nancial statements would turn losses intopro ts Smith confers with the rm's legal counsel who indicates that this conduct is, in fact, illegal Smithurges Sharon White, Atlantic's chief nancial executive, to change the nancial statements, but she refuses to

do so and indicates the rm's external auditors have approved the method of revenue recognition she hasused According to CFA Institute Standards of Professional Conduct, which of the following actions is leastlikely appropriate for Smith: in this situation?

A) Dissociate from the activity by resigning as a director or by reporting the activities to the

appropriate authorities

B) Bring his concerns to the other board members.

C) Report the illegal activity to CFA Institute.

Explanation

Reporting violations of the Standards to the CFA Institute may be appropriate for concerns about amember's conduct, but is not the proper avenue for reporting corporate malfeasance in general Membersmust dissociate from any activity they know is illegal and if Smith cannot get his rm for correct themisleading nancial report he must leave the board There are intermediate steps that Smith can take inorder to remedy the situation Smith may bring his concerns to the other board members in order to getthe rm to stop the illegal activity If the board will not remedy the situation, dissociating from the boardmay be Smith's only way to remain in compliance with the Code and Standards

(Study Session 1, Module 3.1, LOS 3-I.(A))

Jason Blackwell, CFA, works as an investment manager for Mega Capital, a large multinational brokerage

rm Mega Capital is based in a country whose applicable law is stricter than the CFA Institute Code andStandards, but does business with clients in a country whose applicable law is less strict than the Code andStandards Blackwell decides to follow the requirements of the Code and Standards for clients in the lessstrict country, which is su cient to also comply with that less-strict country's local laws While Blackwell isstill employed at Mega, Lego Associates verbally asks Blackwell to review client portfolios during eveningsand weekends for a fee Blackwell gets written consent from his immediate supervisor at Mega to undertakethis independent activity for a one-month trial basis

Which of the following statements about Blackwell's actions involving Standard I, Professionalism, andStandard IV(A), Loyalty is most accurate? Blackwell:

A) did not violate either Standard I or Standard IV(A).

B) violated both Standard I and Standard IV(A).

C) violated Standard I but did not violate Standard IV(A).

Explanation

RRReading 3 1::: G G Guidance for SSStandards III(((A) and III(((B)

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Blackwell violated Standard I, Professionalism Jameson must comply with the strictest requirementsamong the laws of the country where his rm is based, the CFA Institute Code and Standards, and the laws

of the country where he is doing business Because the applicable laws in Mega Capital's home country arestricter than the Code and Standards, Jameson must additionally adhere to that more strict law

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) 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

B) 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

i i i h i l i

C) 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

i di i f i

Explanation

If you suspect someone is planning or engaging in illegal activities, you should:

1 Determine the legality of the activities Consult your supervisor and legal counsel

2 Take appropriate action Disassociate, attempt to persuade the perpetrator to stop CFA Institutedoes not require you to report them to the authorities, but the law might

If a member does business in a country with stricter securities laws and regulations than the Code andStandards, but the member's home country has less strict securities laws or regulations than the Code andStandards, the member must abide by the:

A) Code and Standards only.

B) laws and regulations of the country with stricter securities laws.

C) home country’s securities laws and regulations only.

Explanation

The member must abide by the laws and regulations of the country in which he is doing business if theselaws are stricter than his home country's laws or the Code and Standards A member must adhere to thestrictest applicable law or regulation

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Question #5 of 47 Question ID: 1203450Mega Securities, a multinational investment advisor based in the United States, employs the followinganalysts who practice in multiple jurisdictions.

Melissa Black, CFA, resides in Country N, which has no securities laws or regulations, but does

business in Country L, which has securities laws and regulations that are less strict than the Code andStandards

Tom White, a CFA Institute member, resides in Country L, but does business in Country S, which hassecurities laws and regulations that are stricter than the Code and Standards

According to the CFA Institute Code and Standards, which of the following statements about Black and White

is CORRECT?

