Ethical And Professional Standards MCQ - Ethical And Professional Standards Section 2

51 Ashwin Kaushal, CFA develops a stock screening model using several parameters, while he is employed at Reliable Investments Inc. He documents the assumptions made regarding the model and the reasoning behind using parameters such as shareholding pattern, performance of the stock relative to index, and comparing it with peers. The success of the model lands him a job as the head of research at Trust Advisors. Kaushal takes all the documents related to the model developed by him. Did Kaushal violate any Standards?

The documents related to the screening model are a property of Reliable Investments and not that of Kaushal’s because they were developed using the resources of the company while employed there. Refer to Standard IV(A) Loyalty.

52 Eli Sorkin, is a research analyst covering the electronics industry. One of the companies he follows closely is Canc Inc. as they often come up with innovative products. When they release a wireless printer, he thinks it is a breakthrough and after thorough research, strongly recommends the stock. A fortnight after the report is released, Sorkin inherits $1million worth of Canc stock from a distant uncle. Sorkin is asked to write a follow-up report on Canc. What is the least appropriate action for Sorkin to take?

Sorkin must disclose his ownership of the Canc stock to his employer and in his follow-up report. But the best course of action to avoid any conflict of interest would be to ask his employer to assign the stock to another analyst. Refer to Standard VI(A) Disclosure of Conflicts.

53 Which of the following is most likely a misleading practice often encountered in investment firms?

Excluding portfolios with poor performance is known as survivorship bias – an often seen misleading practice.

54 Which of the following is least likely a misleading practice often encountered in investment firms?

Selecting top-performing portfolios is a misleading practice known as representative accounts. Presenting performance for a selected time period when the mandate outperformed the benchmark is also a misleading practice.

55 The objective of creating GIPS standards was:

C is incorrect because the objective is to communicate all relevant information of historical results to prospective clients.