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

16 Penelope Gonzales is employed as a part-time analyst with Cooper Associates, an institutional asset manager. She is paid a flat fee to complete a study of the technology industry within a certain time span. She is also given unlimited access to Cooper‟s files and data. Gonzales can use the office facilities of Cooper during normal working hours. Towards the conclusion of her report, she is offered a job at Noblex, which is an IT firm. Gonzales submits a copy of her report along with recommendations to her new employer. Has Gonzales violated any Standard?

Refer to Standard IV(A) Loyalty.

17 Leila Salman works for a firm that advertises its past performance in various periodicals. Salman discovers that some accounts have left the firm recently and the returns of these accounts are not included in the promotional material. The omission has led to inflated performance returns. Salman is asked to use the same material while soliciting clients. By doing so, Salman will least likely be violating the CFA Institute Standard of:

Refer to Standards I(A) Knowledge of the Law, I(C) Misrepresentation and III (D) Performance Presentation.

18 Janice McDowell, CFA, is the chief investment officer of Zenith Investment Bank and wants to improve the diversification of one of its balanced funds in order to improve its returns. The investment policy statement of the fund mentions low risk investments in large-cap equities, government bonds of AA ratings and corporate bonds of high investment-grade ratings. However, a new IPO offering of a small pharmaceutical company with high growth potential, promises high returns since the issue is being offered at a discount. He immediately allocates some portion of the issue to his fund, without exceeding the limit on the equity exposure of this fund. McDowell has least likely violated the CFA Institute Standards of Professional Conduct relating to:

The Standards related to III(A) Loyalty, Prudence, and Care and III(C) Suitability are violated. The IPS mentions low risk securities, and describes the asset classes. Therefore investment in the pharma stock may not be suitable for this portfolio.

19 Alan Clay, candidate in the CFA Program, works for a large money manager. He recently applied for an analyst position at Rodham & Winston, an investment bank and was hired by them. Before leaving his current employer, he copies the firm‟s software that he developed, which he believes is his property. Clay feels that his software is one of a kind and will help him in his new job. Has Clay violated any Standard?

Clay violated Standard IV(A) Loyalty because he misappropriated her firm’s property without permission.

20 Avi Sharon is an analyst for Ariel Investment Management. He recommends the purchase of ABC company‟s stock after conducting due diligence on the company and has published a research report that is well accepted by the company‟s management. The business managers of ABC invite him for further discussions. They sponsor his air ticket and accommodations at an expensive hotel. Sharon, as per the policy of Ariel, discusses the travel and stay arrangements with his employer and is given permission. He further meets with the CFO in a dinner arranged by ABC and gives full disclosure to his employer upon his return. According to the Standards of Practice Handbook, has Sharon violated any CFA Institute Standard?

Sharon disclosed his travel and accommodation arrangements to his employer and had only accepted them after being given permission by his firm. His actions on return do not cause conflicts of interest between his company and ABC, because he makes a full disclosure of his dinner with the CFO to his employer.

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Additional Compensation Arrangements

Additional compensation or benefits that could create a conflict with an employer require written consent from all parties involved.

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Question:

An independent analyst recommends a stock based on a 5-minute pre-market talk show by a reputed analyst, on the TV that morning. The recommendation is least likely a…

A. Diligence and Reasonable Basis.
B. Suitability.
C. Fair Dealing.

Correct answer: C

Explanation:

There is no evidence of discrimination among clients. However, by recommending the stock without due diligence, the analyst has violated Standard V(A) Diligence and Reasonable Basis, and Standard…

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