Black must adhere to

the White must adhere to the

A) law of Country N law of Country L

B) law of Country L law of Country S

C) Code and Standards law of Country S

Explanation

Because the applicable law in Country L is less strict than the Code and Standards, Black must adhere tothe Code and Standards Because the applicable law is stricter than the Code and Standards, White mustadhere to the more strict applicable law of Country S

Janet Green, CFA, provides investment advice and other services to clients in several countries She resides inCountry A whose securities laws and regulations are less strict than the Code and Standards She alsoconducts business with clients in Country B, which has no securities laws or regulations, and in Country C,which has securities laws and regulations that are stricter than the Code and Standards Which of thefollowing statements is CORRECT? According to CFA Institute Standards of Professional Conduct, Green mustadhere to the Code and Standards in:

A) Country A but the law in Country B and Country C.

B) Country A, Country B, and Country C.

C) Country A and Country B but the law in Country C.

Explanation

Green needs to follow Standard I(A) Knowledge of the law In Country A, Green must adhere to the Codeand Standards because Country A's laws are less strict In Country B, Green must also adheres to the Codeand Standards because Country B has no securities laws Because Country C's applicable law is stricterthan the requirements of the Code and Standards, Green must adhere to the laws of Country C

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A member or candidate who suspects that a colleague is violating the law should most appropriately:

A) report the illegal activity to CFA Institute Professional Standards Review Board for action.

B) report all illegal activities to the appropriate regulatory agency.

C) consult with the company counsel to determine if in fact a law is being violated.

Explanation

According to Standard I(A), Knowledge of the Law, members and candidates shall not knowingly participate

or assist in any violation of laws, rules, regulations, or the Code and Standards

When members suspect a client or a colleague of planning or engaging in ongoing illegal activities,

members should take the following actions:

Consult counsel to determine if the conduct is, in fact, illegal.

Disassociate from any illegal or unethical activity When members have reasonable grounds to

believe that a client's or employee's activities are illegal or unethical, the members should

disassociate from these activities and urge their rm to attempt to persuade the perpetrator tocease such activity.

Note: The Code and Standards do not require that members report legal violations to the appropriategovernmental or regulatory organizations, but such disclosure may be prudent in certain circumstances.(Study Session 1, Module 3.1, LOS 3-I.(A))

Sometimes a CFA Institute member simply feels a law has been violated by his rm, and sometimes themember knows a law has been violated Which of the following pairs of guidelines is CORRECT with respect

to the rst step a member should take in each case? The member should rst contact:

A) the rm's counsel if he feels a law has been violated and the SEC if he knows a law has been

violated

B) the rm's counsel if he feels a law has been violated and contact his supervisor if he knows a law

has been violated

C) his supervisor in the rm if he feels a law has been violated and contact the rm's counsel if he

knows a law has been violated

Explanation

Standard I(A) says that when a member feels a law has been broken, the member should seek advice fromthe rm's counsel If the member feels the advice is unbiased and competent, the member should follow

it If the member knows a law has been violated, the member should contact a supervisor

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Ernesto Vivaldo is a CFA candidate He is working in the branch o ce of an American-based investmentcompany in Belgium Vivaldo is a citizen of Venezuela In his country, a portfolio manager is not required todisclose referral fees Belgian law does not allow referral fees for portfolio managers Vivaldo has been

o ered a deal that involves a referral fee Vivaldo should follow the requirements of:

A CFA Institute member works for Secure Securities, Inc., and plays rugby on the rm's rugby team SecureSecurities' team recently played the team of a rival rm During the game, a ght broke out and the CFAInstitute 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) No, because a ght at a rugby game is not a professional activity.

B) Yes, because the member is bound by the Code of Ethics.

C) Yes, because the member could have hurt someone in the ght.

Explanation

Standard I(A) covers members' professional activity only Violations outside professional activity thatinvolve fraud, theft or deceit would potentially be violations

Which of the following statements about the responsibilities of CFA charterholders is CORRECT? CFA

charterholders:

A) are only obligated to comply with securities laws in the U.S.

B) must comply with the laws and rules governing their profession and must not engage in any

individual behavior that re ects adversely on the entire profession

C) need not comply with the laws and rules governing their profession or must not engage in any

individual behavior that re ects adversely on the entire profession

Explanation

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CFA charterholders must comply with the laws and rules governing their profession and must not engage

in any individual behavior that re ects adversely on the entire profession While they should act honorablyand follow U.S securities laws, they are obligated to more than that, as set forth in the Code and

Standards

A member or candidate who produces issuer-paid research should most appropriately negotiate a:

A) fee that may include equity or warrants.

B) at fee prior to writing the report.

C) fee based on the performance of the issuer’s shares.

Explanation

Standard I(B) Independence and Objectivity states that the best practice for issuer-paid research is tonegotiate a at fee before writing the report Compensation that depends on the performance of theissuer's securities can compromise an analyst's objectivity by creating an incentive to write a positiverecommendation

(Study Session 1, Module 3.1, LOS 3-I.(B))

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

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

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

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

Explanation

Berry should report this information only to her immediate supervisor Subsequently, she and her

supervisor may consult with legal counsel concerning the competing issues in this situation For thepresent, she should avoid disclosure to colleagues who do not need to know the information and sheshould also avoid disclosure to clients

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Luis Rodriguez, CFA, is an analyst at XYZ Investments He covers a company that is located in a region that isnot 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 because the trip was all business and was out

of the way

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

C) not allowed to accept the payment for transportation because this is a considered a “perk” and

may in uence his independent judgment

Explanation

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

Josh LeBlanc, a CFA charterholder, is an investment analyst for a small stock brokerage rm He wants toacquire and maintain knowledge about applicable laws, rules, and regulations relating to his professionalactivities According to the CFA Institute Standards of Professional Conduct, which of the following ways isleast likely to meet compliance procedures?

A) Review written compliance procedures on a regular basis.

B) Rely on past practices followed within his rm.

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

Explanation

LeBlanc should follow the compliance procedures under Standard IA Knowledge of the law Relying onhis rm's past practices may be insu cient for LeBlanc to stay current with changes in applicable laws,rules, and regulations

Which of the following is a CORRECT statement of a member's duty under the Code and Standards?

A) A member is required to comply only with applicable local laws, rules, regulations, or customs

even though the CFA Institute code and Standards may impose a higher degree of responsibility

B) In the absence of speci c applicable law or other regulatory requirements, the Code and

Standards govern the member's actions

C) A member who trades securities in a country with less strict laws, rules, regulations, or customs

may follow those laws if he discloses this information to his client

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Members are always, at a minimum, subject to the Code and Standards

The Standards of Professional Conduct explicitly outlines responsibilities to four groups Which of thefollowing is NOT a group mentioned in that list?

A) The profession.

B) The Federal Reserve.

C) The investing public.

Explanation

The Standards explicitly mention responsibilities to the profession, employers, clients, prospects, and theinvesting public The Federal Reserve is not mentioned

Mary White, CFA, sits on the board of directors of XYZ Manufacturing, Inc She discovers that managementhas knowingly participated in an activity she knows is illegal According to the CFA Institute Standards ofProfessional Conduct, White is least likely to be required to:

A) report the violation to the CFA Institute Professional Conduct Program.

B) seek legal advice to determine what actions should be taken.

C) disassociate herself from the activity.

Explanation

Members are encouraged but not required to report violations of others Standard I(A), Knowledge ofthe Law Prohibition against knowingly practicing or assisting in violation of laws, rules, and regulations IfWhite knows that someone has engaged in a possible illegal activity, she should: (1) report the nding tothe appropriate supervisory person at her rm, (2) if the situation is not remedied, disassociate herselffrom the situation, and (3) seek legal advice to see what other actions, such as notifying the properregulatory agency, should be taken

CFA Institute members should encourage their employers to do all of the following EXCEPT:

A) require employees to write personal ethics statements.

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B) conduct background checks on potential employees to ensure that they are of good character

and eligible to work in the investment industry

C) make clear that dishonest personal behavior re ects poorly on the profession.

Explanation

There is no reason to have employees write personal ethics statements CFA Institute encourages all of theother actions

An analyst who is a CFA Institute member receives an invitation from a business associate's rm to spend theweekend 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 rm he analyzes for his employer.

B) do both of the actions listed here.

C) obtain written consent from his supervisor if the o er is contingent on achieving a target

investment return

Explanation

According to Standard I(B) Independence and Objectivity, the analyst should refuse the invitation if it isfrom a rm the analyst covers for his employer The analyst can accept the invitation if it is from a clientbut the analyst must get written consent from his employer if the o er is contingent on future

performance, to comply with Standard IV(B) Additional Compensation Arrangements

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 rst Thispractice is most likely:

A) in violation of Standard V(B), Communications with Clients and Prospective Clients.

B) consistent with the Code of Ethics and Standards of Professional Conduct.

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

Explanation

The policy dictated by the supervisor would infringe upon the analyst's independence and objectivity Itmay discourage the analyst from making sell recommendations and, furthermore, present the opportunityfor the supervisor to try and change the analyst's mind

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Question #22 of 47 Question ID: 1203420Deloris Johnson, CFA, observed that her supervisor has violated a federal securities regulation Johnsondiscussed the matter with her company's compliance department but they have taken no action According

to the CFA Institute Code and Standards of Professional Conduct, Johnson is required to:

A) confront the supervisor and attempt to stop the violation.

B) report the violation to securities regulators.

C) dissociate from the supervisor’s activity

Allen Parsons, a CFA candidate, suspects a colleague at his rm of engaging in an illegal activity Which of thefollowing statements about procedures for compliance involving Standard I(A), Knowledge of the law is NOTcorrect? Parsons:

A) should urge his rm to attempt to persuade the perpetrator to cease such conduct.

B) should consult counsel to determine whether the conduct is, in fact, illegal.

C) is required to report this legal violation to the appropriate governmental or regulatory

organizations

Explanation

Standard I(A), Knowledge of the law, does not require that Parsons report legal violations to the

appropriate governmental or regulatory organizations, but such disclosures may be appropriate undercertain circumstances

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Benito Salvatore, CFA, is licensed in the established country of Oldworld but has clients and makes

investments in the emerging country of Newworld The regulations of Oldworld prohibit licensed investmentprofessionals from taking gifts or gratuities in any amount from vendors or persons connected with potentialinvestments The laws of Newworld are silent on this issue Unsolicited, Salvatore is o ered a vase worth US

$75 by a Newworld trust company and a bronze statue worth US $200 by a Newworld company that

Salvatore is considering as a potential investment

Salvatore is:

A) permitted to accept both gifts.

B) permitted to accept the vase but not the statue.

C) not permitted to accept either gift.

Explanation

Under Standard I(A), Salvatore must, as a CFA charterholder, apply the CFA Institute Code and Standards

or the controlling law, whichever is stricter In this instance the stricter laws of Oldworld, where Salvatore

is licensed, apply to prohibit the gifts, even though the gifts are o ered in Newworld

Robe Advisory Services operates an o ce in San Francisco, where it manages portfolios for its clients based

in the United States The rm also maintains an o ce in Tokyo, where it employs Sam Lee, CFA who

researches Japanese stocks According to the CFA Institute Standards of Professional Conduct, Lee is

required to maintain knowledge of and comply with all applicable laws, rules, and regulations in:

A) Japan, but not the U.S., and the CFA Institute Standards of Professional Conduct.

B) both the U.S and Japan, but not the CFA Institute Standards of Professional Conduct.

C) both the U.S and Japan and the CFA Institute Standards of Professional Conduct.

Explanation

To abide by the Standards, employees who work for foreign-based rms are required to apply the stricter

of the foreign (here, U.S.) law, the domestic (here, Japanese) law, or CFA Institute standards

Shortly after becoming employed by Valco & Co., an investment banking rm, Stan McDowell, CFA, learnsthat most of Valco's initial public o erings (IPO) are really e ected in order to pro t management via pricemanipulation of the shares McDowell observes an illegal act, sanctioned by senior management, in progressand refuses to sign o on his responsibility Instead, McDowell takes the documentation to his supervisorand tells him he should sign it in his place This action is:

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A) a violation of the Code and Standards since he is required not to knowingly participate or assist

in such an act

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

C) an overreaction Senior management's sanctioning of the act absolves McDowell from his

ordinary responsibility as a CFA Institute member

Explanation

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

Standard

Joan Platt, CFA, operates an investment advisory service in New York but maintains an o ce in Xania Xaniarecently established a stock market, which is not very e cient None of the Xanian stocks trade in the U.S.market Xania legally permits the use of material inside information Platt believes that using inside

information would help her compete against other Xanian investment advisors and also help some of herXanian clients reach their investment objectives Platt is considering adopting local investment practices inXania According to CFA Institute Standards of Professional Conduct, Platt may:

A) not use material inside information.

B) use material inside information, but only after notifying CFA Institute.

C) use material inside information because Xania legally permits this practice.

Explanation

Because applicable law involving material inside information is less strict than the Code and Standards,Platt must adhere to the Code and Standards Standard II(A) prohibits against use of material nonpublicinformation

Mary Kim, CFA, practices in the established country of Oldasia as well as in the emerging country of Newasia

By regulation, Oldasia prohibits licensed investment advisors from trading in securities ahead of their clients.Newasia has no laws or regulations in this area Mary Kim may:

A) trade ahead of her clients in Newasia only.

B) not trade ahead of her clients in either country.

C) trade ahead of her clients in Newasia only, as long as she has made full disclosure to her clients

that she reserves the right to do this

Explanation

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Under Standard I(A), Mary Kim, as a CFA charterholder, must apply the CFA Institute Code and Standards

or the controlling law, whichever is stricter Because Standard VI(B) requires members to put client tradesahead of their own transactions, Mary Kim must follow the standard in the absence of governing law, orwhere the law is less strict than the standard

Don Roberts, a CFA Institute member, resides in Country L, where the securities laws and regulations are lessstrict than the CFA Institute Code and Standards Roberts also does business in Country N, which has nosecurities 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 localitywhere business is conducted governs According to CFA Institute Standards of Professional Conduct aboutthe use of material nonpublic information, Roberts may:

A) not take investment action on the basis of this information.

B) take investment action based on this information for clients in both Country N and Country L

and for himself

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

Explanation

Because applicable law states that the law of the locality where the business is conducted governs andlocal law is less strict than the Code and Standards, the member must adhere to the Code and Standards.Standard II(A) prohibits the use of material nonpublic information

An analyst, who is a CFA charterholder, is working in a foreign country Which of the following statements isCORRECT? The analyst is:

A) covered by the strictest of the following laws and rules: his own country's, the foreign country's

or CFA Institute's Code and Standards

B) governed by the laws and standards of the country in which he is living and working.

C) governed by CFA Institute's Code and Standards.

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If an analyst suspects a client or a colleague of planning or engaging in ongoing illegal activities, which of thestatements about the actions that the analyst should take is most correct? According to the CFA InstituteStandards of Professional Conduct, the analyst should:

A) consult counsel to determine the legality of the activity.

B) disassociate from any illegal or unethical activity if the member has reasonable grounds to

believe that the activity is illegal or unethical

C) consult counsel to determine the legality of the activity and disassociate from any illegal or

unethical activity if the member has reasonable grounds to believe that the activity is illegal or

hi l

Explanation

According to the procedures for compliance involving Standard I(A), CFA Institute members should

determine legality and disassociate from any illegal or unethical activity

A CFA Institute member conscientiously maintains records of changes in security regulations The membernotices that his colleagues do not, and does NOT say anything Is this a violation of Standard I(A)?

A) Yes, and the member should disassociate from these colleagues.

B) No, as long as the colleagues do not violate the new rules.

C) Yes, because the member is bound by the Code of Ethics.

Explanation

The last bullet point of the Code says that a member shall "Maintain and improve their professionalcompetence and strive to maintain and improve the competence of other investment professionals."Ignoring the neglect of rule changes of others would clearly be incongruent with this component As long

as the colleagues do not violate the laws, the member does not have to disassociate himself from thecolleagues

Which of the following is a CORRECT statement of a member's duty under the Code and Standards?

A) A member is required to comply only with applicable local laws, rules, regulations, or customs

even though the CFA Institute Code and Standards may impose a higher degree of responsibility

B) A member who trades securities in a foreign securities market where no applicable local laws or

stock exchange rules regulate the use of material nonpublic information may take investment

i b d hi i f i

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C) In the absence of speci c applicable law or other regulatory requirements, the Code and

Standards govern the member's actions

Explanation

The Code and Standards represent a minimum level of guidance for members' actions, not a maximumlevel The key to remember here is that whether the local area does or does not have standards governingmember's actions, one must follow the stricter standard environment

Nicholas Brynne, CFA, is a xed-income analyst who trades in mortgage-backed securities (MBS) The MBSindustry has seen sweeping regulatory changes since Brynne took his current position, and he now feels hisunderstanding of applicable laws and regulatory standards is dated Brynne must:

A) rely on his rm’s policies and procedures for guidance on legal and regulatory standards.

B) have all trades reviewed by his compliance department until he has obtained an expert level of

If a CFA Institute member knows that a fellow member has violated the Code and Standards, according toStandard I(A) the member is:

A) strongly encouraged to dissociate from the activity.

B) required to report the activity.

C) required to dissociate from the activity and strongly encouraged to report it.

Explanation

Standard I(A) does not require a CFA Institute member to report potential violations by others, but

"strongly encourages members and candidates to report potential violations of the Code and Standardscommitted by fellow members and candidates."

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Question #36 of 47 Question ID: 1152216Susan Nielsen, CFA, is an equity research analyst on a fact- nding property tour with 6 other analysts to learnabout 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 e ectively unavailable JustKittens charters a jet and various busses to take the research analysts to the properties If Nielsen acceptsthese accommodations, she is most likely:

A) 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

i f i

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

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

e ectively unavailable

Explanation

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

e ectively unavailable

Jane Dawson, CFA, an analyst at a New York brokerage rm, suspects that Bob Boatman, CFA, anotheranalyst at the same rm, has violated a state securities law According to the CFA Institute Standards ofProfessional Conduct, Dawson is:

A) required to report the suspected violation to CFA Institute.

B) required to report the suspected violation to the appropriate state regulatory agency.

C) NOT required to report the violation to the appropriate governmental or regulatory

organizations

Explanation

The Code and Standards do not require that members report legal violations to the appropriate

governmental or regulatory organizations, but such disclosure may be prudent in certain circumstances.Dawson should consult legal counsel and disassociate from the activity

CFA Institute believes:

A) that rms should comply with all domestic laws and regulations and that these laws also govern

behavior in foreign markets, regardless of foreign laws and requirements

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B) that a maximum level of professional responsibility and conduct dictates that members be

aware of and comply with laws, rules, and regulations governing their conduct

C) that a minimum level of professional responsibility and conduct dictates that members be aware

of and comply with laws, rules, and regulations governing their conduct

Explanation

CFA Institute's Code and Standards dictate a minimum level of conduct Standards should not be based onethics of upper management and the board of directors of a company Firms must comply with thestrictest applicable standards, whether they be foreign or domestic laws and regulations

The Securities and Exchange Board of India (SEBI) has just enacted a new stock-trading rule SEBI will givebrokers a 10-day grace period, during which violators of the rule will be immediately noti ed and given achance to remedy their situation to comply with the new rule If a CFA Institute member located in India ordoing business in India unknowingly violates the rule and then remedies the situation within the 10-daygrace period, has the member violated Standard I(A)?

A) No, because the member unknowingly broke the rule.

B) Yes, because the member did not maintain knowledge and know of the rule.

C) No, because the member remedied the situation.

Explanation

Standard I(A) explicitly says that a member shall maintain knowledge and comply with laws, rules, andregulations By not knowing of the rule, the member broke the standard

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 outside research only after verifying its accuracy.

C) use only his company's research when making investment recommendations and use outside

research for reports and analysis on stocks

Explanation

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

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A CFA Institute member is also a member and the portfolio manager of an environmentalist group In itscharter, the environmentalist group lists a group of companies its members should boycott The CFA

Institute member would violate Standard I(A) concerning obeying all rules and regulations if the member:

A) performs either of the activities listed here.

B) purchases stock of a boycotted rm for the group's portfolio.

C) actively protests against a publicly traded rm boycotted by the group.

Explanation

Standard I(A) says the member must be guided by all applicable rules and regulations of professionalassociations governing the member's professional activities Purchasing the stock for the rm would be aviolation because it involves the member's professional activities and the rules of a group to which themember belongs and works for Actively protesting would not be covered by that standard

Francisco Perez, CFA, CPA, is a portfolio manager for an investment advisory rm Due to the prominence ofhis position, he is often invited to attend free marketing and educational events hosted by rms which seek

to inform the investment community about their investment processes One such rm, Unlimited Horizons,has invited Perez to attend free educational events which qualify for Continuing Education credits whichcould help Perez maintain his CPA designation Perez should most likely:

A) accept the invitation as no cash compensation is involved and the primary intent is to educate

and inform the investment community

B) decline to attend the event as it could result in a violation of Standard I(A) "Knowledge of the

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Bob Blanford, CFA, is an investment analyst for a large global brokerage rm He recently moved to Ragatan,

a developing country with few securities laws and regulations As part of conducting a company analysis,Blanford interviews Ravi Shanti, vice-president of nance at Starr Industries Starr is a major industrial rm inRagatan and a client at Blanford's rm Based on his analysis, Blanford suspects that Shanti may havedeliberately overstated Starr's current earnings and its earnings for the past several quarters If this

information becomes public, Blanford believes that Starr's stock price will drop substantially Blanfordsuspects that Shanti may have violated Ragatan's securities laws Which of the following statements is leastlikely to comply with Standard I, Professionalism? Blanford should:

A) determine the legality of the activity, possibly by consulting counsel.

to attempt to persuade Shanti to cease such conduct if such an activity is illegal or unethical

Maria Valdes, CFA, is an analyst for Venture Investments in the country of Newamerica, which has lawsprohibiting the acceptance of any gift from a vendor if the gift exceeds US $250 Valdes has evidence that herVenture Investments colleague, Ernesto Martinez, CFA, has been receiving gifts from vendors in excess of US

$250

Valdes is obligated to:

A) disassociate herself from the activity, urge Venture to persuade Martinez to cease the activity,

and inform CFA Institute of the violation

B) disassociate herself from the activity, and urge Venture to persuade Martinez to cease the

activity

C) disassociate herself from the activity, urge Venture to persuade Martinez to cease the activity,

and inform CFA Institute and regulatory authorities of the violation

Explanation

Standard I(A), Knowledge of the Law requires members who have knowledge of colleagues engaging inillegal activities to disassociate from the activity and urge their rms to persuade the individual to ceasesuch activity Reporting to regulatory authorities may be prudent in certain circumstances, but is notrequired Reporting to CFA Institute is not required

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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 automobilefrom 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 onthe company, Northwest's chief nancial o cer, Thomas Blake, invites Rosenberg to visit Northwest'sheadquarters and meet with management Blake o ers 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 Rosenbergestimates that it would require three days for him to make the visit using commercial travel If Rosenbergaccepts Blake's o er 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 not violated the Code and Standards.

C) has violated the Code and Standards unless he reimburses Northwest for the cost of the trip Explanation

Standard I(B) requires members to maintain independence and objectivity A visit by an analyst to an 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 iftransportation would not otherwise be available or would be ine cient

out-(Study Session 1, Module 3.1, LOS 3-I.(B))

What is the rule of thumb for members, CFA charterholders and candidates in the CFA program whenweighing the requirements of the CFA Institute Code and Standards and the requirements of local laws? Ifthe applicable laws are:

A) less strict, they should make a judgment call on which to follow, the Code and Standards or the

local laws and requirements

B) more strict, they must adhere to the applicable laws.

C) more strict, they must still follow the Code and Standards.

Explanation

The rule of thumb for members, CFA charterholders and candidates in the CFA program requires that theyadhere to the applicable laws if the applicable laws are more strict than the requirements of the Code andStandards If there are no laws or the laws are less strict, they must adhere to the Code and Standards.(Study Session 1, Module 3.1, LOS 3-I.(A))

Under Standard IV(A) Loyalty (to employers):

A) members are required to deliver a copy of the Code and Standards to their employer.

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B) it is recommended that members deliver a copy of the Code and Standards to their employer C) members are encouraged to leave an employer that does not adopt the Code and Standards as

part of its policies and procedures

Explanation

Standard IV(A) Loyalty recommends (not requires) that members and candidates provide their employerwith a copy of the Code and Standards and notify their employer that they are required to follow the Codeand Standards There is no recommendation to leave a rm simply because the Code and Standards havenot been adopted by the rm in its policies and procedures

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An analyst preparing a report needs to cite which of the following?

A) The individual who developed a chart from the same rm.

B) A recent quote from the Federal Reserve Chairman.

C) Estimates of betas provided by Standard & Poor's.

Explanation

Statistics provided by a recognized agency, such as Standard and Poor's, do not need to be cited Charts,quotes, and algorithms developed by the rm would need to be cited when they are used but the

individual(s) who developed the materials within the rm do not need to be cited

(Study Session 1, Module 3.1, LOS 3-I.(C))

Paul Thomas, CFA, is designing a new layout for research reports his rm writes and issues on individualstocks In his design, Thomas includes a stock chart on the rst page of each report He does not referencethat the charts are copied from an unrecognizable Finance web site Thomas has:

A) violated CFA Institute Standards of Professional Conduct because he did not make sure that the

information in these charts is accurate

B) not violated CFA Institute Standards of Professional Conduct because these charts are widely

available over the Internet

C) violated CFA Institute Standards of Professional Conduct because he did not state the source of

the charts

Explanation

Standard I(C) Misrepresentation Members should not copy or use material prepared by others withoutacknowledging and identifying the source of such material Using charts and graphs without stating theirsource is a violation of the Standard

(Study Session 1, Module 3.1, LOS 3-I.(C))

All of the following are violations of Standard I(D), Misconduct, EXCEPT:

A) conviction of a crime involving fraud.

B) conviction of a misdemeanor involving civil disobedience in support of one’s personal beliefs C) any conduct that undermines con dence that the CFA charter represents a level of achievement

based on merit and ethical conduct

RRReading 3 222::: G G Guidance for SSStandards III(((CCC) and III(((D D D)

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CFA2020L1QbanksAnswers ethics

G G Guidance for SSStandards IIIIII

G G Guidance for SSStandard IIIVVV